<PAGE>
Prospectus
INVESTOR A SHARES
SEPTEMBER 30, 1995
AS SUPPLEMENTED ON
JANUARY 19, 1996
This Prospectus describes the NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND, NATIONS DISCIPLINED EQUITY FUND,
NATIONS INTERNATIONAL EQUITY FUND, NATIONS EMERGING
MARKETS FUND AND NATIONS PACIFIC GROWTH FUND (the
"Funds") of the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus describes
one class of shares of the Funds -- Investor A
Shares. The Nations Disciplined Equity Fund was
formerly called "Nations Special Equity Fund."
This Prospectus sets forth concisely the information
about the Funds that prospective purchasers of
Investor A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios") is
contained in separate Statements of Additional
Information (the "SAIs"), which have been filed with
the Securities and Exchange Commission (the "SEC")
and are available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAIs for Nations
Fund Trust, Nations Fund, Inc. and Nations
Portfolios, dated September 30, 1995, September 30,
1995 and July 1, 1995, respectively, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc. ("NBAI")
is the investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to certain of the Funds and
Nations Gartmore Investment Management ("Nations
Gartmore") is sub-investment adviser to the other
Funds. As used herein the "Adviser" shall mean NBAI,
TradeStreet and/or Nations Gartmore as the context
may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
GROWTH AND INCOME FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Balanced Assets Fund
GROWTH FUNDS:
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity
Fund
INTERNATIONAL FUNDS:
Nations International
Equity Fund
Nations Emerging Markets
Fund
Nations Pacific
Growth Fund
For purchase, redemption and
performance information
call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS
FUND
<PAGE>
About The Funds
Table Of Contents
Expenses Summary 3
Financial Highlights 4
Objectives 9
How Objectives Are Pursued 10
How Performance is Shown 17
How the Funds Are Managed 18
Organization and History 22
About Your Investment
How to Buy Shares 23
Shareholder Servicing and Distribution Plans 24
How to Redeem Shares 25
How to Exchange Shares 27
How the Funds Value Their Shares 27
How Dividends and Distributions are Made; Tax
Information 28
Appendix A -- Portfolio Securities 29
Appendix B -- Description of Ratings 35
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations
Nations Value Equity Balanced
Fund Income Fund Assets Fund
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price) None None None
Maximum Deferred Sales Charge (as a percentage of the
lower of the original purchase price or redemption
proceeds)1 None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .70% .75%
Rule 12b-1 Fees (including shareholder servicing fees) .25% .25% .25%
Other Expenses .17% .25% .20%
Total Operating Expenses 1.17% 1.20% 1.20%
<CAPTION>
Nations Nations
Capital Emerging
Growth Fund Growth Fund
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price) None None
Maximum Deferred Sales Charge (as a percentage of the
lower of the original purchase price or redemption
proceeds)1 None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .75%
Rule 12b-1 Fees (including shareholder servicing fees) .25% .25%
Other Expenses .17% .20%
Total Operating Expenses 1.17% 1.20%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations Nations
Disciplined International Emerging
Equity Fund Equity Fund Markets Fund
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price) None None None
Maximum Deferred Sales Charge (as a percentage of the lower of the
original purchase price or redemption proceeds)1 None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .90% 1.10%
Rule 12b-1 Fees (including shareholder servicing fees) .25% .25% .25%
Other Expenses .25% .20% .80%
Total Operating Expenses 1.25% 1.35% 2.15%
<CAPTION>
Nations
Pacific
Growth Fund
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price) None
Maximum Deferred Sales Charge (as a percentage of the lower of the
original purchase price or redemption proceeds)1 None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90%
Rule 12b-1 Fees (including shareholder servicing fees) .25%
Other Expenses .80%
Total Operating Expenses 1.95%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge applicable at the time of purchase. See "How to
Redeem Shares -- Contingent Deferred Sales Charge."
3
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations
Nations Equity Balanced
Value Fund Income Fund Assets Fund
1 Year $ 12 $ 12 $ 12
3 Years $ 37 $ 38 $ 38
5 Years $ 64 $ 66 $ 66
10 Years $ 142 $ 145 $ 145
<CAPTION>
Nations
Nations Emerging Growth
Capital Growth Fund Fund
1 Year $ 12 $ 12
3 Years $ 37 $ 38
5 Years $ 64 $ 66
10 Years $ 142 $ 145
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations Nations
Disciplined International Emerging Market
Equity Fund Equity Fund Fund
1 Year $ 13 $ 14 $ 22
3 Years $ 40 $ 43 $ 67
5 Years $ 69 $ 74 N/A
10 Years $ 151 $ 162 N/A
<CAPTION>
Nations
Pacific Growth Fund
1 Year $ 20
3 Years $ 61
5 Years N/A
10 Years N/A
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares of the Funds will bear either directly or indirectly. Except
for the Nations Emerging Markets Fund and Nations Pacific Growth Fund, which
fees and expenses are based on estimates, the figures in the above tables are
based on amounts incurred during each Fund's most recent fiscal year and have
been adjusted as necessary to reflect current service provider fees. There is no
assurance that any fee waivers and reimbursements will continue beyond the
current fiscal year. If fee waivers and/or reimbursements are discontinued, the
amounts contained in the "Examples" above may increase. For more complete
descriptions of the Funds' operating expenses, see "How the Funds Are Managed."
For a more complete description of the Rule 12b-1 and shareholder servicing fees
payable by the Funds, see "Shareholder Servicing and Distribution Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios. The reports of Price Waterhouse LLP for the
most recent fiscal years of Nations Fund Trust and Nations Fund, Inc. accompany
the financial statements for such periods and are incorporated by reference in
the SAIs, which are available upon request. For more information see
"Organization and History." Shareholders of the Funds will receive unaudited
semi-annual reports describing the Funds' investment operations and annual
financial statements audited by the Funds' independent accountant.
4
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS VALUE FUND
<S> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR
05/31/95 ENDED ENDED ENDED ENDED
INVESTOR A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92 11/30/91
Operating performance:
Net asset value, beginning of period $ 12.98 $ 13.72 $ 12.45 $ 11.16 $ 9.71
Net investment income 0.13 0.20 0.22 0.26 0.34
Net realized and unrealized gain/(loss) on
investments 2.11 (0.20) 1.35 1.59 1.47
Net increase/(decrease) in net assets
resulting from investment operations 2.24 0.00 1.57 1.85 1.81
Distributions:
Dividends from net investment income (0.12) (0.20) (0.21) (0.27) (0.36)
Distributions from net realized capital
gains (0.67) (0.54) (0.09) (0.29) --
Total distributions (0.79) (0.74) (0.30) (0.56) (0.36)
Net asset value, end of period $ 14.43 $ 12.98 $ 13.72 $ 12.45 $ 11.16
Total return++ 18.50% (0.17)% 12.80% 16.96%+++ 18.79%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 40,061 $ 35,445 $ 32,607 $ 24,536 $ 13,514
Ratio of operating expenses to average net
assets 1.16%+ 1.18% 1.21% 1.06% 0.53%
Ratio of net investment income to average
net assets 1.92%+ 1.60% 1.73% 2.15% 3.33%
Portfolio turnover rate 36% 75% 64% 60% 51%
Ratio of operating expenses to average net
assets before fee waivers and/or expense
reimbursements 1.16%+ 1.18% 1.22% 1.15% 0.99%
Net investment income per share before fee
waivers and/or expense reimbursements $ 0.13 $ 0.20 $ 0.22 $ 0.25 $ 0.30
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/90*
Operating performance:
Net asset value, beginning of period $ 10.04
Net investment income 0.35
Net realized and unrealized gain/(loss) on
investments (0.36)
Net increase/(decrease) in net assets
resulting from investment operations (0.01)
Distributions:
Dividends from net investment income (0.32)
Distributions from net realized capital
gains --
Total distributions (0.32)
Net asset value, end of period $ 9.71
Total return++ (0.16)%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 7,020
Ratio of operating expenses to average net
assets 0.21%+
Ratio of net investment income to average
net assets 4.19%+
Portfolio turnover rate 24%
Ratio of operating expenses to average net
assets before fee waivers and/or expense
reimbursements 1.11% +
Net investment income per share before fee
waivers and/or expense reimbursements $ 0.26
</TABLE>
* The Nations Value Fund Investor A Shares commenced operations on December 6,
1989.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 05/31/95 05/31/94 05/31/93 05/31/92
Operating performance:
Net asset value, beginning of period $ 11.41 $ 12.02 $ 11.40 $ 10.19
Net investment income 0.40 0.37 0.34 0.29
Net realized and unrealized gain on investments 1.10 0.21 1.05 1.27
Net increase in net assets resulting from investment
operations 1.50 0.58 1.39 1.56
Distributions:
Dividends from net investment income (0.40) (0.38) (0.32) (0.28)
Distributions from net realized capital gains (0.73) (0.81) (0.45) (0.07)
Total distributions (1.13) (1.19) (0.77) (0.35)
Net asset value, end of period $ 11.78 $ 11.41 $ 12.02 $ 11.40
Total return++ 14.53% 4.74% 12.78% 15.59%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 35,538 $ 33,691 $ 32,760 $ 3,418
Ratio of operating expenses to average net assets 1.17% 1.19% 1.17% 1.35%
Ratio of net investment income to average net assets 3.50% 3.16% 3.12% 2.90%
Portfolio turnover rate 158% 116% 55% 84%
Ratio of operating expenses to average net assets without
waivers and reimbursements 1.18%+ 1.20% 1.29% 2.46%
Net investment income per share without waivers and
reimbursements $ 0.40 $ 0.37 $ 0.33 $ 0.18
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/91*
Operating performance:
Net asset value, beginning of period $ 10.04
Net investment income 0.05
Net realized and unrealized gain on investments 0.10
Net increase in net assets resulting from investment
operations 0.15
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total distributions 0.00
Net asset value, end of period $ 10.19
Total return++ 1.49%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 497
Ratio of operating expenses to average net assets 1.37%+
Ratio of net investment income to average net assets 3.40%+
Portfolio turnover rate 9%
Ratio of operating expenses to average net assets without
waivers and reimbursements 15.09%+
Net investment income per share without waivers and
reimbursements $ (1.30)
</TABLE>
* The Nations Equity Income Fund Investor A Shares commenced operations on
April 16, 1991.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
5
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR A SHARES (UNAUDITED) 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.42 $ 10.86 $ 10.24
Net investment income 0.15 0.22 0.29
Net realized and unrealized gain/(loss) on investments 1.14 (0.44) 0.62
Net increase/(decrease) in net assets resulting from investment
operations 1.29 (0.22) 0.91
Distributions:
Dividends from net investment income (0.13) (0.22) (0.29)
Distributions from net realized gains (0.02) -- --
Total distributions (0.15) (0.22) (0.29)
Net asset value, end of period $ 11.56 $ 10.42 $ 10.86
Total return++ 12.47% (2.02)% 8.93%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,006 $ 4,881 $ 5,191
Ratio of operating expenses to average net assets 1.24%+ 1.23% 1.15%
Ratio of net investment income to average net assets 2.86%+ 2.06% 2.57%
Portfolio turnover rate 101% 156% 50%
Ratio of operating expenses to average net assets before fee waivers 1.24%+ 1.24% 1.22%
Net investment income per share before fee waivers $ 0.15 $ 0.22 $ 0.28
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.01
Net realized and unrealized gain/(loss) on investments 0.23##
Net increase/(decrease) in net assets resulting from investment
operations 0.24
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions --
Net asset value, end of period $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 547
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 3.60%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net assets before fee waivers 1.30%+
Net investment income per share before fee waivers $ 0.01
</TABLE>
* The Nations Balanced Assets Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
## The amounts shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR A SHARES (UNAUDITED) 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 11.21 $ 11.06 $ 10.67
Net investment income/(loss) 0.04 0.07 0.07
Net realized and unrealized gain on investments 1.38 0.14 0.41
Net increase in net assets resulting from investment
operations 1.42 0.21 0.48
Distributions:
Dividends from net investment income (0.04) (0.06) (0.08)
Distributions from net realized gains (0.26) (0.00)(a) (0.01)
Total distributions (0.30) (0.06) (0.09)
Net asset value, end of period $ 12.33 $ 11.21 $ 11.06
Total return++ 13.07% 1.93% 4.56%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,369 $ 11,038 $ 11,182
Ratio of operating expenses to average net assets 1.16%+ 1.15% 1.05%
Ratio of net investment income/(loss) to average net
assets 0.78%+ 0.60% 0.59%
Portfolio turnover rate 43% 56% 81%
Ratio of operating expenses to average net assets before
fee waivers 1.22%+ 1.16% 1.14%
Net investment income/(loss) per share before fee waivers $ 0.04 $ 0.07 $ 0.06
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.01
Net realized and unrealized gain on investments 0.66##
Net increase in net assets resulting from investment
operations 0.67
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions --
Net asset value, end of period $ 10.67
Total return++ 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,225
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income/(loss) to average net
assets 1.08%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets before
fee waivers 1.30%+
Net investment income/(loss) per share before fee waivers $ 0.00(a)
</TABLE>
* The Nations Capital Growth Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Value represents less than $0.01 per share.
6
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
INVESTOR A SHARES (UNAUDITED) 11/30/94#
Operating performance:
Net asset value, beginning of period $ 11.35 $ 10.85
Net investment income/(loss) 0.00(a) (0.06)
Net realized and unrealized gain on investments 0.96 0.70
Net increase in net assets resulting from investment operations 0.96 0.64
Distributions:
Distributions from net realized gains (0.40) (0.14)
Total distributions (0.40) (0.14)
Net asset value, end of period $ 11.91 $ 11.35
Total return++ 8.98% 5.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,212 $ 3,234
Ratio of operating expenses to average net assets 1.22%+ 1.26%
Ratio of net investment income/(loss) to average net assets (0.15)%+ (0.54)%
Portfolio turnover rate 69% 129%
Ratio of operating expenses to average net assets before fee waivers 1.23%+ 1.26%
Net investment income/(loss) per share before fee waivers 0.00(a) $ (0.06)
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.87
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 1.02
Net increase in net assets resulting from investment operations 0.99
Distributions:
Distributions from net realized gains (0.01)
Total distributions (0.01)
Net asset value, end of period $ 10.85
Total return++ 9.99%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,095
Ratio of operating expenses to average net assets 1.05%+
Ratio of net investment income/(loss) to average net assets (0.40)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets before fee waivers 1.26%+
Net investment income/(loss) per share before fee waivers $ (0.04)
</TABLE>
* The Nations Emerging Growth Fund Investor A Shares commenced operations on
December 10, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method.
(a) Value represents less than $0.01 per share.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED PERIOD
05/31/95 ENDED
INVESTOR A SHARES (UNAUDITED)# 11/30/94*
Operating performance:
Net asset value, beginning of period $ 13.06 $ 13.30
Net investment income/(loss) 0.08 0.00(a)
Net realized and unrealized gain/(loss) on investments 1.35 (0.23)##
Net increase/(decrease) in net assets resulting from investment operations 1.43 (0.23)
Distributions:
Dividends from net investment income (0.01) (0.01)
Distributions from net realized gains -- --
Return of capital -- (0.00)(a)
Total distributions: (0.01) (0.01)
Net asset value, end of period $ 14.48 $ 13.06
Total return++ 10.95% (1.71)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 502 $ 252
Ratio of operating expenses to average net assets 1.04%+ 1.23%+
Ratio of net investment income/(loss) to average net assets 1.27%+ 0.02%+
Portfolio turnover rate 98% 177%
Ratio of operating expenses to average net assets before fee waivers 1.75%+ 1.66%+
Net investment income/(loss) per share before fee waivers $ 0.04 $ (0.07)
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 04/29/94*
Operating performance:
Net asset value, beginning of period $ 14.94
Net investment income/(loss) (0.04)
Net realized and unrealized gain/(loss) on investments 1.35
Net increase/(decrease) in net assets resulting from investment operations 1.31
Distributions:
Dividends from net investment income --
Distributions from net realized gains (2.95)
Return of capital --
Total distributions: (2.95)
Net asset value, end of period $ 13.30
Total return++ 8.31%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 165
Ratio of operating expenses to average net assets 1.30%+
Ratio of net investment income/(loss) to average net assets (0.62)%+
Portfolio turnover rate 475%
Ratio of operating expenses to average net assets before fee waivers 1.74%+
Net investment income/(loss) per share before fee waivers $ (0.07)
</TABLE>
* The period for the Nations Disciplined Equity Investor A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class B Shares, which were reorganized into Investor A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class B Shares commenced operations on July 26, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Value represents less than $0.01 per share.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR YEAR
ENDED ENDED
INVESTOR A SHARES 05/31/95# 05/31/94#
Operating performance:
Net asset value, beginning of period $ 12.00 $ 10.56
Net investment income/(loss) 0.11 0.06
Net realized and unrealized gain/(loss) on investments (0.20) 1.44
Net increase/(decrease) in net assets resulting from investment operations (0.09) 1.50
Distributions:
Dividends from net investment income (0.02) (0.04)
Distributions from net realized capital gains (0.12) (0.02)
Distributions in excess of net realized capital gains (0.10) --
Total distributions (0.24) (0.06)
Net asset value, end of period $ 11.67 $ 12.00
Total return++ (0.69)% 14.00%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,877 $ 3,219
Ratio of operating expenses to average net assets 1.28% 1.42%
Ratio of net investment income/(loss) to average net assets 0.92% 0.50%
Portfolio turnover rate 92% 39%
Ratio of operating expenses to average net assets without waivers and reimbursements 1.29% 1.43%
Net investment income/(loss) per share without waivers and reimbursements $ 0.11 $ 0.05
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/93*#
Operating performance:
Net asset value, beginning of period $ 10.38
Net investment income/(loss) 0.07
Net realized and unrealized gain/(loss) on investments 0.21
Net increase/(decrease) in net assets resulting from investment operations 0.28
Distributions:
Dividends from net investment income (0.08)
Distributions from net realized capital gains (0.02)
Distributions in excess of net realized capital gains --
Total distributions (0.10)
Net asset value, end of period $ 10.56
Total return++ 2.91%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 839
Ratio of operating expenses to average net assets 1.55%+
Ratio of net investment income/(loss) to average net assets 0.78%+
Portfolio turnover rate 41%
Ratio of operating expenses to average net assets without waivers and reimbursements 1.62%+
Net investment income/(loss) per share without waivers and reimbursements $ 0.07
</TABLE>
* The Nations International Equity Fund Investor A Shares commenced operations
on June 3, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
<S> <C>
PERIOD
ENDED
INVESTOR A SHARES 09/30/95*#
Net asset value, beginning of period $ 10.00
Net investment income/(loss)## (0.01)
Net realized and unrealized gain/(loss) on investments (0.12)
Net increase/(decrease) in net assets resulting from investment operations (0.13)
Distributions:
Dividends from net investment income N/A
Total Distributions N/A
Net asset value, end of period $ 9.87
Total return++ (1.30)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 57
Ratio of operating expenses to average net assets 2.15%+
Ratio of net investment income/(loss) to average net assets (0.28)%
Portfolio turnover rate 10%
</TABLE>
* The Fund's Investor A Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
8
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 09/30/95*#
Net asset value, beginning of period $ 10.00
Net investment income/(loss)## (0.00)**
Net realized and unrealized gain/(loss) on investments (0.30)
Net increase/(decrease) in net assets resulting from investment operations (0.30)
Distributions:
Dividends from net investment income N/A
Total Distributions N/A
Net asset value, end of period $ 9.70
Total return++ (3.00)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $161
Ratio of operating expenses to average net assets 1.95%+
Ratio of net investment income/(loss) to average net assets (0.10)%+
Portfolio turnover rate 3%
</TABLE>
* The Fund's Investor A Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
Objectives
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Nations Value Fund's investment objective is to seek
long-term capital growth with income a secondary consideration. The Fund invests
under normal market conditions at least 65% of its total assets in common
stocks.
NATIONS EQUITY INCOME FUND: The Nations Equity Income Fund seeks to provide high
current income primarily through investments in equity securities (including
convertible securities) having a relatively high current yield. Secondarily,
equity securities will be selected which the Adviser believes have favorable
prospects for increasing dividend income and/or capital appreciation.
NATIONS BALANCED ASSETS FUND: The Nations Balanced Assets Fund's investment
objective is total investment return through a combination of growth of capital
and current income consistent with the preservation of capital. In seeking its
objective, the Fund will use a disciplined approach of allocating assets
primarily among three major asset groups: common stocks, fixed income securities
and cash equivalents.
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The Nations Capital Growth Fund's investment
objective is to seek long-term capital appreciation by investing primarily in
common stocks issued by companies that, in the judgment of the Adviser, have
above-average potential for capital appreciation. Over time, total return is
likely to consist primarily of capital appreciation and secondarily of dividend
and interest income.
NATIONS EMERGING GROWTH FUND: The Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in equity securities of
high quality emerging growth companies that are expected to have earnings growth
rates superior to most publicly traded companies.
NATIONS DISCIPLINED EQUITY FUND: The Nations Disciplined Equity Fund's
investment objective is to seek long-term capital appreciation. The Fund seeks
to achieve its investment objective by investing primarily in the common stocks
of companies that are considered by the Adviser to have the potential for
significant increases in earnings per share.
INTERNATIONAL FUNDS:
NATIONS INTERNATIONAL EQUITY FUND: The Nations International Equity Fund's
investment objective is to seek long-term growth of capital primarily by
investing in marketable equity securities of established, non-United States
issuers.
NATIONS EMERGING MARKETS FUND: The Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth. It seeks to achieve this
9
<PAGE>
objective by investing primarily in securities of companies that conduct their
principal business activities in emerging markets. The Fund invests primarily in
companies located in countries considered to have potential for rapid economic
growth and that have a relatively low gross national product per capita compared
to the world's major economies.
NATIONS PACIFIC GROWTH FUND: The Nations Pacific Growth Fund's investment
objective is to seek long-term capital growth, with income a secondary
consideration. It seeks to achieve this objective by investing primarily in
securities of issuers that conduct their principal business activities in the
Pacific Basin and the Far East (excluding Japan).
How Objectives Are Pursued
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a universe of
approximately 800 stocks monitored by the Adviser. The Adviser closely monitors
these companies, rating them for quality and projecting their future earnings
and dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $300 million or more and have average
monthly trading volume of at least $10 million. These requirements are generally
considered by the Adviser to be adequate to support normal purchase and sale
activity without materially affecting prevailing market prices of the issuer's
shares. The Adviser also analyzes key financial ratios that measure the growth,
profitability and leverage of such issuers that it believes will help maintain a
portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies with lower
price/earnings ratios are more likely to provide better opportunities for
capital appreciation. This "value" approach generally produces a dividend yield
greater than the market average. The Adviser will attempt to temper risk by
broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks. No industry will represent 25% or more of the Fund's
portfolio at the time of purchase.
In addition to common stocks, the Fund also may invest in preferred stocks,
securities convertible into common stock, and other types of securities having
common stock characteristics (such as rights and warrants to purchase equity
securities). Although the Fund invests primarily in publicly-traded common
stocks of companies incorporated in the United States, the Fund may invest in
securities of foreign issuers. See "Appendix A -- Foreign Securities." The Fund
also may hold up to 20% of its total assets in obligations issued or guaranteed
as to payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade bonds
and other debt securities of domestic companies. Obligations with the lowest
investment grade rating (e.g. rated "BBB" by Standard & Poor's Corporation
("S&P") or "Baa" by Moody's Investors Service, Inc. ("Moody's")) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For more information concerning these instruments and the
Fund's investment practices, see "Appendix A."
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, the Adviser believes that, over time, dividend income
can account for a significant component of the total return from equity
investments. Over time, reinvested dividend income has accounted for
approximately one-half of the total return of the Standard & Poor's 500 Stock
Index ("S&P 500 Index"), a broad-based and widely used index of common stock
prices. Second, dividends are normally a more stable and predictable source of
return than capital appreciation. While the price of a company's stock generally
increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Finally, the Adviser
believes that stocks which distribute a high level of current income tend to
have less price volatility than those which pay below average dividends.
10
<PAGE>
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average current dividend yields relative to the S&P 500 Index;
(Bullet) five years of stable or increasing dividends;
(Bullet) established operating histories; and
(Bullet) strong balance sheets and other favorable financial characteristics.
To achieve its objectives, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (i.e., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate, government, and municipal bonds of various
maturities), preferred stocks and warrants. The Fund may invest in debt
securities that are considered investment grade (e.g. securities rated in one of
the top four investment categories by S&P or Moody's, or if not rated, are of
equivalent investment quality as determined by the Adviser). Obligations rated
in the lowest of the top four investment grade rating categories (e.g., rated
"BBB" by S&P) have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (e.g. rated "BB" by S&P), or if not rated,
are of equivalent investment quality as determined by the Adviser.
Non-investment-grade debt securities are sometimes referred to as "high yield
bonds" or "junk bonds," tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest 10% or more
of its total assets in debt obligations of foreign issuers and stocks of foreign
corporations. The Fund will treat foreign securities as illiquid unless there is
an active and substantial secondary market for such securities.
The Fund may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant. For additional information concerning these instruments and the Fund's
investment practices, see "Appendix A."
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset groups in which the Fund
principally invests: common stocks, fixed income securities and cash
equivalents. In assessing relative value and expected returns, the Adviser will
evaluate current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. In general, the
Adviser believes that common stocks typically offer the best opportunity for
long-term capital appreciation, and that high quality companies with
above-average earnings growth and return on equity offer the best growth
prospects among common stocks.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. The stocks are primarily those of seasoned, financially strong U.S.
companies with records of above-average earnings growth and above-average
capital growth potential. No industry will represent 25% or more of the Fund's
portfolio at the time of purchase.
The Fund also will invest in government, corporate and mortgage-backed
securities (see "Appendix A -- Asset-Backed Securities"). Most obligations
acquired by the Fund will be issued by companies or governmental entities
located within the United States. Debt obligations acquired by the Fund will be
rated investment grade at the time of purchase by S&P, Moody's, Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited
or its affiliate IBCA Inc.
(collectively "IBCA"), or Thomson BankWatch, Inc. ("BankWatch") or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
Obligations with the lowest investment grade rating (e.g. rated "BBB" by S&P or
"Baa" by Moody's) have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be
11
<PAGE>
acquired by the Fund if they are determined by the Adviser to be of comparable
quality at the time of purchase to rated obligations that may be acquired. Under
normal circumstances, at least 25% of the total value of the Fund's assets will
be invested in fixed income securities.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in debt obligations of foreign issuers
and stocks of foreign corporations. See "Appendix A -- Foreign Securities."
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For more information concerning these instruments, see
"Appendix A."
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above-average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
companies that comprise the equity markets:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
In seeking capital growth, the Fund looks for companies whose securities appear
to present a favorable relationship between market price and opportunity. These
may include securities of companies whose fundamentals or products may be of
only average promise. Market misconceptions, temporary bad news and other
factors may cause a security to be out of favor in the stock market and to trade
at a price below its potential value. These undervalued securities can provide
the opportunity for above-average market performance. Through intensive
research, visits to many companies each year, and efficient response to changing
market conditions, the Adviser seeks to make the most of the Fund's flexible
charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities."
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For additional information concerning these instruments and
the Fund's investment practices, see "Appendix A."
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above-average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree
12
<PAGE>
of governmental regulation or deregulation, management and other factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant. For additional information concerning
these instruments and the Fund's investment practices, see "Appendix A."
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Fund seeks to provide investors with long-term
capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options, U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by a nationally recognized statistical
rating organization or, if not rated, are of equivalent quality as determined by
the Adviser). Obligations rated in the lowest of the top four investment grade
rating categories have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations.
The Fund may invest in foreign securities. Investments in foreign securities
involve risks that are different in some respects from investments in securities
of U.S. issuers, such as the risk of fluctuations in the value of the currencies
in which they are denominated. See "Appendix A -- Foreign Securities." For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments and
money market instruments.
INTERNATIONAL FUNDS:
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in countries located in the
Far East and Western Europe as well as Australia, Canada, and other areas
(including developing countries). Under unusual circumstances, however, the Fund
may invest substantially all of its assets in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that the
Adviser believes have potential for growth of capital. The Fund also may invest
up to 35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds,
13
<PAGE>
notes, other debt securities of foreign issuers, securities of foreign
investment funds or trusts and real estate investment trust securities. For
additional information concerning the Fund's investment practices, see "Appendix
A."
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
securities of companies that conduct their principal business activities in
emerging markets. A company will be considered to conduct its principal business
activities in a country, market or region if it derives a significant portion
(at least 50 percent) of its revenues or profits from goods produced or sold,
investments made, or services performed in such country, market or region or has
at least 50 percent of its assets situated in such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's, S&P or, if unrated, determined by the
Adviser to be comparable in quality to instruments so rated. Obligations with
the lowest investment grade rating (e.g., rated "Baa" by Moody's or "BBB" by
S&P) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of those ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's instruments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations International Equity Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund," below. When allocating
investments among individual countries, the Adviser will consider various
criteria, such as the relative economic growth potential of the various
economies and securities markets, expected levels of inflation, government
policies influencing business conditions and the outlook for currency
relationships.
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. The Adviser seeks to identify and invest in those
emerging markets that have a relatively low gross national product per capita,
compared to the world's major economies, and which exhibit potential for rapid
economic growth. The Adviser believes that investment in equity securities of
emerging market issuers offers significant potential for long-term capital
appreciation.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers that conduct their principal
business activities in the regions known as the Pacific Basin and the Far East.
The Pacific Basin and the Far East include Australia, Hong Kong, Indonesia,
South Korea, Malaysia, New Zealand, Pakistan, the People's Republic of China,
the Philippines, Singapore, Sri Lanka, Taiwan and Thailand and may include other
markets that develop in the region. The Fund will not invest in securities of
issuers that conduct their principal business activities in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (e.g., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund
14
<PAGE>
may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in issuers that conduct their
principal business activities in a single country, events occurring in such
country are more likely to affect the Fund's investments. For additional
information concerning risk, see "Special Risk Considerations Relevant to an
Investment in the Nations International Equity Fund, Nations Emerging Markets
Fund and Nations Pacific Growth Fund," below. When allocating investments among
individual countries, the Adviser will consider various criteria, such as the
relative economic growth potential of the various economies and securities
markets, expected levels of inflation, government policies influencing business
conditions and the outlook for currency relationships. The Fund may invest in
ADRs, GDRs, EDRs and ADSs.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ( the "CFTC") and options thereon for
market exposure risk management. The Nations Balanced Assets Fund also may
engage in dollar roll transactions. Each Fund may lend its portfolio securities
to qualified institutional investors. Each Fund also may invest in restricted,
private placement and other illiquid securities and securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. Each Fund (except the Nations Balanced Assets Fund) may invest in real
estate investment trust securities.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NATIONS
INTERNATIONAL EQUITY FUND, NATIONS EMERGING MARKETS FUND AND NATIONS PACIFIC
GROWTH FUND: Investors should understand and consider carefully the special
risks involved in foreign investing. In addition, certain Funds present unique
risks that investors should be aware of.
Investors in the Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in the Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties. For
example, the return of Hong Kong to Chinese dominion may have a profound effect
on both Hong Kong and China, and could affect the entire Pacific Basin and the
Far East.
The same is true, but even more so, for the emerging market countries in which
the Nations Emerging Markets Fund will invest. Although the Fund believes that
its investments present the possibility for significant growth over the
long-term, they also entail significant risks. Many investments in emerging
markets can be considered speculative, and their prices can be much more
volatile than in the more developed nations of the world. This difference
reflects the greater uncertainties of investing in less established markets and
economies.
The financial markets of emerging market countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
Moreover, for each of the Funds, investing in securities denominated in foreign
currencies and utilization of forward foreign currency exchange contracts and
other currency hedging techniques involve certain considerations comprising both
opportunities and risks not typically associated with investing in U.S.
dollar-denominated securities. Additionally, changes in the value of foreign
currencies can significantly affect a Fund's share price. General economic and
political factors in the various world markets also can impact a Fund's share
price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates;
15
<PAGE>
(3) costs of converting foreign currency into U.S. dollars and U.S. dollars into
foreign currencies; (4) greater price volatility and less liquidity; (5)
settlement practices, including delays, which may differ from those customary in
United States markets; (6) exposure to political and economic risks, including
the risk of nationalization, expropriation of assets and war; (7) possible
imposition of foreign taxes and exchange control and currency restrictions; (8)
lack of uniform accounting, auditing and financial reporting standards; (9) less
governmental supervision of securities markets, brokers and issuers of
securities; (10) less financial information available to investors; and (11)
difficulty in enforcing legal rights outside the United States. These risks
often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund and Nations Pacific Growth Fund.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, annual
portfolio turnover rates will not exceed 75% for Nations Emerging Markets Fund
and Nations Pacific Growth Fund. For other Funds' portfolio turnover rate, see
"Financial Highlights." If a Fund's annual portfolio turnover rate exceeds 100%,
it may result in higher costs to the Fund, including brokerage commissions or
dealer markups and other transaction costs on the sale of securities and the
reinvestment in other securities. Portfolio turnover also can generate
short-term capital gains tax consequences.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods. The value
of a Fund's investments in debt securities will tend to decrease when interest
rates rise and increase when interest rates fall. In general, longer-term debt
instruments tend to fluctuate in value more than shorter-term debt instruments
in response to interest rate movements. In addition, debt securities that are
not backed by the United States Government are subject to credit risk, which is
the risk that the issuer may not be able to pay principal and/or interest when
due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the Fund's investment objective and do not unduly increase the
Fund's exposure to market or other risks. For additional risk information
regarding the Funds' investments in particular instruments, see "Appendix
A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objec-
16
<PAGE>
tive or policies of a Fund change, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current position and
needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a
class of shares of the Funds may be calculated on an average annual total return
basis or an aggregate total return basis. Average annual total return refers to
the average annual compounded rates of return on a class of shares over one-,
five-, and ten-year periods or the life of the Fund (as stated in the
advertisement) that would equate an initial amount invested at the beginning of
a stated period to the ending redeemable value of the investment (reflecting the
deduction of any applicable contingent deferred sales charge ("CDSC")), assuming
the reinvestment of all dividend and capital gains distributions. Aggregate
total return reflects the total percentage change in the value of the investment
over the measuring period, again assuming the reinvestment of all dividends and
capital gains distributions. Total return may also be presented for other
periods or may not reflect a deduction of any applicable CDSC.
Set forth below is certain performance data for the Pacific Ex-Japan Composite
and the Emerging Markets Composite, reflecting the performance of private
accounts, including U.K. authorized unit trusts, managed by the Gartmore Group,
as defined below. The performance data for these accounts is deemed relevant
because the Pacific Ex-Japan Composite and the Emerging Markets Composite have
investment objectives, policies and restrictions that are substantially similar
to those of the Nations Pacific Growth Fund and Nations Emerging Markets Fund,
respectively. There is substantial continuity between the portfolio managers of
the Gartmore Group who were responsible for managing those accounts and the
portfolio managers of Nations Gartmore who are responsible for managing the
Nations Pacific Growth Fund and Nations Emerging Markets Fund, respectively.
THIS PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NOT NECESSARILY
INDICATIVE OF THE FUTURE PERFORMANCE OF NBAI, NATIONS GARTMORE OR THE FUNDS.
<TABLE>
<CAPTION>
<S> <C>
Average Annual Total
Return for the Periods
PACIFIC EX-JAPAN Indicated through
COMPOSITE March 31, 1995*
<CAPTION>
<S> <C>
One Year 4.90%
Three Year 24.50%
Five Year 15.70%
Since Inception on January 1, 1988 22.20%
</TABLE>
Annual Total Returns*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1988 1989 1990 1991 1992 1993 1994
10.70% 56.10% (1.50)% 20.30% 21.10% 106.90% (15.10)%
</TABLE>
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1% per annum until September 30, 1988, and 1.5%
per annum thereafter.
<TABLE>
<CAPTION>
<S> <C>
Average Annual Total
Return for the Periods
EMERGING MARKETS Indicated through
COMPOSITE March 31, 1995*
One Year (24.40)%
Since Inception on January 1, 1993 9.60%
</TABLE>
Annual Total Returns*
<TABLE>
<CAPTION>
<S> <C>
1993 1994
73.90% (20.20)%
</TABLE>
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1.5% per annum.
Set forth below is the average annual total return and the annual total return
for the Nations International Equity Fund for the periods ending March 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Average Annual Total
Return for the Periods
NATIONS INTERNATIONAL EQUITY Indicated through
FUND -- INVESTOR A SHARES March 31, 1995
One Year (1.46%)
Since Inception on June 3, 1992 4.39%
</TABLE>
17
<PAGE>
Annual Total Returns
<TABLE>
<CAPTION>
<S> <C>
1993 1994
26.90% 2.21%
</TABLE>
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolio and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Funds offer Trust A, Trust B, Investor C
and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in the Funds will not be included in calculations of
total return or yield. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or your selling agent.
How The Funds Are Managed
The business and affairs of Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios are managed under the direction of their Board of Trustees and Boards
of Directors, respectively. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund, Inc.'s and Nations Portfolios' SAIs contain the names of and
general background information concerning each Director of Nations Fund, Inc.
and Nations Portfolios.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Nations Gartmore serves as sub-investment adviser. TradeStreet is a wholly owned
subsidiary of NationsBank, which in turn is a wholly owned banking subsidiary of
NationsBank Corporation, a bank holding company organized as a North Carolina
corporation.
TradeStreet provides trust and banking services to individuals, corporations,
and institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking.
Nations Gartmore Investment Management, with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to Nations International Equity Fund, Nations Emerging Markets Fund and
Nations Pacific Growth Fund pursuant to a sub-advisory agreement. Nations
Gartmore is a joint venture structured as a general partnership between NB
Partner Corp., a wholly owned subsidiary of NationsBank, and Gartmore U.S.
Limited, a wholly owned subsidiary of Gartmore plc, a UK company listed on the
London Stock Exchange which is the holding company for a leading UK-based
international fund management group of companies (the "Gartmore Group"). Banque
Indosuez S.A., a leading French bank, owns 75% of the equity of Gartmore plc.
The initial asset management company in the Gartmore Group was founded in 1969
and the Gartmore Group currently provides investment management and advisory
services to pension funds, unit trusts, offshore funds and investment funds. As
of December 31, 1994, the Gartmore Group had over $30 billion in assets under
management.
18
<PAGE>
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Funds, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank or Banque Indosuez S.A. has a
lending relationship. For the services provided and expenses assumed pursuant to
various Advisory Agreements, NBAI is entitled to receive advisory fees, computed
daily and paid monthly, at the annual rates of: 0.75% of the average daily net
assets of each of Nations Capital Growth Fund, Nations Emerging Growth Fund,
Nations Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets
Fund; and 0.75% of the first $100 million of the Nations Equity Income Fund's
average daily net assets, plus 0.70% of the Fund's average daily net assets in
excess of $100 million and up to $250 million, plus 0.60% of the Fund's average
daily net assets in excess of $250 million; and 0.90% of each of Nations
International Equity Fund's and Nations Pacific Growth Fund's average daily net
assets; and 1.10% of Nations Emerging Markets Fund's average daily net assets.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.25% of Nations Value Fund's, Nations Balanced
Assets Fund's, Nations Capital Growth Fund's, Nations Emerging Growth Fund's and
Nations Disciplined Equity Fund's average daily net assets; 0.20% of the Nations
Equity Income Fund's average daily net assets; 0.70% of the Nations
International Equity Fund's and the Nations Pacific Growth Fund's average daily
net assets; and 0.85% of the Nations Emerging Markets Fund's average daily net
assets.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
Nations Gartmore is entitled to receive from NBAI sub-advisory fees, computed
daily and paid monthly, at the annual rate of 0.70% of Nations International
Equity Fund's average daily net assets; 0.85% of Nations Emerging Markets Fund's
average daily net assets and 0.70% of Pacific Growth Fund's average daily net
assets. Although the advisory fees for the Funds are higher than the advisory
fees paid by most other mutual funds, Nations Fund believes that the fees are
comparable to the advisory fees paid by many other funds with similar investment
objectives and policies.
From time to time, NBAI (and/or TradeStreet and/or Nations Gartmore) may waive
(either voluntarily or pursuant to applicable state limitations) advisory fees
payable by a Fund. For the fiscal year ended November 30, 1994, after waivers,
Nations Fund Trust paid NationsBank under a prior Advisory Agreement advisory
fees at the indicated rate of the following Funds' average daily net assets:
Nations Capital Growth Fund -- 0.75%; Nations Emerging Growth Fund -- 0.75%;
Nations Disciplined Equity Fund -- 0.05%; Nations Value Fund -- 0.74%; and
Nations Balanced Assets Fund -- 0.75%. For the fiscal year ended November 30,
1994, after waivers, Nations Disciplined Equity Fund paid its prior sub-adviser
fees at the rate of 0.21% of the Fund's average daily net assets. For the fiscal
year ended May 31, 1995, after waivers, Nations Fund, Inc. paid NationsBank
under a prior Advisory Agreement advisory fees at the rate of 0.40% the Nations
International Equity Fund's average daily net assets and 0.68% of the Nations
Equity Income Fund's average daily net assets. For the fiscal year ended May 31,
1995, after waivers, Nations International Equity Fund paid its prior
sub-adviser fees at the rate of 0.38% of the Fund's average daily net assets.
Philip Ehrmann is the principal portfolio manager of the Nations Emerging
Markets Fund and is the head of the Nations Gartmore Emerging Markets Team.
Prior to joining Nations Gartmore, Mr. Ehrmann was the Director of Emerging
Markets for Invesco in London. Mr. Ehrmann has over 15 years of investment
management experience.
Sharon M. Herrmann has been the principal portfolio manager for Nations Value
Fund since its inception in 1989. Ms. Herrmann is a Senior Vice President and
Director of the Value Equity Style Group and personally manages the core value
equity funds of NationsBank's trust investment division. Ms. Herrmann has over
20 years investment experience with NationsBank. Ms. Herrmann earned the
Chartered Financial Analyst designation in 1985 and is a member of the
Association for Investment Management and Research.
Philip J. Sanders, a member of the Value Equity Group, has been the principal
portfolio manager for the Nations Capital Growth Fund since May of 1995. Mr.
Sanders is also the Vice President and Fund Manager of the Nations Balanced
Target Maturity Fund. Mr. Sanders joined NationsBank in 1988 and prior to
joining NationsBank he was employed at Duke Power Company for six years where he
supervised and performed various types of detailed financial analysis. He holds
a B.A. in Economics from the University of Michigan and an M.B.A. from the
University of North Carolina in
Char-
19
<PAGE>
lotte. He is a Chartered Financial Analyst and a member of the Association for
Investment Management and Research.
Julie L. Hale is the Vice President and Manager of the Balanced Assets Group and
Co-Manager of the Equity Income Group and has been the principal portfolio
manager for the Nations Balanced Assets Fund since May of 1995. Ms. Hale joined
NationsBank in 1991 and was previously employed with National City Bank in Ohio
and the Mercantile Safe Deposit & Trust Company in Baltimore, Maryland. She
received a B.S. from Mount St. Mary's College and an M.B.A. from Kent State
University. She is a Chartered Financial Analyst and a member of the Association
for Investment Management and Research.
Edward E. Smiley is a Senior Vice President of NationsBank and has been the
principal portfolio manager for Nations Emerging Growth Fund since 1992. Mr.
Smiley received his B.B.A. in Management from Southern Methodist University in
1966 and is a Chartered Financial Analyst. After serving in investment positions
with Merrill Lynch and Dean Witter, Mr. Smiley joined Interfirst Investment
Management as a senior portfolio manager in 1980. Mr. Smiley manages
Emerging-Midcap Funds Style Group for NationsBank. Mr. Smiley also serves as one
of the officer members on the Growth Equity Style Group. Mr. Smiley is a member
of the Association for Investment Management and Research and the Dallas
Association of Investment Analysts. Mr. Smiley has over 25 years of investment
experience.
Jeff C. Moser, a Senior Vice President of NationsBank, has been the principal
portfolio manager for Nations Disciplined Equity Fund since 1995. He joined
NationsBank in 1983 and has been employed there as an equity analyst, account
portfolio manager and fund manager. Mr. Moser received a B.S. degree in
Mathematics from Wake Forest University where he graduated Phi Beta Kappa. He
also holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research.
Seok Teoh is the principal portfolio manager of the Nations Pacific Growth Fund.
She has been associated with the Gartmore Group since 1990 as the London based
manager on its Far East desk. Prior to that, Ms. Teoh worked for Overseas Union
Bank Securities in Singapore where she was responsible for Singaporean and
Malaysian equity sales and then subsequently for Rothschild as a Fund Manager in
Singapore and later in Tokyo. Ms. Teoh, who is a native of Singapore, is fluent
in Mandarin and Cantonese and received an Economics degree from the University
of Durham in 1985.
Stephen Watson has been the principal portfolio manager of the Nations
International Equity Fund since February, 1995. He joined the Gartmore Group as
a Global Fund Manager in August 1993 and was recently appointed Head of the
International and Global Team. Prior to that, Mr. Watson was employed by James
Capel Fund Managers where he acted as a Director, Global Fund Manager and Client
Services Manager for various international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their Portfolio Management Division and
prior to that he was with the investment division at Samuel Montagu. Mr. Watson
is currently a member of the Securities Institute.
Eric S. Williams, a Senior Vice President of NationsBank, has been the principal
portfolio manager for Nations Equity Income Fund since 1991. Mr. Williams is
Senior Portfolio Manager for NationsBank's investment management division's
Equity Income Style Group. He has a B.S. in Business Administration, SUMMA CUM
LAUDE, from East Carolina University and has an M.B.A. in Finance from Indiana
University. Mr. Williams has been with NationsBank's investment management
division since 1986. He is a member of the Association for Investment Management
and Research and is on the Advisory Board of Indiana University's Reese
Investment Fund.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank, that subsidiaries of
NationsBank may perform the services contemplated by the various Investment
Advisory Agreements, without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. Such counsel has pointed out, however,
that there are no controlling judicial or administrative interpretations or
decisions and that future judicial or administrative interpretations of, or
decisions relating to, present federal or state statutes, including the
Glass-Steagall Act, and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as future changes in federal
or state statutes, including the Glass-Steagall Act, and regulations and
judicial or administrative decisions or interpretations thereof, could prevent
such subsidiaries of NationsBank from continuing to perform, in whole or in
part, such services. If such subsidiaries of NationsBank were prohibited from
performing any of such services, it is expected that the Board of Trustees of
Nations Fund Trust and the Boards of Directors of Nations Fund, Inc. and Nations
Portfolios would recommend to each Fund's shareholders that they approve a new
advisory agreement with another entity or entities qualified to perform such
services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing
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general oversight of other service providers, office space, utilities and
various legal and administrative services in connection with the satisfaction of
various regulatory requirements applicable to the Funds.
The Shareholder Services Group, Inc. ("TSSG"), a wholly owned subsidiary of
First Data Corporation, with principal offices at One Exchange Place, Boston,
Massachusetts 02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, TSSG
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of the Funds, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and TSSG are entitled to receive a combined fee at the
annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal year ended November 30, 1994, after waivers, Nations Fund Trust paid its
administrators fees at the rate of 0.09% of the average daily net assets of
Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined
Equity Fund, Nations Value Fund and Nations Balanced Assets Fund. For the fiscal
year ended May 31, 1995, after waivers, Nations Fund, Inc. paid its
administrators fees at the rate of 0.09% of the Nations International Equity
Fund and the Nations Equity Income Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of .01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing and
Distribution Plans."
Morgan Guaranty Trust Company ("Morgan Guaranty"), Avenue des Arts, 35 1040
Brussels, Belgium, serves as custodian for the assets of the Nations
International Equity Fund, Nations Emerging Markets Fund and Nations Pacific
Growth Fund.
NationsBank of Texas, N.A. ("NationsBank of Texas" and collectively with Morgan
Guaranty, the "Custodians") serves as custodian for the assets of each Fund
except Nations International Equity Fund, Nations Emerging Markets Fund and
Nations Pacific Growth Fund. NationsBank of Texas is located at 1401 Elm Street,
Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of each Fund for
which it serves as custodian, (ii) $10.00 per repurchase collateral transaction
by such Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving such Funds.
TSSG serves as transfer agent (the "Transfer Agent") for the Funds' Investor A
Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and TSSG; interest; trustees'
and directors' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; cost of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodians and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings, other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or TSSG under their respective agreements with
Nations Fund; and any extraordinary expenses. Investor A Shares may bear certain
class specific retail transfer agency expenses and also bear certain additional
shareholder service and/or sales support costs. Any general expenses of Nations
Fund Trust, Nations Fund, Inc. and/or Nations Portfolios that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund Trust, Nations Fund, Inc. and/or Nations Portfolios
or in such other manner as the relevant Board of Trustees or Board of Directors
deems appropriate.
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Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has 44 distinct investment portfolios and total assets in excess of $16 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. The Funds currently offer five classes of shares -- Trust
A Shares, Trust B Shares, Investor A Shares, Investor C Shares and Investor N
Shares. This Prospectus relates only to the Investor A Shares of Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund,
Nations Value Fund and Nations Balanced Assets Fund of Nations Fund Trust. To
obtain additional information regarding the Funds' other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Investor A Shares of Nations
International Equity Fund and Nations Equity Income Fund of Nations Fund, Inc.
To obtain additional information regarding the Fund's other classes of shares
which may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information
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concerning the percentage of each class or series over which NationsBank and its
affiliates possessed or shared power to dispose or vote as of a certain date,
see Nations Fund, Inc.'s SAI. It is anticipated that Nations Fund, Inc. will not
hold annual shareholder meetings on a regular basis unless required by the 1940
Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. As of the date of this Prospectus, the authorized capital stock of
Nations Portfolios consists of 150,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor A Shares of Nations Emerging Markets Fund and Nations Pacific Growth
Fund of Nations Portfolios. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios have entered into an indemnification agreement
that creates a right of indemnification from the investment company responsible
for any such misstatement, inaccuracy or incomplete disclosure that may appear
in this Prospectus.
About Your Investment
How To Buy Shares
Stephens has established various procedures for purchasing Investor A Shares in
order to accommodate different investors. Purchase orders for Investor A Shares
may be placed through banks, broker/dealers or other financial institutions
(including certain affiliates of NationsBank) that have entered into a
shareholder servicing agreement ("Servicing Agreement") with Nations Fund
("Servicing Agents") and a sales support agreement ("Sales Support Agreement")
with Stephens ("Selling Agents").
Customers may invest in Investor A Shares through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI, (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI, to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
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There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for Individual Retirement Account ("IRA") investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
With respect to Investor A Shares, the Servicing Agents have entered into
Servicing Agreements with Nations Fund under which they will provide various
shareholder services to their customers ("Customers") who own Investor A Shares.
Servicing Agents and Selling Agents are sometimes referred to hereafter as
"Agents." From time to time the Agents, Stephens and Nations Fund may agree to
voluntarily reduce the maximum fees payable for sales support or shareholder
services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor A Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONIC TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How to Redeem Shares" and "How to
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. You should be aware that by electing the telephone transaction
feature, you may be giving up a measure of security that you may have if you
were to authorize written requests only. You may bear the risk of any resulting
losses from a telephone transaction. Nations Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and if Nations Fund and its service providers fail to employ such measures, they
may be liable for any losses due to unauthorized or fraudulent instructions.
Nations Fund requires a form of personal identification prior to acting upon
instructions received by telephone and provides written confirmation to
shareholders of each telephone share transaction. In addition, Nations Fund
reserves the right to record all telephone conversations.
Shareholder Servicing And Distribution Plans
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits the Funds to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses
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incurred in connection with Investor A Shares. Aggregate payments under the
Investor A Plan are calculated daily and paid monthly at a rate or rates set
from time to time by the Funds, provided that the annual rate may not exceed
0.25% of the average daily net asset value of the Investor A Shares of the
Funds.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Funds
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
advertising provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan or upon receipt of a CDSC.
Any such additional consideration or incentive program may be terminated at any
time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAIs for more details on the Investor A Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customer's account with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor A Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
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Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that were purchased prior to January 1, 1996 in
amounts of $1 million or more or through the Nations Fund Personal Investment
Planner will be subject to a CDSC equal to 1.00% of the lesser of the net asset
value or the purchase price of the shares being redeemed if such shares are
redeemed within one year of purchase, declining to 0.50% in the second year
after purchase and eliminated thereafter. No CDSC is imposed on increases in net
asset value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account if the aggregate net asset value of the
Investor A Shares held in the account is less than the minimum account size,
(iv) in connection with the combination of Nations Fund with any other
registered investment company by merger, acquisition of assets or by any other
transaction, and (v) effected pursuant to the Automatic Withdrawal Plan
discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC.
Within 120 days after a redemption of Investor A Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor A Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinstatement privilege.
In order to exercise this privilege, a written order for the purchase of
Investor A Shares must be received by the Transfer Agent or by Stephens within
120 days after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor A Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor A Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor A Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
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How To Exchange Shares
The exchange feature enables a shareholder of Investor A Shares of a Nations
Fund non-money market fund (including the Funds) to acquire shares of the same
class that are offered by any other fund of Nations Fund when the shareholder
believes that a shift between funds is an appropriate investment decision. A
qualifying exchange is based on the next calculated net asset value per share of
each fund after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor A Shares that
meets the requirements discussed in this section. If Investor A Shares of a Fund
are exchanged for shares of the same class of another fund, any CDSC applicable
to the original shares purchased will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of the Fund.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. Shareholder may direct proceeds to be exchanged from one Nations Fund to
another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th and/or 30th day of the applicable
month. The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, please
contact your selling agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchange through the AEF). Nations Fund reserves the right to reject
any exchange request. Only shares that may legally be sold in the state of the
investor's residence may be acquired in an exchange. Only shares of a class that
is accepting investments generally may be acquired in an exchange. An investor
may telephone an exchange request by calling his/her Agent which is responsible
for transmitting such request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
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How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Funds distribute any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Investor A Shares of the
Funds are eligible to receive dividends when declared, provided, however, that
the purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
Distributions paid by the Funds with respect to one class of shares may be
greater or less than those paid with respect to another class of shares due to
the different expenses of the different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor A Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Fund of liability for
Federal income taxes on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional shares. (Federal income taxes for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds (except Nations International Equity Fund,
Nations Emerging Markets Fund and Nations Pacific Growth Fund) may be entitled
to the dividends-received deduction on all or a portion of such Funds'
dividends. Corporate shareholders of the Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds may be eligible for the
dividends-received deduction on the dividends (excluding the net capital gains
dividends) paid by these Funds to the extent that a Fund's income is derived
from dividends (which, if received directly, would qualify for such deduction)
received from domestic corporations. In order to qualify for the
dividends-received deduction, a corporate shareholder must hold the fund shares
paying the dividends upon which the deduction is based for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of each of Nations International Equity Fund, Nations Emerging Markets
Fund and Nations Pacific Growth Fund's investment income may be subject to
foreign income taxes withheld at their source. Tax conventions between certain
countries and the United States
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may reduce or eliminate such taxes. Generally, more than 50% of the value of the
total assets of each of those Funds will consist of securities of foreign
issuers, and therefore each of those Funds may elect to "pass through" to its
shareholders these foreign taxes, if any. In such event each shareholder will be
required to include his or her pro rata portion thereof in his or her gross
income, but will be able to deduct or (subject to various limitations) claim a
foreign tax credit against U.S. income taxes for such amount.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisers with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET BACKED SECURITIES: Asset Backed Securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset Backed
Securities consist of both mortgage and non-mortgage backed securities.
Interests in pools of these assets differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specified call dates. Instead, Asset Backed
Securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage backed securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), parallel pay CMOs, planned
amortization class CMOs ("PAC Bonds") and stripped mortgage-backed securities
("SMBS"), including interest-only and principal-only SMBS. SMBS may be more
volatile than other debt securities. For additional information concerning
mortgage backed securities, see the related SAI.
Non-mortgage asset backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker-
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dealer, in return for cash, and agrees to buy the security back at a future date
and price. Reverse repurchase agreements may be used to provide cash to satisfy
unusually heavy redemption requests without having to sell portfolio securities,
or for other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objectives. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objections Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the United States Dollar. A Fund either
enters into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies. A forward foreign currency exchange
contract is an obligation by a Fund to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain
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that might be realized should the value of the hedged currency increase. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of a Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Nations International Equity Fund, the Nations Emerging Markets Fund and/or
the Nations Pacific Growth Fund will generally enter into forward currency
exchange contracts only under two circumstances: (i) when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, to "lock" in the U.S. dollar price of the security; and (ii) when the
Adviser believes that the currency of a particular foreign country may
experience a substantial movement against another currency. Under certain
circumstances, the Fund may commit a substantial portion of its portfolio to the
execution of these contracts. The Adviser will consider the effects such a
commitment would have on the investment program of the Fund and the flexibility
of the Fund to purchase additional securities. Although forward contracts will
be used primarily to protect the Fund from adverse currency movements, they also
involve the risk that anticipated currency movements will not be accurately
predicted. The Nations International Equity Fund will generally not enter into a
forward contract with a term of greater than one year.
FOREIGN SECURITIES: Foreign securities include obligations of foreign
corporations and banks as well as obligations of foreign governments and their
political subdivisions (which will be limited to direct government obligations
and government-guaranteed securities). Such investments may subject a Fund to
special investment risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. In addition, foreign issuers in general may be subject to different
accounting, auditing, reporting, and record keeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign stock
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the U.S. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign stock exchanges, brokers, and companies
than in the U.S. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not knowingly
invest more than 15% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements and time
deposits that do not provide for payment to a Fund within seven days after
notice, guaranteed investment
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contracts and some commercial paper issued in reliance upon the exemption in
Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act") (other
than variable amount master demand notes with maturities of nine months or
less), are subject to the limitation on illiquid securities.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities which are not registered under the 1933 Act but
which can be sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act. Any such security will not be considered illiquid so
long as it is determined by a Fund's Board of Trustees or Board of Directors or
the Adviser, acting under guidelines approved and monitored by the Fund's Board,
after considering trading activity, availability of reliable price information
and other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A, the
level of illiquidity of a Fund holding such securities may increase during such
period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating rate payments for fixed rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Lower-rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. The
Funds intend to limit their investments in lower-quality debt securities to 35%
of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition are adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith,
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credit, and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being
financed. Private activity bonds held by a Fund are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax-exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
security. To the extent that municipal participation interests are considered to
be "illiquid securities," such instruments are subject to each Fund's limitation
on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, a Fund
may invest more than 25% of its total assets in Municipal Securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in Municipal Securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if its assets were not so concentrated.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit
33
<PAGE>
extended. Both Equity and Mortgage REITs are dependent upon management skill and
may not be diversified. REITs also may be subject to heavy cash flow dependency,
defaults by borrowers, self-liquidation, and the possibility of failing to
qualify for tax-free pass-through of income under the Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker-dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund and Nations Institutional Reserves.
SECURITIES LENDING: To increase return on portfolio securities, certain of the
Funds may lend their portfolio securities to broker-dealers and other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. There is a risk of delay in receiving
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to be credit worthy and
when, in their judgment, the income to be earned from the loan justifies the
attendant risks. The aggregate of all outstanding loans of a Fund may not exceed
30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indexes, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
34
<PAGE>
Appendix B -- Description of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be
35
<PAGE>
negligible, being only slightly more than for risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are Duff 1, Duff 2 and Duff 3.
D&P employs three designations, Duff 1+, Duff 1 and Duff 1-, within the highest
rating category. Duff 1+ indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations." Duff 1 indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by good fundamental protection factors. Risk factors are considered to be minor.
Duff 1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. Duff 2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. Duff 3 indicates satisfactory liquidity and other protection factors
which qualify the issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as
36
<PAGE>
having the strongest degree of assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following is the four investment grade ratings used by BankWatch
for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is very high.
AA -- The second highest category; indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial.
37
<PAGE>
Adverse changes in business, economic or financial conditions may increase
investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Obligations supported by the highest capacity for timely repayment
and possessing a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
38
<PAGE>
Prospectus
INVESTOR A SHARES
SEPTEMBER 30, 1995
AS SUPPLEMENTED ON
JANUARY 19, 1996
This Prospectus describes the NATIONS SHORT-TERM
INCOME FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT
FUND, NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND, NATIONS DIVERSIFIED
INCOME FUND AND NATIONS GLOBAL GOVERNMENT INCOME
FUND (the "Funds") of the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes one class of shares of the
Funds -- Investor A Shares.
This Prospectus sets forth concisely the information
about the Funds that prospective purchasers of
Investor A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios") is
contained in separate Statements of Additional
Information (the "SAIs"), which have been filed with
the Securities and Exchange Commission (the "SEC")
and are available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAIs for Nations
Fund Trust, Nations Fund, Inc. and Nations
Portfolios, dated September 30, 1995, September 30,
1995 and July 1, 1995, respectively, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc. ("NBAI")
is the investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to certain of the Funds and
Nations Gartmore Investment Management ("Nations
Gartmore") is sub-investment adviser to the Nations
Global Government Income Fund. As used herein the
"Adviser" shall mean NBAI, TradeStreet and/or
Nations Gartmore as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Nations Short-Term Income
Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations Strategic Fixed
Income Fund
Nations Diversified Income
Fund
Nations Global Government
Income Fund
For purchase, redemption and
performance information
call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo)
<PAGE>
Table Of Contents
About The Funds
Expenses Summary 3
Financial Highlights 4
Objectives 8
How Objectives Are Pursued 8
How Performance is Shown 13
How the Funds are Managed 14
Organization and History 17
About Your Investment
How to Buy Shares 19
Shareholder Servicing and Distribution Plans 20
How to Redeem Shares 21
How to Exchange Shares 22
How the Funds Value Their Shares 23
How Dividends and Distributions are Made; Tax
Information 23
Appendix A -- Portfolio Securities 24
Appendix B -- Description of Ratings 32
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor A Shares of the
indicated Fund over specified periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Short-
Nations Short-Term Intermediate Nations Government Nations Strategic
SHAREHOLDER TRANSACTION EXPENSES Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) None None None None
Maximum Deferred Sales Charge (as a
percentage of the lower of the original
purchase price or redemption proceeds)1 None None None None
</TABLE>
<TABLE>
<CAPTION>
Nations Global
Nations Diversified Government Income
SHAREHOLDER TRANSACTION EXPENSES Income Fund Fund
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (as a
percentage of the lower of the original
purchase price or redemption proceeds)1 None None
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
net assets)
<TABLE>
<CAPTION>
Nations Short-
Nations Short-Term Intermediate Nations Government Nations Strategic
Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
Management Fees2 .30% .40% .50% .50%
Rule 12b-1 Fees (including shareholder
servicing fees)2 .20%3 .20% .25% .20%
Other Expenses .22% .18% .39% .16%
Total Operating Expenses2 .72% .78% 1.05% .86%
</TABLE>
<TABLE>
<CAPTION>
Nations Global
Nations Diversified Government Income
Income Fund Fund
<S> <C> <C>
Management Fees2 .50% .70%
Rule 12b-1 Fees (including shareholder
servicing fees)2 .25% .25%
Other Expenses .32% .60%
Total Operating Expenses2 1.07% 1.55%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge applicable at the time of purchase. See "How to
Redeem Shares -- Contingent Deferred Sales Charge."
2 After any waivers and reimbursements.
3 Shareholder servicing fees for Nations Short-Term Income Fund are paid
pursuant to a separate Shareholder Servicing Plan. See "Shareholder Servicing
and Distribution Plans."
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations Short-
Nations Short-Term Intermediate Nations Government Nations Strategic
Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
1 Year $ 7 $ 8 $ 11 $ 9
3 Years $ 23 $ 25 $ 33 $ 27
5 Years $ 40 $ 43 $ 58 $ 48
10 Years $ 89 $ 97 $ 128 $ 106
</TABLE>
<TABLE>
<CAPTION>
Nations Global
Nations Diversified Government Income
Income Fund Fund
<S> <C> <C>
1 Year $ 11 $ 11
3 Years $ 34 $ 49
5 Years $ 59 N/A
10 Years $ 131 N/A
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares of the Funds will bear either directly or indirectly. Except
for the Nations Global Government Income Fund which fees and expenses are based
on estimates, certain figures contained in the above tables are based on amounts
incurred during each Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. There is no assurance that
any fee waivers and reimbursements will continue beyond the current fiscal year.
If fees waivers and/or reimbursements are discontinued, the amounts contained in
the "Examples" above may increase. For more complete descriptions of the Funds'
operating
3
<PAGE>
expenses, see "How the Funds Are Managed." For a more complete description of
the Rule 12b-1 and shareholder servicing fees payable by the Funds, see
"Shareholder Servicing and Distribution Plans."
Absent fee waivers and reimbursements, "Management Fees," "Rule 12b-1 Fees" and
"Total Operating Expenses" for Investor A Shares of the indicated Fund would
have been as follows: Nations Short-Term Income Fund -- .60%, .50% and 1.32%,
respectively; Nations Short-Intermediate Government Fund -- .60%, .25% and
1.03%, respectively; Nations Government Securities Fund -- .64%, .25% and 1.19%,
respectively; Nations Strategic Fixed Income Fund -- .60%, .25% and 1.01%,
respectively; Nations Diversified Income Fund -- .60%, .25% and 1.17%,
respectively; and Nations Global Government Income Fund -- .70%, .25% and 1.55%,
respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios. The reports of Price Waterhouse LLP for the
most recent fiscal years of Nations Fund Trust and Nations Fund, Inc. accompany
the financial statements for such periods and are incorporated by reference in
the SAIs, which are available upon request. For more information see
"Organization and History." Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and financial
statements audited by the Funds' independent accountant.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR A SHARES (UNAUDITED)# 11/30/94# 11/30/93
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period 9.48 $ 10.01 $ 9.75
Net investment income 0.30 0.48 0.51
Net realized and unrealized gain/(loss) on investments 0.28 (0.51) 0.26
Net increase/(decrease) in net assets resulting from investment
operations 0.58 (0.03) 0.77
Distributions:
Dividends from net investment income (0.30) (0.46) (0.51)
Distributions in excess of net investment income -- (0.02) --
Distributions from capital -- (0.02) --
Total distributions (0.30) (0.50) (0.51)
Net asset value, end of period $ 9.76 $ 9.48 $ 10.01
Total return++ 6.17% (0.33)% 8.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,510 $ 2,490 $ 11,205
Ratio of operating expenses to average net assets 0.71%+ 0.71% 0.57%
Ratio of net investment income to average net assets 6.15%+ 5.02% 5.07%
Portfolio turnover rate 145% 293% 121%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.06%+ 1.03% 0.99%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.28 $ 0.45 $ 0.48
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.08
Net realized and unrealized gain/(loss) on investments (0.26)
Net increase/(decrease) in net assets resulting from investment
operations (0.18)
Distributions:
Dividends from net investment income (0.07)
Distributions in excess of net investment income --
Distributions from capital --
Total distributions (0.07)
Net asset value, end of period $ 9.75
Total return++ (1.81)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 254
Ratio of operating expenses to average net assets 0.45%+
Ratio of net investment income to average net assets 5.39%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.05%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.07
</TABLE>
* The Nations Short-Term Income Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
4
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR YEAR YEAR
05/31/95 ENDED ENDED ENDED
INVESTOR A SHARES (UNAUDITED) 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 3.93 $ 4.28 $ 4.16 $ 4.17
Net investment income 0.12 0.22 0.22 0.27
Net realized and unrealized gain/(loss) on
investments 0.16 (0.33) 0.14 (0.01)
Net increase/(decrease) in net assets
resulting from investment operations 0.28 (0.11) 0.36 0.26
Distributions:
Dividends from net investment income (0.12) (0.22) (0.22) (0.27)
Distributions in excess of net investment
income -- (0.00)# -- --
Distributions from net realized capital gains -- (0.02) (0.02) --
Total distributions (0.12) (0.24) (0.24) (0.27)
Net asset value, end of period $ 4.09 $ 3.93 $ 4.28 $ 4.16
Total return++ 7.14% (2.41)% 8.85% 6.61%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 64,634 $ 77,128 $ 173,449 $ 188,624
Ratio of operating expenses to average net
assets 0.78%+ 0.77% 0.70% 0.48%
Ratio of net investment income to average net
assets 5.87%+ 5.58% 5.25% 6.34%
Portfolio turnover rate 130% 133% 92% 25%
Ratio of operating expenses to average net
assets before fee waivers and/or expense
reimbursements 0.99%+ 0.98% 0.94% 0.88%
Net investment income per share before fee
waivers and/or expense reimbursements $ 0.11 $ 0.21 $ 0.21 $ 0.25
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/91*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 4.00##
Net investment income 0.10
Net realized and unrealized gain/(loss) on
investments 0.17
Net increase/(decrease) in net assets
resulting from investment operations 0.27
Distributions:
Dividends from net investment income (0.10)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total distributions (0.10)
Net asset value, end of period $ 4.17
Total return++ 6.81% +++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 55,874
Ratio of operating expenses to average net
assets 0.08%+
Ratio of net investment income to average net
assets 7.21%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net
assets before fee waivers and/or expense
reimbursements 0.82%+
Net investment income per share before fee
waivers and/or expense reimbursements $ 0.00
</TABLE>
* The Nations Short-Intermediate Government Fund Investor A Shares commenced
operations on August 5, 1991.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Value represents less than $0.01 per share.
## The Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25, 1991,
the net asset value doubled as a result of the reclassification of each
outstanding share into half as many shares (reverse split).
5
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 05/31/95# 05/31/94 05/31/93# 05/31/92
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.80 $ 10.46 $ 10.36 $ 10.05
Net investment income 0.61 0.62 0.66 0.71
Net realized and unrealized gain/(loss) on
investments 0.06 (0.61) 0.16 0.38
Net increase/(decrease) in net assets
resulting from investment operations 0.67 0.01 0.82 1.09
Distributions:
Dividends from net investment income (0.57) (0.56) (0.68) (0.75)
Dividends in excess of net investment income -- (0.02) -- --
Distributions in excess of net realized
capital gains -- (0.05) (0.04) (0.03)
Distributions from capital (0.04) (0.04) -- --
Total distributions (0.61) (0.67) (0.72) (0.78)
Net asset value, end of period $ 9.86 $ 9.80 $ 10.46 $ 10.36
Total return++ 7.29% (0.11)% 8.18% 11.18%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (000's) $ 10,928 $ 14,044 $ 15,354 $ 3,326
Ratio of operating expenses to average net
assets 1.01% 0.90% 1.00% 1.31%
Ratio of net investment income to average net
assets 6.44% 5.91% 6.52% 6.90%
Portfolio turnover rate 413% 56% 103% 130%
Ratio of operating expenses to average net
assets without waivers and reimbursements 1.19% 1.11% 1.15% 1.97%
Net investment income per share without
waivers and reimbursements $ 0.59 $ 0.59 $ 0.55 $ 0.07
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/91*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.01
Net investment income 0.09
Net realized and unrealized gain/(loss) on
investments 0.02
Net increase/(decrease) in net assets
resulting from investment operations 0.11
Distributions:
Dividends from net investment income (0.07)
Dividends in excess of net investment income --
Distributions in excess of net realized
capital gains --
Distributions from capital --
Total distributions (0.07)
Net asset value, end of period $ 10.05
Total return++ 1.07%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (000's) $ 661
Ratio of operating expenses to average net
assets 1.35%+
Ratio of net investment income to average net
assets 7.22%+
Portfolio turnover rate 5%
Ratio of operating expenses to average net
assets without waivers and reimbursements 1.94%+++
Net investment income per share without
waivers and reimbursements $ 0.08+++
</TABLE>
* The Nations Government Securities Fund Investor A Shares commenced
operations on April 17, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
# Per share amounts have been calculated using the average shares method,
which more appropriately presents the per share data for the period since
the use of the undistributed income method did not acccord with the results
of operations.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR A SHARES (UNAUDITED) 11/30/94 11/30/93
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.32 $ 10.55 $ 9.94
Net investment income 0.29 0.51 0.54
Net realized and unrealized gain/(loss) on investments 0.70 (0.89) 0.62
Net increase/(decrease) in net assets resulting from investment
operations 0.99 (0.38) 1.16
Distributions:
Dividends from net investment income (0.29) (0.49) (0.54)
Distributions in excess of net investment income -- (0.02) --
Distributions from net realized capital gains -- (0.34) (0.01)
Total distributions (0.29) (0.85) (0.55)
Net asset value, end of period $ 10.02 $ 9.32 $ 10.55
Total return++ 10.74% (3.76)% 11.88%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,472 $ 967 $ 1,138
Ratio of operating expenses to average net assets 0.88%+ 0.86% 0.76%
Ratio of net investment income to average net assets 5.98%+ 5.25% 5.25%
Portfolio turnover rate 155% 307% 161%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 0.99%+ 0.94% 0.92%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.28 $ 0.50 $ 0.53
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.99
Net investment income 0.01
Net realized and unrealized gain/(loss) on investments (0.06)
Net increase/(decrease) in net assets resulting from investment
operations (0.05)
Distributions:
Dividends from net investment income --
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions --
Net asset value, end of period $ 9.94
Total return++ (0.49)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 113
Ratio of operating expenses to average net assets 0.40%+
Ratio of net investment income to average net assets 6.00%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.00%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.01
</TABLE>
* The Nations Strategic Fixed Income Fund Investor A Shares commenced
operations on November 19, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
6
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR A SHARES (UNAUDITED) 11/30/94# 11/30/93#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.67 $ 10.88 $ 9.96
Net investment income 0.36 0.72 0.76
Net realized and unrealized gain/(loss) on investments 0.86 (1.06) 0.92
Net increase/(decrease) in net assets resulting from investment
operations 1.22 (0.34) 1.68
Distributions:
Dividends from net investment income (0.36) (0.72) (0.76)
Distributions in excess of net investment income -- (0.00)## --
Distributions from net realized capital gains -- (0.15) --
Total distributions (0.36) (0.87) (0.76)
Net asset value, end of period $ 10.53 $ 9.67 $ 10.88
Total return++ 12.92% (3.26)% 17.32%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 12,633 $ 10,819 $ 13,291
Ratio of operating expenses to average net assets 1.02%+ 0.96% 0.70%
Ratio of net investment income to average net assets 7.28%+ 7.09% 6.87%
Portfolio turnover rate 67% 144% 86%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.18%+ 1.17% 1.10%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.35 $ 0.70 $ 0.70
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.02
Net investment income 0.01
Net realized and unrealized gain/(loss) on investments (0.06)
Net increase/(decrease) in net assets resulting from investment
operations (0.05)
Distributions:
Dividends from net investment income (0.01)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.01)
Net asset value, end of period $ 9.96
Total return++ (0.49)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18
Ratio of operating expenses to average net assets 0.40%+
Ratio of net investment income to average net assets 7.61%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.00%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.01
</TABLE>
* The Nations Diversified Income Fund Investor A Shares commenced operations
on November 25, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
## Value represents less than $0.01 per share.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 09/30/95*
<S> <C>
Operating Performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss)## 0.12
Net realized and unrealized gain/(loss) on investments 0.04
Net increase/(decrease) in net assets resulting from investment operations 0.16
Distributions:
Dividends from net investment income (0.12)
Total Distributions (0.12)
Net asset value, end of period $ 10.04
Total return++ 1.63%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23
Ratio of operating expenses to average net assets 1.55%+
Ratio of net investment income/(loss) to average net assets 5.36%+
Portfolio turnover rate 104%
</TABLE>
* The Fund's Investor A Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
7
<PAGE>
Objectives
NATIONS SHORT-TERM INCOME FUND: The Nations Short-Term Income Fund's investment
objective is to seek as high a level of current income as is consistent with
prudent investment risk. The Fund invests primarily in investment grade
corporate bonds and mortgage-backed bonds. Under normal market conditions, it is
expected that the Fund will have an average dollar-weighted maturity of three
years or less. The Fund's investment program attempts to maintain a higher level
of income than normally provided by money market instruments, and more price
stability than investments in intermediate- and long-term bonds. However, the
value of the Fund's portfolio generally will vary inversely with changes in
prevailing interest rates.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: The Nations Short-Intermediate
Government Fund's investment objective is to seek as high a level of current
income as is consistent with prudent investment risk. The Fund invests
essentially all of its assets in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in repurchase agreements
relating to such obligations. Under normal market conditions, the Fund is
expected to have an average dollar-weighted maturity between two and seven
years.
NATIONS GOVERNMENT SECURITIES FUND: The Nations Government Securities Fund's
investment objective is to provide current income and preservation of capital.
The Fund seeks to achieve its objective by investing primarily in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS STRATEGIC FIXED INCOME FUND: The Nations Strategic Fixed Income Fund's
investment objective is to maximize total investment return through the active
management of fixed income securities. The Fund invests primarily in investment
grade fixed income securities. The Fund may under normal market conditions
invest in long-term, intermediate-term and short-term securities and has not
placed any limitations on the duration of the portfolio.
NATIONS DIVERSIFIED INCOME FUND: The Nations Diversified Income Fund's
investment objective is to seek as high a level of current income as is
consistent with prudent investment risk. The Fund invests primarily in a
diversified portfolio of government and corporate fixed income securities.
NATIONS GLOBAL GOVERNMENT INCOME FUND: The Nations Global Government Income
Fund's investment objective is to seek current income. Although the Fund
emphasizes income when selecting investments, the potential for growth of
capital also is considered. It seeks to achieve this objective by investing
primarily in debt securities issued by governments, banks and supranational
entities located throughout the world.
How Objectives Are Pursued
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the
Nations Short-Term Income Fund may invest in a broad range of debt obligations
such as U.S. Government obligations; corporate debt obligations, including
bonds, notes and debentures rated investment grade by one of the following six
nationally recognized statistical rating organizations, Duff & Phelps Credit
Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), IBCA Limited
or its affiliate, IBCA Inc. (collectively, "IBCA") or Thomson BankWatch, Inc.
("BankWatch") (collectively, "NRSROs"), or, if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments (see "Appendix A -- Foreign Securities"); and mortgage-related
securities of governmental issuers, including the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"), or of private issuers,
including mortgage pass-through certificates, collateralized mortgage
obligations or "CMOs", real estate investment trust securities or
mortgage-backed bonds; other asset-backed securities rated by one of the six
NRSROs, or, if not so rated, determined by the Adviser to be of comparable
quality to instruments so rated. (For more information concerning Asset Backed
Securities, including Mortgage-Backed Securities, see "Appendix A -- Asset
Backed Securities.")
The Fund will invest, under normal market conditions, at least 65% of the total
value of its assets in investment grade corporate bonds and mortgage-backed
bonds. Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund generally will be rated investment grade at the time of
purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
Obligations rated in the lowest of the top four investment grade rating
categories (e.g. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances
8
<PAGE>
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (I.E., those within the two highest
rating categories or unrated instruments determined by the Adviser to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportions as, in the Adviser's opinion, prevailing
market or economic conditions warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its assets in securities of foreign issuers. See "Appendix
A" below for additional information concerning the investment practices of this
Fund.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: The Nations Short-Intermediate
Government Fund invests substantially all of its assets in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government Obligations") and repurchase agreements relating to such obligations.
U.S. Government Obligations have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns shares of the Fund. The value of the Fund's portfolio generally will vary
inversely with changes in prevailing interest rates.
Certain government securities that have variable or floating interest rates or
demand or put features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity of the Fund. See "Investment Objectives and Policies" in the Fund's
SAI. See "Appendix A" below for additional information concerning the investment
practices of this Fund.
NATIONS GOVERNMENT SECURITIES FUND: Under normal circumstances, substantially
all, and in any event, at least 65% of the Fund's assets, will be invested in
U.S. Government Obligations. U.S. Government Obligations include Treasury
obligations, which differ only in their interest rates, maturities and times of
issuance. U.S. Government Obligations also include obligations issued or
guaranteed by U.S. Government agencies, authorities or instrumentalities, some
of which are backed by the full faith and credit of the U.S. Treasury, such as
direct pass-through certificates of the Government National Mortgage Association
("GNMA"); some of which are supported by the right of the issuer to borrow from
the U.S. Government, such as obligations of Federal Home Loan Banks; and some of
which are backed only by the credit of the issuer itself, such as obligations of
the Federal National Mortgage Association ("FNMA"). For a more detailed
description of the investment practices of this Fund, see "Appendix A -- U.S.
Government Obligations" and "Asset Backed Securities."
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Fund's shares, such changes will not
affect the income received by the Fund from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Fund will increase or decrease in relation to
the income received by the Fund from its investments, which will in any case be
reduced by the Fund's expenses before being distributed to the Fund's
shareholders. The value of the Fund's portfolio generally will vary inversely
with changes in prevailing interest rates.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (I.E., those within the two highest
rating categories or unrated instruments deemed by the Adviser to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportion as, in the Adviser's opinion, existing
circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Nations Strategic Fixed Income Fund may invest in corporate convertible and
non-convertible debt obligations, including bonds, notes and debentures rated
investment grade at the time of purchase by one of the six NRSROs, or if not so
rated, determined by the Adviser to be of comparable quality to instruments so
rated; U.S. Government obligations; dollar-denominated debt obligations of
foreign issuers, including foreign corporations and foreign governments (see
"Appendix A -- Foreign Securities"); mortgage-backed securities of governmental
issuers, including GNMA, FNMA and FHLMC, or of private issuers, including
mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. (For more information concerning Asset Backed Securities,
including Mortgage-Backed Securities, see "Appendix A -- Asset Backed
Securities.") Pursuant to its investment objective, the Fund also may invest in
dividend-paying preferred and common stock.
9
<PAGE>
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in government, corporate and mortgage-backed securities.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund will be rated investment grade at the time of purchase by
D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated, determined by the
Adviser to be comparable in quality. Obligations rated in the lowest of the top
four investment grade rating categories (e.g. rated "BBB" by S&P or "Baa" by
Moody's) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (i.e., those within the two highest
rating categories or unrated instruments determined by the Adviser to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportions as, in the Adviser's opinion, existing
circumstances warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities." See "Appendix A" below for additional
information concerning the investment practices of this Fund.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the
Nations Diversified Income Fund may invest in a broad range of corporate
convertible and non-convertible debt obligations such as fixed and variable rate
bonds; obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; dollar-denominated and non-dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments (see "Appendix A -- Foreign Securities"); mortgage-backed securities
of governmental issuers, including GNMA, FNMA and FHLMC, or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. (For more information concerning Asset Backed Securities,
including Mortgage-Backed Securities, see "Appendix A -- Asset Backed
Securities.") In pursuing its investment objective, the Fund also may invest in
dividend-paying convertible and non-convertible preferred and common stocks.
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in fixed income securities, such as government, government
agency and corporate bonds. Most obligations acquired by the Fund will be issued
by companies or governmental entities located within the United States. Not less
than 65% of the debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch,
or, if unrated, determined by the Adviser to be comparable in quality to
instruments so rated. Obligations rated in the lowest of the top four investment
grade rating categories (e.g. rated "BBB" by S&P or "Baa" by Moody's) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment-grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds," tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities. See "Appendix A -- Lower-Rated Debt Securities."
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in short-term U.S. Government obligations, "high
quality" money market instruments (i.e., those within the two highest rating
categories or unrated instruments deemed by the Adviser to be of comparable
quality), repurchase agreements and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks. These investments
may be in such proportions as, in the Adviser's opinion, existing circumstances
warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. The
value of the
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<PAGE>
Fund's portfolio generally will vary inversely with changes in prevailing
interest rates. See "Appendix A" below for additional information concerning the
investment practices of this Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations Global Government Income Fund" below.
Because the Fund intends to invest a large portion of its assets in foreign
Government Securities, the Fund is a "non-diversified" investment company for
purposes of the Investment Company Act of 1940 (the "1940 Act"). The Fund may
invest in securities of issuers located in any region or country and that are
denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various count-
ries and currencies will vary in accordance with the Adviser's assessment of the
relative yield and appreciation of such securities. Fundamental economic
strength, credit quality and interest rate trends are the principal factors
considered by the Adviser in determining whether to increase or decrease the
emphasis placed upon a particular country or particular type of security within
the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by the Adviser. The Fund also may invest in securities rated
"Baa" by Moody's or "BBB" by S&P, but does not as a general matter, intend to
invest more than 10% of its total assets in such securities. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such event in determining whether the Fund should continue
to hold the obligation. In no event will the Fund hold more than 5% of its total
net assets in securities rated below investment grade. See "Appendix B" below
for a description of these rating designations. The Adviser expects that the
Fund's average dollar-weighted maturity will not be greater than fifteen years
under normal market conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank. Supranational entities
generally have no taxing authority and are dependent upon their members for the
funds necessary to pay principal and interest on their debt obligations.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NATIONS GLOBAL
GOVERNMENT INCOME FUND: Investors should understand and consider carefully the
special risks involved in foreign investing. In addition, the Nations Global
Government Income Fund presents unique risks that investors should be aware of.
The Nations Global Government Income Fund's yield and share price will change
based on changes in domestic or foreign interest rates and in an issuer's
creditworthiness. In general, bond prices rise when interest rates fall, and
vice versa.
Moreover, investing in securities denominated in foreign currencies and
utilization of forward foreign currency exchange contracts and other currency
hedging techniques involve certain considerations comprising both opportunities
and risks not typically associated with investing in U.S. dollar-denominated
securities. Additionally, changes in the value of foreign currencies can
significantly affect a Fund's share price. General economic and political
factors in the various world markets also can impact a Fund's share price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Fund offers a more efficient way for individual investors to participate in
foreign markets, its expenses, including
11
<PAGE>
custodial fees, are also higher than the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations Global Government Income Fund.
GENERAL: The Nations Short-Intermediate Government Fund, Nations Government
Securities Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund
and Nations Strategic Fixed Income Fund may invest in certain specified
derivative securities, including: interest rate swaps, caps and floors for
hedging purposes; exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures and options
thereon approved by the Commodity Futures Trading Commission ("CFTC") for market
exposure risk-management. Each of those Funds may lend its portfolio securities
to qualified institutional investors and may invest in restricted, private
placement and other illiquid securities. Each of those Funds may engage in
reverse repurchase agreements and dollar roll transactions. The National Global
Government Income Fund may invest in money market instruments, forward foreign
currency exchange contracts, futures and options and other instruments.
Additionally, each Fund may purchase securities issued by other investment
companies, consistent with the Fund's investment objective and policies.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, annual
portfolio turnover rates will not exceed 175% for Nations Global Government
Income Fund. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the other Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
The value of a Fund's investments in debt securities will tend to decrease when
interest rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than shorter-term
debt instruments in response to interest rate movements. In addition, debt
securities that are not backed by the United States Government are subject to
credit risk, which is the risk that the issuer may not be able to pay principal
and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the Fund's investment objective and do not unduly increase the
Fund's exposure to market or other risks. For additional risk information
regarding the Funds' investments in particular instruments, see "Appendix
A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
12
<PAGE>
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund (other than Nations Global Government Income Fund) may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time a Fund may advertise the total return and yield on a class of
shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares may be calculated on an average annual total return basis or an
aggregate total return basis. The "total return" of a class of shares refers to
the average annual compounded rates of return over one-, five-, and ten-year
periods or the life of the Fund (as stated in the advertisement) that would
equate an initial amount invested at the beginning of a stated period to the
ending redeemable value of the investment (reflecting the deduction of any
applicable contingent deferred sales charge ("CDSC")), assuming the reinvestment
of all dividend and capital gains distributions. Aggregate total return reflects
the total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
Set forth below is certain performance data for the Global Government Bond
Ex-U.K. Composite, reflecting the performance of private accounts, including
U.K. authorized unit trusts, managed by the Gartmore Group, as defined below.
The performance data for these accounts is deemed relevant because the Global
Government Bond Ex-U.K. Composite has investment objectives, policies and
restrictions that are substantially similar to those of the Nations Global
Government Income Fund. There is substantial continuity between the portfolio
managers of the Gartmore Group who were responsible for managing those accounts
and the portfolio managers of Nations Gartmore who are responsible for managing
the Nations Global Government Income Fund. THIS PERFORMANCE DATA REPRESENTS PAST
PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF THE FUTURE PERFORMANCE OF NBAI,
NATIONS GARTMORE OR THE FUNDS.
<TABLE>
<CAPTION>
Average Annual Total
Return for the Periods
GLOBAL GOVERNMENT BOND Indicated through
EX-U.K. COMPOSITE* March 31, 1995
<S> <C>
One Year 7.90%
Three Year 9.40%
Since Inception on September 1, 1990 11.40%
</TABLE>
Annual Total Returns**
<TABLE>
<CAPTION>
1991 1992 1993 1994
<S> <C> <C> <C>
19.30% 3.30% 13.50% (2.40%)
</TABLE>
* The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for the Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J.P. Morgan Global Government
13
<PAGE>
Bond Index, would not have materially affected their total returns.
** The average annual total returns and annual total returns are net of fees.
The fees on these accounts varied by contractual agreement and have been
assumed to be 1.5% per annum.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and a Fund's operating
expenses. Investment performance also often reflects the risks associated with
such Fund's investment objective and policies. These factors should be
considered when comparing a Fund's investment results to those of other mutual
funds and other investment vehicles. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in a Fund with bank deposits,
savings accounts, and similar investment alternatives which often provide an
agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Funds offer Trust A, Trust B, Investor C
and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in a Fund will not be included in calculations of
yield and total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or your selling agent.
How The Funds Are Managed
The business and affairs of Nations Fund Trust, Nations Fund, Inc., and Nations
Portfolios are managed under the direction of its Board of Trustees and Boards
of Directors, respectively. The SAI for Nations Fund Trust contains the names of
and general background information concerning the Trustees of Nations Fund
Trust. The SAIs for Nations Fund, Inc. and Nations Portfolios contain the names
of and general background information concerning the respective Directors of
Nations Fund, Inc. and Nations Portfolios.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for the Nations Global Government Income
Fund, for which Nations Gartmore serves as sub-investment adviser. TradeStreet
is a wholly owned subsidiary of NationsBank, which in turn is a wholly owned
banking subsidiary of NationsBank Corporation, a bank holding company organized
as a North Carolina corporation.
TradeStreet provides trust and banking services to individuals, corporations,
and institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking.
Nations Gartmore Investment Management, with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Nations Global Government Income Fund pursuant to a sub-advisory
agreement. Nations Gartmore is a joint venture structured as a general
partnership between NB Partner Corp., a wholly owned subsidiary of NationsBank,
and Gartmore U.S. Limited, a wholly owned subsidiary of Gartmore plc, a UK
company listed on the London Stock Exchange which is the holding company for a
leading UK based international fund management group of companies (the "Gartmore
Group"). Banque Indosuez S.A., a leading French bank, owns 75% of the equity of
Gartmore plc. The initial asset management company in the Gartmore Group was
founded in 1969 and the Gartmore Group currently provides investment management
and advisory services to pension funds, unit trusts, offshore funds and invest-
14
<PAGE>
ment funds. As of December 31, 1994 the Gartmore Group had over $30 billion in
assets under management.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc. and Nations Portfolios' Boards of Directors, and in
accordance with the Funds' investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in a Fund, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank or Banque Indosuez S.A. has a
lending relationship. For the services provided and expenses assumed pursuant to
an Investment Advisory Agreement, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rate of 0.60% of the average
daily net assets of each of Nations Short-Term Income Fund, Nations Diversified
Income Fund, Nations Strategic Fixed Income Fund, and Nations Short-Intermediate
Government Fund; and 0.65% of the first $100 million of the Nations Government
Securities Fund's average daily net assets, plus 0.55% of the Fund's average
daily net assets in excess of $100 million and up to $250 million, plus 0.50% of
the Fund's average daily net assets in excess of $250 million; and 0.70% of the
average daily net assets of Nations Global Government Income Fund.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of 0.15% of Nations Short-Term Income Fund's,
Nations Short-Intermediate Fund's, Nations Government Securities Fund's, Nations
Strategic Fixed Income Fund's and Nations Diversified Income Fund's average
daily net assets.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
NBAI will pay Nations Gartmore sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.54% of Nations Global Government Income Fund's
average daily net assets.
Although the advisory fees for the Nations Global Government Income Fund are
higher than the advisory fees paid by most other mutual funds, Nations
Portfolios believes that the fees are comparable to the advisory fees paid by
many other funds with similar investment objectives and policies. From time to
time, NBAI and/or TradeStreet and/or Nations Gartmore may waive (either
voluntarily or pursuant to applicable state limitations) advisory fees payable
by a Fund. For the fiscal year ended November 30, 1994, after waivers, Nations
Fund Trust paid NationsBank, under a prior Advisory Agreement, advisory fees at
the indicated rate of the Funds' average daily net assets: Nations Short-Term
Income Fund -- 0.29%; Nations Diversified Income Fund -- 0.40%; Nations
Strategic Fixed Income Fund -- 0.52%; Nations Short-Intermediate Government
Fund -- 0.40%. For the fiscal year ended May 31, 1995, after waivers, Nations
Fund, Inc. paid NationsBank, under a prior Advisory Agreement, fees at the rate
of 0.46% of Nations Government Securities Fund's average daily net assets.
David M. Hetherington is Senior Vice President, Director of Fixed Income
Management and a member of the Investment Policy Committee. Mr. Hetherington has
been the principal portfolio manager of the Nations Short-Term Income Fund since
1995. Mr. Hetherington has over 16 years of investment experience including
security analysis and portfolio management. Mr. Hetherington received a B.A.
from Duke University and holds the Chartered Financial Analyst designation.
Mark S. Ahnrud is a Vice President and Fixed Income Portfolio Manager at
NationsBank. He has been the principal portfolio manager for Nations Diversified
Income Fund since 1992. Mr. Ahnrud is a member of the Fixed Income Team and has
eight years of investment experience. Mr. Ahnrud received a B.S. from Babson
College and an M.B.A. from Duke University. Mr. Ahnrud holds the Chartered
Financial Analyst designation.
Gregory H. Cobb is a Vice President and Fixed Income Portfolio Manager at
NationsBank and has been principal portfolio manager for Nations Strategic Fixed
Income Fund since 1995. Mr. Cobb, who joined NationsBank in 1993, is a member of
the Fixed Income Group and has over 7 years of portfolio management experience.
Mr. Cobb received a B.A. from the University of North Carolina-Chapel Hill.
John Swaim joined NationsBank in 1986 and has been the principal portfolio
manager for Nations Short-Intermediate Government Fund and Nations Government
Securities Fund since 1995. Mr. Swaim is a member of the Fixed Income Team and
has over eight years of investment experience. Mr. Swaim previously served as
derivative products manager for the NationsBank Texas Corporate Investment
Division portfolio. Mr. Swaim received his B.S. from the University of North
Texas and holds an M.B.A. from the University of Texas, Arlington.
15
<PAGE>
Mark Rimmer is the principal portfolio manager of the Nations Global Government
Income Fund and has been an International Fixed Income Manager with the Gartmore
Group since 1990. He joined Gulf International Bank in 1986 on the trading desk,
and subsequently joined their Investment Management Group in 1988, managing
multi-currency funds for institutional clients in the Gulf region. Prior to that
he was associated with Sumitomo Finance International as a senior trader. Mr.
Rimmer graduated from Cambridge University in 1984 with an honors degree in
Economics. Mr. Rimmer also is a member of the Institute of Investment Management
and Research.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that subsidiaries of
NationsBank may perform the services contemplated by the Investment Advisory
Agreement without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Such counsel has pointed out, however, that there
are no controlling judicial or administrative interpretations or decisions and
that future judicial or administrative interpretations of, or decisions relating
to, present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such subsidiaries of NationsBank from continuing to perform, in whole or
in part, such services. If such subsidiaries of NationsBank were prohibited from
performing any such services, it is expected that the Trustees of Nations Fund
Trust and the Boards of Directors of Nations Fund, Inc. and Nations Portfolios
would recommend to the Funds' shareholders that they approve a new advisory
agreement with another entity or entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
The Shareholder Services Group, Inc. ("TSSG"), a wholly owned subsidiary of
First Data Corporation, with principal offices at One Exchange Place, Boston,
Massachusetts 02109, serves as the co-administrator of the Funds pursuant to a
Co-Administration Agreement. Under the terms of the Co-Administration Agreement,
TSSG provides various administrative and accounting services to the Funds,
including performing the calculations necessary to determine net asset values
and dividends, preparing tax returns and financial statements, maintaining the
portfolio records and certain general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and TSSG are entitled to receive a combined fee at the
annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal year ended November 30, 1994, after waivers, Nations Fund Trust paid its
administrators fees at the rate of 0.09% of the average daily net assets of
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund and Nations Short-Intermediate Government Fund. For
the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid its
administrators fees at the rate of 0.09% of the Nations Government Securities
Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of .01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund Trust
has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Funds. Stephens may
pay service fees or commissions to selling agents that assist customers in
purchasing Investor A Shares. See "Shareholder Servicing and Distribution
Plans."
Morgan Guaranty Trust Company ("Morgan Guaranty"), Avenue des Arts, 35 1040
Brussels, Belgium, serves as custodian for the assets of the Nations Global
Government Income Fund.
NationsBank of Texas, N.A., ("NationsBank of Texas", and, collectively with
Morgan Guaranty, the "Custodians"), serves as the Funds' (other than Nations
Global Government Income Fund's) custodian. NationsBank of Texas is located at
1401 Elm Street, Dallas, Texas 75202 and is a wholly owned subsidiary of
NationsBank Corporation. In return for providing custodial services, NationsBank
of Texas is entitled to receive, in addition to out-of-pocket expenses, fees
payable monthly (i) at the rate of 1.25% of 1% of the average daily net assets
of each Fund, (ii) $10.00 per repurchase collateral transaction by the Funds,
and (iii) $15.00 per purchase, sale and maturity transaction involving the
Funds.
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TSSG serves as transfer agent (the "Transfer Agent") for the Funds' Investor A
Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Their
address is 160 Federal Street, Boston, Massachuetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. Each Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and TSSG; interest; trustees'
and directors' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or TSSG under their respective agreements with
Nations Fund; and any extraordinary expenses. Investor A Shares may bear certain
class specific retail transfer agency expenses and also bear certain additional
shareholder service and sales support costs. Any general expenses of Nations
Fund Trust, Nations Fund, Inc., and/or Nations Portfolios that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bear to
the assets of Nations Fund Trust, Nations Fund, Inc., and/or Nations Portfolios
or in such other manner as the Board of Trustees or Boards of Directors deems
appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has 44 distinct investment portfolios and total assets in excess of $16 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. The Funds currently offer five classes of
shares -- Investor A, Investor B, Investor C, Trust A and Trust B Shares. This
Prospectus relates only to the Investor A Shares of Nations Short-Term Income
Fund, Nations Diversified Income Fund, Nations Strategic Fixed Income Fund and
Nations Short-Intermediate Government Fund of Nations Fund Trust. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Each share is without par value, represents an equal proportionate interest in
the related fund with other shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such fund as are declared in the discretion of Nations Fund Trust's Board of
Trustees. Nations Fund Trust's Declaration of Trust authorizes the Board of
Trustees to classify or reclassify any class of shares into one or more series
of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the 1940 Act
requires voting by fund.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's related SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Investor A Shares of Nations
Government Securities Fund of Nations Fund, Inc. To obtain additional infor-
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mation regarding the Fund's other classes of shares which may be available to
you, contact your Selling Agent (as defined below) or Nations Fund at 1-800-321-
7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. As of the date of this Prospectus, the authorized capital stock of
Nations Portfolios consists of 150,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor A Shares of the Nations Global Government Income Fund of Nations
Portfolios. To obtain additional information regarding the Fund's other classes
of shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class or allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, would be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios have entered into an indemnification agreement
that creates a right of indemnification from the investment company responsible
for any such misstatement, inaccuracy or incomplete disclosure that may appear
in this Prospectus.
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About Your Investment
How To Buy Shares
Stephens has established various procedures for purchasing Investor A Shares in
order to accommodate different investors. Purchase orders for Investor A Shares
may be placed through banks, broker/dealers or other financial institutions
(including certain affiliates of NationsBank) that have entered into a
shareholder servicing agreement ("Servicing Agreement") with Nations Fund
("Servicing Agents") and a sales support agreement ("Sales Support Agreement")
with Stephens ("Selling Agents").
Customers may invest in Investor A Shares through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for Individual Retirement Account ("IRA") investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
With respect to Investor A Shares, the Servicing Agents have entered into
Servicing Agreements with Nations Fund under which they will provide various
shareholder services to their customers ("Customers") who own Investor A Shares.
Servicing Agents and Selling Agents are sometimes referred to hereafter as
"Agents." From time to time the Agents, Stephens and Nations Fund may agree to
voluntarily reduce the maximum fees payable for sales support or shareholder
services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor A Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic invest-
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ment amount may be in any amount from $25 to $100,000. For more information
concerning the SIP, contact your Agent.
TELEPHONIC TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How to Redeem Shares" and "How to
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. You should be aware that by electing the telephone transaction
feature, you may be giving up a measure of security that you may have if you
were to authorize written requests only. You may bear the risk of any resulting
losses from a telephone transaction. Nations Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and if Nations Fund and its service providers fail to employ such measures, they
may be liable for any losses due to unauthorized or fraudulent instructions.
Nations Fund requires a form of personal identification prior to acting upon
instructions received by telephone and provides written confirmation to
shareholders of each telephone share transaction. In addition, Nations Fund
reserves the right to record all telephone conversations.
Shareholder Servicing And Distribution Plans
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits each Fund to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Nations Short-Term Income Fund, however, may not pay for shareholder servicing
activities under the Investor A Plan. Aggregate payments under the Funds'
Investor A Plan are calculated daily and paid monthly at a rate or rates set
from time to time by each Fund, provided that the annual rate may not exceed
0.25% of the average daily net asset value of the Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate Selling Agents for providing sales
support assistance in connection with the sale of Investor A Shares to
Customers, which may include forwarding sales literature and advertising
provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which if
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan or upon receipt of a CDSC.
Any such additional consideration or incentive program may be terminated at any
time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAI for more details on the Investor A Plan.
In addition, the Trustees have approved a Shareholder Servicing Plan ("Servicing
Plan") for the Investor A Shares of Nations Short-Term Income Fund. The
Servicing Plan permits Nations Short-Term Income Fund to compensate Servicing
Agents for services provided to
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their Customers that own Investor A Shares. Payments under the Servicing Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by Nations Short-Term Income Fund, provided that the annual rate may not exceed
0.25% of the average daily net asset value of the Fund's Investor A Shares. The
fees payable to Servicing Agents under the Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include, but are not limited to, those
discussed above with respect to the Investor A Plan.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor Shares for various services provided in connection with a
Customer's account. These fees would be in addition to any amounts received by a
Selling Agent under its Sales Support Agreement with Stephens or by a Servicing
Agent under its Servicing Agreement with Nations Fund. The Sales Support
Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customer's account with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor A Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor Shares represented by certificates,
the Transfer Agent must have received such certificates at its principal office.
All such certificates must be endorsed by the redeeming shareholder or
accompanied by a signed stock power, in each instance with the signature
guaranteed by a commercial bank or a member of a major stock exchange, unless
other arrangements satisfactory to Nations Fund have previously been made.
Nations Fund may require any additional information reasonably necessary to
evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that were purchased prior to January 1, 1996 in
amounts of $1 million or more or through the Nations Personal Investment Planner
will be subject to a CDSC equal to 1.00% of the lesser of the net asset value or
the purchase price of the shares being redeemed if such shares are redeemed
within one year of purchase, declining to 0.50% in the second year after
purchase and eliminated thereafter. No CDSC is imposed on increases in net asset
value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
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The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
retirement plans, (except in cases of plan level terminations); (b)
distributions from an IRA following attainment of age 59 1/2; (c) a tax-free
return of an excess contribution to an IRA, and (d) distributions from a
qualified retirement plan that are not subject to the 10% additional Federal
withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected pursuant
to Nations Fund's right to liquidate a shareholder's account if the aggregate
net asset value of the Investor A Shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC.
Within 120 days after a redemption of Investor A Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor A Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinstatement privilege.
In order to exercise this privilege, a written order for the purchase of
Investor A Shares must be received by the Transfer Agent or by Stephens within
120 days after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of a Fund if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor A Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor A Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer or to a checking or savings account in a stated amount of
not less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor A Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling or Servicing Agent or by Nations Fund at any time.
How To Exchange Shares
SHARES ACQUIRED DIRECTLY: Except as described below, the exchange feature
enables a shareholder of Investor A Shares of a Nations Fund non-money market
fund (including the Funds) to acquire shares of the same class that are offered
by any other fund of Nations Fund when the shareholder believes that a shift
between funds is an appropriate investment decision. A qualifying exchange is
based on the next calculated net asset value per share of each fund after the
exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor A Shares that
meets the requirements discussed in this section. If Investor A Shares of the
Funds are exchanged for shares of the same class of another fund, any CDSC
applicable to the original shares purchased will be applied upon the redemption
of the acquired shares. The holding period of such Investor A Shares (for
purposes of determining whether a CDSC is applicable upon redemption) will be
computed from the time of the initial purchase of the Investor A Shares of the
Funds.
INVESTOR A SHARES OF NATIONS SHORT-TERM INCOME FUND ACQUIRED IN EXCHANGE FOR
INVESTOR N SHARES: Investor A Shares of the Nations Short-Term Income Fund
acquired directly or indirectly in exchange for Investor N Shares of another
non-money market fund may be re-exchanged only for Investor N Shares of another
fund, Investor C Shares of a money market fund of Nations Fund or Investor A
Shares of Nations Short-Term Municipal Income Fund.
If a shareholder acquires Investor A Shares of Nations Short-Term Income Fund in
exchange for Investor N Shares of another non-money market fund, Investor C
Shares of a money market fund or Investor A Shares of Nations Short-Term
Municipal Income Fund, the acquired shares (and any Investor A or Investor C
Shares acquired through the exchange of such shares) will remain subject to the
CDSC schedule applicable to the Investor N Shares of the non-money market fund
last exchanged. A redemption of shares acquired through an exchange of Investor
N Shares will, in all events, be
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subject to the highest CDSC schedule applicable to any shares that were
exchanged within 30 days prior to the redemption.
Additionally, the holding period (for the purpose of determining the applicable
rate of the CDSC) does not accrue while the shares owned are Investor A Shares
of Nations Short-Term Income Fund or Nations Short-Term Municipal Income Fund or
Investor C Shares of a money market fund. As a result, the CDSC that is
ultimately charged upon redemption is based upon the total period of time the
shareholder holds Investor N Shares of any fund that charges a CDSC.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. Shareholder may direct proceeds to be exchanged from one Nations Fund to
another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th and/or 30th day of the applicable
month. The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, please
contact your selling agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the AEF). Nations Fund reserves the right to
reject any exchange request. Only shares that may legally be sold in the state
of the investor's residence may be acquired in an exchange. Only shares of a
class that is accepting investments generally may be acquired in an exchange. An
investor may telephone an exchange request by calling his/her Selling or
Servicing Agent which is responsible for transmitting such request to Stephens
or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling or Servicing Agent through which the original
shares were purchased. An investor should consult his/her Selling or Servicing
Agent or Stephens for further information regarding exchanges.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with
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respect to another class of shares due to the different expenses of the
different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Selling and Servicing Agents may provide for
the reinvestment of dividends in the form of additional Investor A Shares of the
same class in the same Fund. Dividends and distributions are paid in cash within
five Business Days of the end of the month or quarter to which the dividend
relates. Dividends and distributions payable to a shareholder are paid in cash
within five Business Days after a shareholder's complete redemption of his/her
Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income taxes on amounts distributed in accordance with the Code.
The Funds intend to distribute substantially all of their investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional shares. (Federal income taxes for distributions
to an IRA are generally deferred under the Code.) Corporate investors may be
entitled to the dividends-received deduction on a portion of the dividends from
those Funds investing in the stock of domestic corporations.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of the Nations Global Government Income Fund's investment income may be
subject to foreign income taxes withheld at their source. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Generally, more than 50% of the value of the total assets of the Nations
Global Government Income Fund will consist of securities of foreign issuers, and
therefore the Fund may elect to "pass through" to its shareholders these foreign
taxes, if any. In such event each shareholder will be required to include his or
her pro rata portion thereof in his or her gross income, but will be able to
deduct or (subject to various limitations) claim a foreign tax credit against
U.S. income taxes for such amount.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisers with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
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ASSET BACKED SECURITIES: Asset Backed Securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset Backed
Securities consist of both mortgage and non-mortgage backed securities.
Interests in pools of these assets differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specified call dates. Instead, Asset Backed
Securities provide periodic payments which generally consist of both interest
and principal payments.
The life of an Asset Backed Security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be primarily a function of current market interest rates, although other
economic and demographic factors may be involved. For example, falling interest
rates generally result in an increase in the rate of prepayments of mortgage
loans while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. Consequently,
Asset Backed Securities are not as effective in locking in high, long-term
yields. Conversely, in periods of sharply rising rates, prepayments are
generally slow, increasing the security's average life and its potential for
price depreciation.
MORTGAGE BACKED SECURITIES represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by GNMA, by FNMA and FHLMC. Such Certificates
are mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest. Each mortgage loan included in the pool is either
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA").
The average life of a GNMA Certificate is likely to be substantially less than
the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of a single-family dwelling mortgage with a 25- to 30-year maturity, the
type of mortgage which backs most GNMA Certificates, is approximately 12 years.
It is therefore customary practice to treat GNMA Certificates as 30-year
mortgage-backed securities which prepay fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
The yield which will be earned on GNMA Certificates may vary from their coupon
rates for the following reasons: (i) Certificates may be issued at a premium or
discount, rather than at par; (ii) Certificates may trade in the secondary
market at a premium or discount after issuance; (iii) interest is earned and
compounded monthly which has the effect of raising the effective yield earned on
the Certificates; and (iv) the actual yield of each Certificate is affected by
the prepayment of mortgages included in the mortgage pool underlying the
Certificates and the rate at which principal so prepaid is reinvested. In
addition, prepayment of mortgages included in the mortgage pool underlying a
GNMA Certificate purchased at a premium may result in a loss to the Fund.
Due to the large numbers of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments.
Mortgage backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
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Collateralized mortgage obligations or "CMOs," are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class pass-
through securities are interests in a trust composed of Mortgage Assets and all
references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets. A Fund will only invest in SMBS
whose mortgage assets are U.S. Government obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the mortgage assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates. Because SMBS were only recently introduced, established trading
markets for these securities have not yet been developed.
The average life of mortgage backed securities varies with the maturities of the
underlying mortgage instruments, which have maximum maturities of 40 years. The
average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as the result of mortgage
prepayments, mortgage refinancings, or foreclosures. The rate of mortgage
prepayments, and hence the average life of the certificates, will be a function
of the level of interest rates, general economic conditions, the location and
age of the mortgage and other social and demographic conditions. Such
prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest and have the effect of reducing future
payments. Estimated average life will be determined by the Adviser and used for
the purpose of determining the average weighted maturity of the Funds. For
additional information concerning mortgage backed securities, see the related
SAI.
NON-MORTGAGE ASSET BACKED SECURITIES include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass- through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
Non-mortgage backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities. In addition, such securities generally will have
remaining estimated lives at the time of purchase of five years or less.
The purchase of non-mortgage backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue Asset Backed Securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the Asset Backed Securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the Asset Backed
Securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of
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the Asset Backed Securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and Federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related Asset Backed Securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other Asset Backed Securities, credit card receivables are unsecured obligations
of the card holder.
The development of non-mortgage backed securities is at an early stage compared
to mortgage backed securities. While the market for Asset Backed Securities is
becoming increasingly liquid, the market for mortgage backed securities issued
by certain private organizations and non-mortgage backed securities is not as
well developed. As stated above, each Fund intends to limit its purchases of
mortgage backed securities issued by certain private organizations and
non-mortgage backed securities to securities that are readily marketable at the
time of purchase.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risk, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker-dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are
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required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Fund's asset coverage and other factors at the time of a reverse repurchase,
the Funds may not establish a segregated account when the Adviser believes it is
not in the best interests of the Funds to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objectives. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
United States Dollar. A Fund either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted. The Funds will generally
not enter into a forward contract with a term of greater than one year.
FOREIGN SECURITIES: Foreign securities include obligations of foreign
corporations and banks as well as obligations of foreign governments and their
political subdivisions (which will be limited to direct government obligations
and government-guaranteed securities). Such investments may subject a Fund to
special investment risks, including future political and economic
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developments, the possible imposition of withholding taxes on interest income,
possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign issuers in general may be
subject to different accounting, auditing, reporting, and record keeping
standards than those applicable to domestic companies, and securities of foreign
issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign stock
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the U.S. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign stock exchanges, brokers, and companies
than in the U.S. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not knowingly
invest more than 15% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements and time
deposits that do not provide for payment to a Fund within seven days after
notice, guaranteed investment contracts and some commercial paper issued in
reliance upon the exemption in Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act") (other than variable amount master demand notes with
maturities of nine months or less), are subject to the limitation on illiquid
securities.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities which are not registered under the 1933 Act but
which can be sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act. Any such security will not be considered illiquid so
long as it is determined by a Fund's Board of Trustees or Board of Directors or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional buyers cease purchasing such restricted securities pursuant to
Rule 144A, the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating rate payments for fixed rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A
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<PAGE>
Fund will segregate, on a daily basis, cash or liquid high quality debt
securities with a value at least equal to the Fund's net obligations, if any,
under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Lower-rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. The
Funds intend to limit their investments in lower-quality debt securities to 35%
of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition are adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss. Some of these instruments may be unrated, but unrated
instruments purchased by a Fund will be determined by the Adviser to be of
comparable quality at the time of purchase to instruments rated "high quality"
by any major rating service. Where necessary to ensure
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<PAGE>
that an instrument is of comparable "high quality," a Fund will require that an
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
security. To the extent that municipal participation interests are considered to
be "illiquid securities," such instruments are subject to each Fund's limitation
on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in Municipal Securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker-dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund and Nations Institutional Reserves.
SECURITIES LENDING: To increase return on portfolio securities, certain of the
Funds may lend their portfolio securities to broker-dealers and other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. There is a risk of delay in receiving
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to be credit worthy and
when, in their judgment, the income to be earned from the loan justifies the
attendant risks. The aggregate of all outstanding loans of a Fund may not exceed
30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indexes, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
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<PAGE>
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., GNMA certificates; in other cases interest and principal are not
guaranteed, E.G., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective ele-
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<PAGE>
ments are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong pro-
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tection from established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are Duff 1, Duff 2 and Duff 3.
D&P employs three designations, Duff 1+, Duff 1 and Duff 1-, within the highest
rating category. Duff 1+ indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations." Duff 1 indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by good fundamental protection factors. Risk factors are considered to be minor.
Duff 1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. Duff 2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. Duff 3 indicates satisfactory liquidity and other protection factors
which qualify the issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following is the four investment grade ratings used by BankWatch
for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is very high.
AA -- The second highest category; indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
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<PAGE>
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Obligations supported by the highest capacity for timely repayment
and possessing a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
35
<PAGE>
Prospectus
INVESTOR C SHARES
SEPTEMBER 30, 1995
AS SUPPLEMENTED ON
JANUARY 19, 1996
This Prospectus describes the NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND, NATIONS DISCIPLINED EQUITY FUND,
NATIONS INTERNATIONAL EQUITY FUND, NATIONS EMERGING
MARKETS FUND AND NATIONS PACIFIC GROWTH FUND (the
"Funds") of the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus describes
one class of shares of the Funds -- Investor C
Shares. The Nations Disciplined Equity Fund was
formerly called "Nations Special Equity Fund."
This Prospectus sets forth concisely the information
about the Funds that prospective purchasers of
Investor C Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios") is
contained in separate Statements of Additional
Information (the "SAIs"), which have been filed with
the Securities and Exchange Commission (the "SEC")
and are available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAIs for Nations
Fund Trust, Nations Fund, Inc. and Nations
Portfolios, dated September 30, 1995, September 30,
1995 and July 1, 1995, respectively, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc. ("NBAI")
is the investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to certain of the Funds and
Nations Gartmore Investment Management ("Nations
Gartmore") is sub-investment adviser to the other
Funds. As used herein the "Adviser" shall mean NBAI,
TradeStreet and/or Nations Gartmore as the context
may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
GROWTH AND INCOME FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Balanced Assets Fund
GROWTH FUNDS:
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity
Fund
INTERNATIONAL FUNDS:
Nations International
Equity Fund
Nations Emerging Markets
Fund
Nations Pacific
Growth Fund
For purchase, redemption and
performance information
call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo)
<PAGE>
Table Of Contents
About The Funds
Expenses Summary 3
Financial Highlights 5
Objectives 10
How Objectives Are Pursued 10
How Performance is Shown 17
How the Funds Are Managed 19
Organization and History 22
About Your Investment
How to Buy Shares 24
Shareholder Servicing and Distribution Plans 25
How to Redeem Shares 26
How to Exchange Shares 27
How the Funds Value Their Shares 28
How Dividends and Distributions are Made; Tax
Information 28
Appendix A -- Portfolio Securities 30
Appendix B -- Description of Ratings 35
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR C SHARES
<TABLE>
<CAPTION>
Nations Nations
Nations Equity Balanced
Value Fund Income Fund Assets Fund
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of
the original purchase price or redemption proceeds)1 .50% .50% .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .70% .75%
Rule 12b-1 Fees .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses .17% .25% .20%
Total Operating Expenses 1.42% 1.45% 1.45%
</TABLE>
<TABLE>
<CAPTION>
Nations
Capital Nations Emerging
Growth Fund Growth Fund
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None
Deferred Sales Charge (as a percentage of the lower of
the original purchase price or redemption proceeds)1 .50% .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .75%
Rule 12b-1 Fees .25% .25%
Shareholder Servicing Fees .25% .25%
Other Expenses .17% .20%
Total Operating Expenses 1.42% 1.45%
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Disciplined International Nations Emerging
Equity Fund Equity Fund Markets Fund
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 .50% .50% .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .90% 1.10%
Rule 12b-1 Fees .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses .25% .20% .80%
Total Operating Expenses 1.50% 1.60% 2.40%
</TABLE>
<TABLE>
<CAPTION>
Nations Pacific
Growth Fund
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90%
Rule 12b-1 Fees .25%
Shareholder Servicing Fees .25%
Other Expenses .80%
Total Operating Expenses 2.20%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of the date of purchase. Investor C Shares purchased
prior to January 1, 1996 will continue to be subject to the 1.00% Deferred
Sales Charge.
3
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Nations
Nations Equity Balanced
Value Fund Income Fund Assets Fund
<S> <C> <C> <C>
1 Year $ 19 $ 20 $ 20
3 Years $ 45 $ 46 $ 46
5 Years $ 78 $ 79 $ 79
10 Years $ 170 $ 174 $ 174
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations Emerging Growth
Capital Growth Fund Fund
<S> <C> <C>
1 Year $ 19 $ 20
3 Years $ 45 $ 46
5 Years $ 78 $ 79
10 Years $ 170 $ 174
</TABLE>
<TABLE>
<CAPTION>
Nations Nations Nations
Disciplined International Emerging Market
Equity Fund Equity Fund Funds
<S> <C> <C> <C>
1 Year $ 20 $ 21 $ 29
3 Years $ 46 $ 50 $ 70
5 Years N/A $ 87 N/A
10 Years N/A $ 190 N/A
</TABLE>
<TABLE>
<CAPTION>
Nations
Pacific Growth Fund
<S> <C>
1 Year $ 27
3 Years $ 69
5 Years N/A
10 Years N/A
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
Nations Nations
Nations Equity Balanced
Value Fund Income Fund Assets Fund
<S> <C> <C> <C>
1 Year $ 14 $ 15 $ 15
3 Years $ 45 $ 46 $ 46
5 Years $ 78 $ 79 $ 79
10 Years $ 170 $ 174 $ 174
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations Emerging Growth
Capital Growth Fund Fund
<S> <C> <C>
1 Year $ 14 $ 15
3 Years $ 45 $ 46
5 Years $ 78 $ 79
10 Years $ 170 $ 174
</TABLE>
<TABLE>
<CAPTION>
Nations Nations Nations
Disciplined Equity International Emerging Market
Fund Equity Fund Funds
<S> <C> <C> <C>
1 Year $ 15 $ 16 $ 24
3 Years $ 47 $ 50 $ 75
5 Years N/A $ 87 N/A
10 Years N/A $ 190 N/A
</TABLE>
<TABLE>
<CAPTION>
Nations
Pacific Growth Fund
<S> <C>
1 Year $ 22
3 Years $ 69
5 Years N/A
10 Years N/A
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares of the Funds will bear either directly or indirectly. Except
for the Nations Emerging Markets Fund and Nations Pacific Growth Fund, which
fees and expenses are based on estimates, the figures in the above tables are
based on amounts incurred during each Fund's most recent fiscal year and have
been adjusted as necessary to reflect current service provider fees. In
particular, the figures reflect a waiver effective January 1, 1996, of each
Fund's Rule 12b-1 fees to 0.25% of each Fund's average daily net assets. Absent
such waiver, each Fund's Total Operating Expenses would be 0.50% greater than
the amount shown. There is no assurance that any fee waivers and reimbursements
will continue beyond the current fiscal year. If fee waivers and/or
reimbursements are discontinued, the amounts contained in the "Examples" above
may increase. Long-term shareholders in the Funds could pay more in sales
charges than the economic equivalent of the maximum front-end sales charges
applicable to mutual funds sold by members of the National Association of
Securities Dealers, Inc. For more complete descriptions of the Funds' operating
expenses, see "How the Funds Are Managed." For a more complete description of
the Rule 12b-1 and shareholder servicing fees payable by the Funds, see
"Shareholder Servicing and Distribution Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios. The reports of Price Waterhouse LLP for the
most recent fiscal years of Nations Fund Trust and Nations Fund, Inc. accompany
the financial statements for such periods and are incorporated by reference in
the SAIs, which are available upon request. For more information see
"Organization and History." Shareholders of the Funds will receive unaudited
semi-annual reports describing the Funds' investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS VALUE FUND
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94 11/30/93
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.90 $ 13.64 $ 12.41
Net investment income 0.08 0.12 0.13
Net realized and unrealized gain/(loss) on investments 2.10 (0.22) 1.32
Net increase/(decrease) in net assets resulting from investment
operations 2.18 (0.10) 1.45
Distributions:
Dividends from net investment income (0.08) (0.10) (0.13)
Distributions from net realized capital gains (0.67) (0.54) (0.09)
Total distributions (0.75) (0.64) (0.22)
Net asset value, end of period $ 14.33 $ 12.90 $ 13.64
Total return++ 18.03% (0.92)% 11.85%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,571 $ 2,983 $ 2,997
Ratio of operating expenses to average net assets 1.91%+ 1.93% 1.96%
Ratio of net investment income to average net assets 1.17%+ 0.85% 0.98%
Portfolio turnover rate 36% 75% 64%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.91%+ 1.93% 1.97%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.08 $ 0.12 $ 0.13
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 11.63
Net investment income 0.07
Net realized and unrealized gain/(loss) on investments 0.78
Net increase/(decrease) in net assets resulting from investment
operations 0.85
Distributions:
Dividends from net investment income (0.07)
Distributions from net realized capital gains --
Total distributions (0.07)
Net asset value, end of period $ 12.41
Total return++ 7.33%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,286
Ratio of operating expenses to average net assets 1.98%+
Ratio of net investment income to average net assets 1.22%+
Portfolio turnover rate 60%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.98%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.07
</TABLE>
* The Nations Value Fund Investor C Shares commenced operations on June 17,
1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
5
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
INVESTOR C SHARES 05/31/95 05/31/94
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.47 $ 12.04
Net investment income 0.32 0.28
Net realized and unrealized gain on investments 1.08 0.21
Net increase in net assets resulting from investment operations 1.40 0.49
Distributions:
Dividends from net investment income (0.31) (0.25)
Distributions from net realized capital gains (0.73) (0.81)
Total distributions (1.04) (1.06)
Net asset value, end of period $ 11.83 $ 11.47
Total return++ 13.49% 3.96%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,278 $ 4,221
Ratio of operating expenses to average net assets 1.92% 1.94%
Ratio of net investment income to average net assets 2.75% 2.41%
Portfolio turnover rate 158% 116%
Ratio of operating expenses to average net assets without waivers and reimbursements 1.93% 1.95%
Net investment income per share without waivers and reimbursements $ 0.32 $ 0.28
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 05/31/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 11.13
Net investment income 0.32
Net realized and unrealized gain on investments 1.32
Net increase in net assets resulting from investment operations 1.64
Distributions:
Dividends from net investment income (0.28)
Distributions from net realized capital gains (0.45)
Total distributions (0.73)
Net asset value, end of period $ 12.04
Total return++ 15.31%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,377
Ratio of operating expenses to average net assets 1.92%+
Ratio of net investment income to average net assets 2.37%+
Portfolio turnover rate 55%
Ratio of operating expenses to average net assets without waivers and reimbursements 2.04%+
Net investment income per share without waivers and reimbursements $ 0.31
</TABLE>
* The Nations Equity Income Fund Investor C Shares commenced operations on
June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94 11/30/93
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.38 $ 10.82 $ 10.23
Net investment income 0.11 0.14 0.23
Net realized and unrealized gain/(loss) on investments 1.13 (0.43) 0.59
Net increase/(decrease) in net assets resulting from investment
operations 1.24 (0.29) 0.82
Distributions:
Dividends from net investment income (0.08) (0.15) (0.23)
Distributions from net realized gains (0.02) -- --
Total distributions (0.10) (0.15) (0.23)
Net asset value, end of period $ 11.52 $ 10.38 $ 10.82
Total return++ 11.93% (2.72)% 8.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 798 $ 951 $ 1,196
Ratio of operating expenses to average net assets 1.99%+ 1.98% 1.90%
Ratio of net investment income to average net assets 2.11%+ 1.31% 1.82%
Portfolio turnover rate 101% 156% 50%
Ratio of operating expenses to average net assets before fee waivers 1.99%+ 1.99% 1.97%
Net investment income per share before fee waivers $ 0.11 $ 0.14 $ 0.22
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.01
Net realized and unrealized gain/(loss) on investments 0.22##
Net increase/(decrease) in net assets resulting from investment
operations 0.23
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions --
Net asset value, end of period $ 10.23
Total return++ 2.30%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 156
Ratio of operating expenses to average net assets 1.30%+
Ratio of net investment income to average net assets 2.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net assets before fee waivers 2.05%+
Net investment income per share before fee waivers $ 0.01
</TABLE>
* The Nations Balanced Assets Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94 11/30/93
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.14 $ 11.01 $ 10.67
Net investment income/(loss) 0.01 (0.02) (0.00)(a)
Net realized and unrealized gain on investments 1.35 0.15 0.38
Net increase in net assets resulting from investment
operations 1.36 0.13 0.38
Distributions:
Dividends from net investment income -- -- (0.03)
Distributions from net realized gains (0.26) (0.00)(a) (0.01)
Total distributions (0.26) (0.00)(a) (0.04)
Net asset value, end of period $ 12.24 $ 11.14 $ 11.01
Total return++ 12.59% 1.22% 3.61%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,921 $ 2,394 $ 2,919
Ratio of operating expenses to average net assets 1.91%+ 1.90% 1.80%
Ratio of net investment income/(loss) to average net assets 0.03%+ (0.15)% (0.16)%
Portfolio turnover rate 43% 56% 81%
Ratio of operating expenses to average net assets before fee
waivers 1.97%+ 1.91% 1.89%
Net investment income/(loss) per share before fee waivers $ (0.01) $ (0.02) $ 0.00(a)
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.00)(a)
Net realized and unrealized gain on investments 0.67##
Net increase in net assets resulting from investment
operations 0.67
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Total distributions 0.00(a)
Net asset value, end of period $ 10.67
Total return++ 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 406
Ratio of operating expenses to average net assets 1.30%+
Ratio of net investment income/(loss) to average net assets 0.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets before fee
waivers 2.05%+
Net investment income/(loss) per share before fee waivers $ 0.00(a)
</TABLE>
* The Nations Capital Growth Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
## The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Value represents less than $0.01 per share.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
05/31/95 ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.20 $ 10.78
Net investment income/(loss) (0.03) (0.14)
Net realized and unrealized gain on investments 0.93 0.70
Net increase in net assets resulting from investment operations 0.90 0.56
Distributions:
Distributions from net realized gains (0.40) (0.14)
Total distributions (0.40) (0.14)
Net asset value, end of period $ 11.70 $ 11.20
Total return++ 8.54% 5.19%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 649 $ 542
Ratio of operating expenses to average net assets 1.97%+ 2.01%
Ratio of net investment income/(loss) to average net assets (0.90)%+ (1.29)%
Portfolio turnover rate 69% 129%
Ratio of operating expenses to average net assets before fee waivers 1.98%+ 2.01%
Net investment income/(loss) per share before fee waivers $ (0.03) $ (0.14)
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.89
Net investment income/(loss) (0.09)
Net realized and unrealized gain on investments 0.98
Net increase in net assets resulting from investment operations 0.89
Distributions:
Distributions from net realized gains --
Total distributions --
Net asset value, end of period $ 10.78
Total return++ 9.00%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 469
Ratio of operating expenses to average net assets 1.80%+
Ratio of net investment income/(loss) to average net assets (1.15)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets before fee waivers 2.01%+
Net investment income/(loss) per share before fee waivers $ (0.11)
</TABLE>
* The Nations Emerging Growth Fund Investor C Shares commenced operations on
December 18, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method.
7
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
05/31/95
INVESTOR C SHARES (UNAUDITED)*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 14.08
Net investment income/(loss) 0.01
Net realized and unrealized gain/(loss) on investments 0.35
Net increase/(decrease) in net assets resulting from investment operations 0.36
Distributions:
Dividends from net investment income --
Distributions from net realized gains --
Return of capital --
Total distributions --
Net asset value, end of period $ 14.44
Total return++ 2.56%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $7
Ratio of operating expenses to average net assets 0.94%+
Ratio of net investment income/(loss) to average net assets 1.37%+
Portfolio turnover rate 98%
Ratio of operating expenses to average net assets before fee waivers 1.65%+
Net investment income/(loss) per share before fee waivers $ 0.01
</TABLE>
* The Nations Disciplined Equity Fund Investor C Shares commenced operations on
May 10, 1995.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
INVESTOR C SHARES 05/31/95# 05/31/94#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.86 $ 10.49
Net investment income/(loss) 0.02 (0.03)
Net realized and unrealized gain/(loss) on investments (0.21) 1.43
Net increase/(decrease) in net assets resulting from investment operations (0.19) 1.40
Distributions:
Dividends from net investment income -- (0.01)
Distributions from net realized capital gains (0.12) (0.02)
Distributions in excess of net realized capital gains (0.10) --
Total distributions (0.22) (0.03)
Net asset value, end of period $ 11.45 $ 11.86
Total return++ (1.56)% 13.21%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 495 $ 339
Ratio of operating expenses to average net assets 2.03% 2.17%
Ratio of net investment income/(loss) to average net assets 0.17% (0.25)%
Portfolio turnover rate 92% 39%
Ratio of operating expenses to average net assets without waivers and reimbursements 2.04% 2.18%
Net investment income/(loss) per share without waivers and reimbursements $ 0.02 $ (0.03)
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 05/31/93*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.10
Net investment income/(loss) 0.00**
Net realized and unrealized gain/(loss) on investments 0.48
Net increase/(decrease) in net assets resulting from investment operations 0.48
Distributions:
Dividends from net investment income (0.07)
Distributions from net realized capital gains (0.02)
Distributions in excess of net realized capital gains --
Total distributions (0.09)
Net asset value, end of period $ 10.49
Total return++ 4.97%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 200
Ratio of operating expenses to average net assets 2.30%+
Ratio of net investment income/(loss) to average net assets 0.03%+
Portfolio turnover rate 41%
Ratio of operating expenses to average net assets without waivers and reimbursements 2.32%+
Net investment income/(loss) per share without waivers and reimbursements $ 0.00**
</TABLE>
* The Nations International Equity Fund Investor C Shares commenced operations
on June 17, 1992.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
8
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 09/30/95*#
<S> <C>
For a Share Outstanding Thoughout the Period:
Net asset value, beginning of period $ 10.00
Net investment income/(loss)## (0.02)
Net realized and unrealized gain/(loss) on investments (0.13)
Net increase/(decrease) in net assets resulting from investment operations (0.15)
Distributions:
Dividends from net investment income N/A
Total Distributions N/A
Net asset value, end of period $ 9.85
Total return++ (1.50)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000') $ 10
Ratio of operating expenses to average net assets 2.90%+
Ratio of net investment income/(loss) to average net assets (1.03)%+
Portfolio turnover rate 10%
</TABLE>
* The Fund's Investor C Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total Return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 09/30/95*#
<S> <C>
For a Share Outstanding Throughout the Period:
Net asset value, beginning of period $ 10.00
Net investment income/(loss)## (0.02)
Net realized and unrealized gain/(loss) on investments (0.30)
Net increase/(decrease) in net assets resulting from investment operations (0.32)
Distributions:
Dividends from net investment income N/A
Total Distributions N/A
Net asset value, end of period $ 9.68
Total return++ (3.20)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 46
Ratio of operating expenses to average net assets 2.70%+
Ratio of net investment income/(loss) to average net assets (0.85)%+
Portfolio turnover rate 3%
</TABLE>
* The Fund's Investor C Shares commenced operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total Return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
9
<PAGE>
Objectives
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Nations Value Fund's investment objective is to seek
long-term capital growth with income a secondary consideration. The Fund invests
under normal market conditions at least 65% of its total assets in common
stocks.
NATIONS EQUITY INCOME FUND: The Nations Equity Income Fund seeks to provide high
current income primarily through investments in equity securities (including
convertible securities) having a relatively high current yield. Secondarily,
equity securities will be selected which the Adviser believes have favorable
prospects for increasing dividend income and/or capital appreciation.
NATIONS BALANCED ASSETS FUND: The Nations Balanced Assets Fund's investment
objective is total investment return through a combination of growth of capital
and current income consistent with the preservation of capital. In seeking its
objective, the Fund will use a disciplined approach of allocating assets
primarily among three major asset groups: common stocks, fixed income securities
and cash equivalents.
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The Nations Capital Growth Fund's investment
objective is to seek long-term capital appreciation by investing primarily in
common stocks issued by companies that, in the judgment of the Adviser, have
above-average potential for capital appreciation. Over time, total return is
likely to consist primarily of capital appreciation and secondarily of dividend
and interest income.
NATIONS EMERGING GROWTH FUND: The Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in equity securities of
high quality emerging growth companies that are expected to have earnings growth
rates superior to most publicly traded companies.
NATIONS DISCIPLINED EQUITY FUND: The Nations Disciplined Equity Fund's
investment objective is to seek long-term capital appreciation. The Fund seeks
to achieve its investment objective by investing primarily in the common stocks
of companies that are considered by the Adviser to have the potential for
significant increases in earnings per share.
INTERNATIONAL FUNDS:
NATIONS INTERNATIONAL EQUITY FUND: The Nations International Equity Fund's
investment objective is to seek long-term growth of capital primarily by
investing in marketable equity securities of established, non-United States
issuers.
NATIONS EMERGING MARKETS FUND: The Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth. It seeks to achieve this
objective by investing primarily in securities of companies that conduct their
principal business activities in emerging markets. The Fund invests primarily in
companies located in countries considered to have potential for rapid economic
growth and that have a relatively low gross national product per capita compared
to the world's major economies.
NATIONS PACIFIC GROWTH FUND: The Nations Pacific Growth Fund's investment
objective is to seek long-term capital growth, with income a secondary
consideration. It seeks to achieve this objective by investing primarily in
securities of issuers that conduct their principal business activities in the
Pacific Basin and the Far East (excluding Japan).
How Objectives Are Pursued
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a universe of
approximately 800 stocks monitored by the Adviser. The Adviser closely monitors
these companies, rating them for quality and projecting their future earnings
and dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $300 million or more and have average
monthly trading volume of at least $10 million. These requirements are generally
considered by the Adviser to be adequate to support normal purchase and sale
activity without materially affecting prevailing market prices of the issuer's
shares. The Adviser also analyzes key financial ratios that measure the growth,
profitability and leverage of such issuers that it believes will help maintain a
portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies
10
<PAGE>
with lower price/earnings ratios are more likely to provide better opportunities
for capital appreciation. This "value" approach generally produces a dividend
yield greater than the market average. The Adviser will attempt to temper risk
by broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks. No industry will represent 25% or more of the Fund's
portfolio at the time of purchase.
In addition to common stocks, the Fund also may invest in preferred stocks,
securities convertible into common stock, and other types of securities having
common stock characteristics (such as rights and warrants to purchase equity
securities). Although the Fund invests primarily in publicly-traded common
stocks of companies incorporated in the United States, the Fund may invest in
securities of foreign issuers. See "Appendix A -- Foreign Securities." The Fund
also may hold up to 20% of its total assets in obligations issued or guaranteed
as to payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade bonds
and other debt securities of domestic companies. Obligations with the lowest
investment grade rating (e.g. rated "BBB" by Standard & Poor's Corporation
("S&P") or "Baa" by Moody's Investors Service, Inc. ("Moody's")) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For more information concerning these instruments and the
Fund's investment practices, see "Appendix A."
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, the Adviser believes that, over time, dividend income
can account for a significant component of the total return from equity
investments. Over time, reinvested dividend income has accounted for
approximately one-half of the total return of the Standard & Poor's 500 Stock
Index ("S&P 500 Index"), a broad-based and widely used index of common stock
prices. Second, dividends are normally a more stable and predictable source of
return than capital appreciation. While the price of a company's stock generally
increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Finally, the Adviser
believes that stocks which distribute a high level of current income tend to
have less price volatility than those which pay below average dividends.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average current dividend yields relative to the S&P 500 Index;
(Bullet) five years of stable or increasing dividends;
(Bullet) established operating histories; and
(Bullet) strong balance sheets and other favorable financial characteristics.
To achieve its objectives, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (i.e., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate, government, and municipal bonds of various
maturities), preferred stocks and warrants. The Fund may invest in debt
securities that are considered investment grade (e.g. securities rated in one of
the top four investment categories by S&P or Moody's, or if not rated, are of
equivalent investment quality as determined by the Adviser). Obligations rated
in the lowest of the top four investment grade rating categories (e.g., rated
"BBB" by S&P) have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (e.g. rated "BB" by S&P), or if not rated,
are of equivalent investment quality as determined by the Adviser.
Non-investment-grade debt securities are sometimes referred to as "high yield
bonds" or "junk bonds," tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may
11
<PAGE>
invest 10% or more of its total assets in debt obligations of foreign issuers
and stocks of foreign corporations. The Fund will treat foreign securities as
illiquid unless there is an active and substantial secondary market for such
securities.
The Fund may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant. For additional information concerning these instruments and the Fund's
investment practices, see "Appendix A."
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset groups in which the Fund
principally invests: common stocks, fixed income securities and cash
equivalents. In assessing relative value and expected returns, the Adviser will
evaluate current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. In general, the
Adviser believes that common stocks typically offer the best opportunity for
long-term capital appreciation, and that high quality companies with
above-average earnings growth and return on equity offer the best growth
prospects among common stocks.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. The stocks are primarily those of seasoned, financially strong U.S.
companies with records of above-average earnings growth and above-average
capital growth potential. No industry will represent 25% or more of the Fund's
portfolio at the time of purchase.
The Fund also will invest in government, corporate and mortgage-backed
securities (see "Appendix A -- Asset-Backed Securities"). Most obligations
acquired by the Fund will be issued by companies or governmental entities
located within the United States. Debt obligations acquired by the Fund will be
rated investment grade at the time of purchase by S&P, Moody's, Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited
or its affiliate IBCA Inc. (collectively "IBCA"), or Thomson BankWatch, Inc.
("BankWatch") or, if unrated, determined by the Adviser to be comparable in
quality to instruments so rated. Obligations with the lowest investment grade
rating (e.g. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations. Subsequent
to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired. Under normal circumstances, at least 25% of the total value of the
Fund's assets will be invested in fixed income securities.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in debt obligations of foreign issuers
and stocks of foreign corporations. See "Appendix A -- Foreign Securities."
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For more information concerning these instruments, see
"Appendix A."
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above-average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
companies that comprise the equity markets:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
12
<PAGE>
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
In seeking capital growth, the Fund looks for companies whose securities appear
to present a favorable relationship between market price and opportunity. These
may include securities of companies whose fundamentals or products may be of
only average promise. Market misconceptions, temporary bad news and other
factors may cause a security to be out of favor in the stock market and to trade
at a price below its potential value. These undervalued securities can provide
the opportunity for above-average market performance. Through intensive
research, visits to many companies each year, and efficient response to changing
market conditions, the Adviser seeks to make the most of the Fund's flexible
charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities."
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For additional information concerning these instruments and
the Fund's investment practices, see "Appendix A."
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above-average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant. For additional information concerning
these instruments and the Fund's investment practices, see "Appendix A."
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Fund seeks to provide investors with long-term
capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of
domes-
13
<PAGE>
tic issuers. With respect to the remainder of the Fund's assets, the Fund may
invest in a broad range of equity and debt instruments, including preferred
stocks, securities (debt and preferred stock) convertible into common stock,
warrants and rights to purchase common stocks, options, U.S. government and
corporate debt securities and various money market instruments. The Fund will
invest primarily in medium- and large-sized companies (I.E. companies with
market capitalizations of $500 million or greater) that are determined to have
favorable price/earnings ratios. The Fund also may invest in securities issued
by companies with market capitalizations of less than $500 million. The
volatility of small-capitalization stocks is typically greater than that of
larger companies. To help reduce risk, the Fund will invest in the securities of
companies representing a broad range of industries and economic sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by a nationally recognized statistical
rating organization or, if not rated, are of equivalent quality as determined by
the Adviser). Obligations rated in the lowest of the top four investment grade
rating categories have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations.
The Fund may invest in foreign securities. Investments in foreign securities
involve risks that are different in some respects from investments in securities
of U.S. issuers, such as the risk of fluctuations in the value of the currencies
in which they are denominated. See "Appendix A -- Foreign Securities." For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments and
money market instruments.
INTERNATIONAL FUNDS:
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in countries located in the
Far East and Western Europe as well as Australia, Canada, and other areas
(including developing countries). Under unusual circumstances, however, the Fund
may invest substantially all of its assets in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that the
Adviser believes have potential for growth of capital. The Fund also may invest
up to 35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities. For additional
information concerning the Fund's investment practices, see "Appendix A."
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
securities of companies that conduct their principal business activities in
emerging markets. A company will be considered to conduct its principal business
activities in a country, market or region if it derives a significant portion
(at least 50%) of its revenues or profits from goods produced or sold,
investments made, or services performed in such country, market or region or has
at least 50% of its assets situated in such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's, S&P or, if unrated, determined by the
Adviser to be comparable in quality to instruments so rated. Obligations with
the lowest investment grade rating (e.g., rated "Baa" by Moody's or "BBB" by
S&P) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of those ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's instruments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations International Equity Fund, Nations
Emerging Markets Fund
14
<PAGE>
and Nations Pacific Growth Fund," below. When allocating investments among
individual countries, the Adviser will consider various criteria, such as the
relative economic growth potential of the various economies and securities
markets, expected levels of inflation, government policies influencing business
conditions and the outlook for currency relationships.
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. The Adviser seeks to identify and invest in those
emerging markets that have a relatively low gross national product per capita,
compared to the world's major economies, and which exhibit potential for rapid
economic growth. The Adviser believes that investment in equity securities of
emerging market issuers offers significant potential for long-term capital
appreciation.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers that conduct their principal
business activities in the regions known as the Pacific Basin and the Far East.
The Pacific Basin and the Far East include Australia, Hong Kong, Indonesia,
South Korea, Malaysia, New Zealand, Pakistan, the People's Republic of China,
the Philippines, Singapore, Sri Lanka, Taiwan and Thailand and may include other
markets that develop in the region. The Fund will not invest in securities of
issuers that conduct their principal business activities in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (e.g., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in issuers that conduct their
principal business activities in a single country, events occurring in such
country are more likely to affect the Fund's investments. For additional
information concerning risk, see "Special Risk Considerations Relevant to an
Investment in the Nations International Equity Fund, Nations Emerging Markets
Fund and Nations Pacific Growth Fund," below. When allocating investments among
individual countries, the Adviser will consider various criteria, such as the
relative economic growth potential of the various economies and securities
markets, expected levels of inflation, government policies influencing business
conditions and the outlook for currency relationships. The Fund may invest in
ADRs, GDRs, EDRs and ADSs.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ( the "CFTC") and options thereon for
market exposure risk management. The Nations Balanced Assets Fund also may
engage in dollar roll transactions. Each Fund may lend its portfolio securities
to qualified institutional investors. Each Fund also may invest in restricted,
private placement and other illiquid securities and securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. Each Fund (except the Nations Balanced Assets Fund) may invest in real
estate investment trust securities.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NATIONS
INTERNATIONAL EQUITY FUND, NATIONS EMERGING MARKETS FUND AND NATIONS PACIFIC
GROWTH FUND: Investors should understand and consider carefully the special
risks
15
<PAGE>
involved in foreign investing. In addition, certain Funds present unique risks
that investors should be aware of.
Investors in the Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in the Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties. For
example, the return of Hong Kong to Chinese dominion may have a profound effect
on both Hong Kong and China, and could affect the entire Pacific Basin and the
Far East.
The same is true, but even more so, for the emerging market countries in which
the Nations Emerging Markets Fund will invest. Although the Fund believes that
its investments present the possibility for significant growth over the
long-term, they also entail significant risks. Many investments in emerging
markets can be considered speculative, and their prices can be much more
volatile than in the more developed nations of the world. This difference
reflects the greater uncertainties of investing in less established markets and
economies.
The financial markets of emerging market countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
Moreover, for each of the Funds, investing in securities denominated in foreign
currencies and utilization of forward foreign currency exchange contracts and
other currency hedging techniques involve certain considerations comprising both
opportunities and risks not typically associated with investing in U.S.
dollar-denominated securities. Additionally, changes in the value of foreign
currencies can significantly affect a Fund's share price. General economic and
political factors in the various world markets also can impact a Fund's share
price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund and Nations Pacific Growth Fund.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, annual
portfolio turnover rates will not exceed 75% for Nations Emerging Markets Fund
and Nations Pacific Growth Fund. For other Funds' portfolio turnover rate, see
"Financial Highlights." If a Fund's annual portfolio turnover rate exceeds 100%,
it may result in higher costs to the Fund, including brokerage commissions or
dealer markups and other transaction costs on the sale of securities and the
reinvestment in other securities. Portfolio turnover also can generate
short-term capital gains tax consequences.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The
16
<PAGE>
value of the stocks that the Fund holds, like the broader stock market, may
decline over short or even extended periods. The value of a Fund's investments
in debt securities will tend to decrease when interest rates rise and increase
when interest rates fall. In general, longer-term debt instruments tend to
fluctuate in value more than shorter-term debt instruments in response to
interest rate movements. In addition, debt securities that are not backed by the
United States Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the Fund's investment objective and do not unduly increase the
Fund's exposure to market or other risks. For additional risk information
regarding the Funds' investments in particular instruments, see "Appendix
A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a
class of shares of the Funds may be calculated on an average annual total return
basis or an aggregate total return basis. Average annual total return refers to
the average annual compounded rates of return on a class of shares over one-,
five-, and ten-year periods or the life of the Fund (as stated in the
advertisement) that would equate an initial amount invested at the beginning of
a stated period to the ending redeemable value of the investment (reflecting the
deduction of any applicable contingent deferred sales charge ("CDSC")), assuming
the reinvestment of all dividend and capital gains distributions. Aggregate
total return reflects the total percentage change in the value of the investment
over the measuring period, again assuming the reinvestment of all dividends and
capital gains distributions. Total return may also be presented for other
periods or may not reflect a deduction of any applicable CDSC.
Set forth below is certain performance data for the Pacific Ex-Japan Composite
and the Emerging Markets Composite, reflecting the performance of private
accounts, including U.K. authorized unit trusts, managed by the Gartmore Group,
as defined below. The performance data for these accounts is deemed relevant
because the Pacific Ex-Japan Composite and the Emerging Markets Composite have
investment objectives, policies and restrictions that are substantially similar
to
17
<PAGE>
those of the Nations Pacific Growth Fund and Nations Emerging Markets Fund,
respectively. There is substantial continuity between the portfolio managers of
the Gartmore Group who were responsible for managing those accounts and the
portfolio managers of Nations Gartmore who are responsible for managing the
Nations Pacific Growth Fund and Nations Emerging Markets Fund, respectively.
THIS PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NOT NECESSARILY
INDICATIVE OF THE FUTURE PERFORMANCE OF NBAI, NATIONS GARTMORE OR THE FUNDS.
<TABLE>
<CAPTION>
Average Annual Total
Return for the Periods
PACIFIC EX-JAPAN Indicated through
COMPOSITE March 31, 1995*
<S> <C>
One Year 4.90%
Three Year 24.50%
Five Year 15.70%
Since Inception on January 1, 1988 22.20%
</TABLE>
Annual Total Returns*
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
10.70% 56.10% (1.50)% 20.30% 21.10% 106.90% (15.10)%
</TABLE>
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1% per annum until September 30, 1988, and 1.5%
per annum thereafter.
<TABLE>
<CAPTION>
Average Annual Total
Return for the Periods
EMERGING MARKETS Indicated through
COMPOSITE March 31, 1995*
<S> <C>
One Year (24.40)%
Since Inception on January 1, 1993 9.60%
</TABLE>
Annual Total Returns*
<TABLE>
<CAPTION>
1993 1994
<S> <C>
73.90% (20.20)%
</TABLE>
* The average annual total returns and annual total returns are net of fees. The
fees for these accounts were 1.5% per annum.
Set forth below is the average annual total return and the annual total return
for the Nations International Equity Fund for the periods ending March 31, 1995:
<TABLE>
<CAPTION>
Average Annual Total
Return for the Periods
NATIONS INTERNATIONAL EQUITY Indicated through
FUND -- INVESTOR C SHARES March 31, 1995
<S> <C>
One Year (2.34%)
Since Inception on June 17, 1992 4.62%
</TABLE>
Annual Total Returns
<TABLE>
<CAPTION>
1993 1994
<S> <C>
25.78% 1.36%
</TABLE>
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolio and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer Trust A, Trust B, Investor A
and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in the Funds will not be included in calculations of
total return or yield. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or your selling agent.
18
<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios are managed under the direction of their Board of Trustees and Boards
of Directors, respectively. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund, Inc.'s and Nations Portfolios' SAIs contain the names of and
general background information concerning each Director of Nations Fund, Inc.
and Nations Portfolios.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc., serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Nations Gartmore serves as sub-investment adviser. TradeStreet is a wholly owned
subsidiary of NationsBank, which in turn is a wholly owned banking subsidiary of
NationsBank Corporation, a bank holding company organized as a North Carolina
corporation.
TradeStreet provides trust and banking services to individuals, corporations,
and institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking.
Nations Gartmore Investment Management, with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to Nations International Equity Fund, Nations Emerging Markets Fund and
Nations Pacific Growth Fund pursuant to a sub-advisory agreement. Nations
Gartmore is a joint venture structured as a general partnership between NB
Partner Corp., a wholly owned subsidiary of NationsBank, and Gartmore U.S.
Limited, a wholly owned subsidiary of Gartmore plc, a UK company listed on the
London Stock Exchange which is the holding company for a leading UK-based
international fund management group of companies (the "Gartmore Group"). Banque
Indosuez S.A., a leading French bank, owns 75% of the equity of Gartmore plc.
The initial asset management company in the Gartmore Group was founded in 1969
and the Gartmore Group currently provides investment management and advisory
services to pension funds, unit trusts, offshore funds and investment funds. As
of December 31, 1994, the Gartmore Group had over $30 billion in assets under
management.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Funds, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank or Banque Indosuez S.A. has a
lending relationship. For the services provided and expenses assumed pursuant to
various Advisory Agreements, NBAI is entitled to receive advisory fees, computed
daily and paid monthly, at the annual rates of: 0.75% of the average daily net
assets of each of Nations Capital Growth Fund, Nations Emerging Growth Fund,
Nations Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets
Fund; and 0.75% of the first $100 million of the Nations Equity Income Fund's
average daily net assets, plus 0.70% of the Fund's average daily net assets in
excess of $100 million and up to $250 million, plus 0.60% of the Fund's average
daily net assets in excess of $250 million; and 0.90% of each of Nations
International Equity Fund's and Nations Pacific Growth Fund's average daily net
assets; and 1.10% of Nations Emerging Markets Fund's average daily net assets.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.25% of Nations Value Fund's, Nations Balanced
Assets Fund's, Nations Capital Growth Fund's, Nations Emerging Growth Fund's and
Nations Disciplined Equity Fund's average daily net
19
<PAGE>
assets; and 0.20% of the Nations Equity Income Fund's average daily net assets.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
Nations Gartmore is entitled to receive from NBAI sub-advisory fees, computed
daily and paid monthly, at the annual rate of 0.70% of Nations International
Equity Fund's average daily net assets; 0.85% of Nations Emerging Markets Fund's
average daily net assets and 0.70% of Pacific Growth Fund's average daily net
assets. Although the advisory fees for the Funds are higher than the advisory
fees paid by most other mutual funds, Nations Fund believes that the fees are
comparable to the advisory fees paid by many other funds with similar investment
objectives and policies.
From time to time, NBAI (and/or TradeStreet and/or Nations Gartmore) may waive
(either voluntarily or pursuant to applicable state limitations) advisory fees
payable by a Fund. For the fiscal year ended November 30, 1994, after waivers,
Nations Fund Trust paid NationsBank under a prior Advisory Agreement advisory
fees at the indicated rate of the following Funds' average daily net assets:
Nations Capital Growth Fund -- 0.75%; Nations Emerging Growth Fund -- 0.75%;
Nations Disciplined Equity Fund -- 0.05%; Nations Value Fund -- 0.74%; and
Nations Balanced Assets Fund -- 0.75%. For the fiscal year ended November 30,
1994, after waivers, Nations Disciplined Equity Fund paid its prior sub-adviser
fees at the rate of 0.21% of the Fund's average daily net assets. For the fiscal
year ended May 31, 1995, after waivers, Nations Fund, Inc. paid NationsBank
under a prior Advisory Agreement advisory fees at the rate of 0.40% the Nations
International Equity Fund's average daily net assets and 0.68% of the Nations
Equity Income Fund's average daily net assets. For the fiscal year ended May 31,
1995, after waivers, Nations International Equity Fund paid its prior
sub-adviser fees at the rate of 0.38% of the Fund's average daily net assets.
Philip Ehrmann is the principal portfolio manager of the Nations Emerging
Markets Fund and is the head of the Nations Gartmore Emerging Markets Team.
Prior to joining Nations Gartmore, Mr. Ehrmann was the Director of Emerging
Markets for Invesco in London. Mr. Ehrmann has over 15 years of investment
management experience.
Sharon M. Herrmann has been the principal portfolio manager for Nations Value
Fund since its inception in 1989. Ms. Herrmann is a Senior Vice President and
Director of the Value Equity Style Group and personally manages the core value
equity funds of NationsBank's trust investment division. Ms. Herrmann has over
20 years investment experience with NationsBank. Ms. Herrmann earned the
Chartered Financial Analyst designation in 1985 and is a member of the
Association for Investment Management and Research.
Philip J. Sanders, a member of the Value Equity Group, has been the principal
portfolio manager for the Nations Capital Growth Fund since May of 1995. Mr.
Sanders is also the Vice President and Fund Manager of the Nations Balanced
Target Maturity Fund. Mr. Sanders joined NationsBank in 1988 and prior to
joining NationsBank he was employed at Duke Power Company for six years where he
supervised and performed various types of detailed financial analysis. He holds
a B.A. in Economics from the University of Michigan and an M.B.A. from the
University of North Carolina in Charlotte. He is a Chartered Financial Analyst
and a member of the Association for Investment Management and Research.
Julie L. Hale is the Vice President and Manager of the Balanced Assets Group and
Co-Manager of the Equity Income Group and has been the principal portfolio
manager for the Nations Balanced Assets Fund since May of 1995. Ms. Hale joined
NationsBank in 1991 and was previously employed with National City Bank in Ohio
and the Mercantile Safe Deposit & Trust Company in Baltimore, Maryland. She
received a B.S. from Mount St. Mary's College and an M.B.A. from Kent State
University. She is a Chartered Financial Analyst and a member of the Association
for Investment Management and Research.
Edward E. Smiley is a Senior Vice President of NationsBank and has been the
principal portfolio manager for Nations Emerging Growth Fund since 1992. Mr.
Smiley received his B.B.A. in Management from Southern Methodist University in
1966 and is a Chartered Financial Analyst. After serving in investment positions
with Merrill Lynch and Dean Witter, Mr. Smiley joined Interfirst Investment
Management as a senior portfolio manager in 1980. Mr. Smiley manages
Emerging-Midcap Funds Style Group for NationsBank. Mr. Smiley also serves as one
of the officer members on the Growth Equity Style Group. Mr. Smiley is a member
of the Association for Investment Management and Research and the Dallas
Association of Investment Analysts. Mr. Smiley has over 25 years of investment
experience.
Jeff C. Moser, a Senior Vice President of NationsBank, has been the principal
portfolio manager for Nations Disciplined Equity Fund since 1995. He joined
NationsBank in 1983 and has been employed there as an equity analyst, account
portfolio manager and fund manager. Mr. Moser received a B.S. degree in
Mathematics from Wake Forest University where he graduated Phi Beta Kappa. He
also holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research.
20
<PAGE>
Seok Teoh is the principal portfolio manager of the Nations Pacific Growth Fund.
She has been associated with the Gartmore Group since 1990 as the London based
manager on its Far East desk. Prior to that, Ms. Teoh worked for Overseas Union
Bank Securities in Singapore where she was responsible for Singaporean and
Malaysian equity sales and then subsequently for Rothschild as a Fund Manager in
Singapore and later in Tokyo. Ms. Teoh, who is a native of Singapore, is fluent
in Mandarin and Cantonese and received an Economics degree from the University
of Durham in 1985.
Stephen Watson has been the principal portfolio manager of the Nations
International Equity Fund since February, 1995. He joined the Gartmore Group as
a Global Fund Manager in August 1993 and was recently appointed Head of the
International and Global Team. Prior to that, Mr. Watson was employed by James
Capel Fund Managers where he acted as a Director, Global Fund Manager and Client
Services Manager for various international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their Portfolio Management Division and
prior to that he was with the investment division at Samuel Montagu. Mr. Watson
is currently a member of the Securities Institute.
Eric S. Williams, a Senior Vice President of NationsBank, has been the principal
portfolio manager for Nations Equity Income Fund since 1991. Mr. Williams is
Senior Portfolio Manager for NationsBank's investment management division's
Equity Income Style Group. He has a B.S. in Business Administration, SUMMA CUM
LAUDE, from East Carolina University and has an M.B.A. in Finance from Indiana
University. Mr. Williams has been with NationsBank's investment management
division since 1986. He is a member of the Association for Investment Management
and Research and is on the Advisory Board of Indiana University's Reese
Investment Fund.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that subsidiaries of
NationsBank may perform the services contemplated by the various Investment
Advisory Agreements, without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. Such counsel has pointed out, however,
that there are no controlling judicial or administrative interpretations or
decisions and that future judicial or administrative interpretations of, or
decisions relating to, present federal or state statutes, including the
Glass-Steagall Act, and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as future changes in federal
or state statutes, including the Glass-Steagall Act, and regulations and
judicial or administrative decisions or interpretations thereof, could prevent
such subsidiaries of NationsBank from continuing to perform, in whole or in
part, such services. If such subsidiaries of NationsBank were prohibited from
performing any of such services, it is expected that the Board of Trustees of
Nations Fund Trust and the Boards of Directors of Nations Fund, Inc. and Nations
Portfolios would recommend to each Fund's shareholders that they approve a new
advisory agreement with another entity or entities qualified to perform such
services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
The Shareholder Services Group, Inc. ("TSSG"), a wholly owned subsidiary of
First Data Corporation, with principal offices at One Exchange Place, Boston,
Massachusetts 02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, TSSG
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of the Funds, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and TSSG are entitled to receive a combined fee at the
annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal year ended November 30, 1994, after waivers, Nations Fund Trust paid its
administrators fees at the rate of 0.09% of the average daily net assets of
Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined
Equity Fund, Nations Value Fund and Nations Balanced Assets Fund. For the fiscal
year ended May 31, 1995, after waivers, Nations Fund, Inc. paid its
administrators fees at the rate of 0.09% of the Nations International Equity
Fund and the Nations Equity Income Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of .01% of the Funds' average daily net
assets.
21
<PAGE>
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing and
Distribution Plans."
Morgan Guaranty Trust Company ("Morgan Guaranty"), Avenue des Arts, 35 1040
Brussels, Belgium, serves as custodian for the assets of the Nations
International Equity Fund, Nations Emerging Markets Fund and Nations Pacific
Growth Fund.
NationsBank of Texas, N.A. ("NationsBank of Texas" and collectively with Morgan
Guaranty, the "Custodians") serves as custodian for the assets of each Fund
except Nations International Equity Fund, Nations Emerging Markets Fund and
Nations Pacific Growth Fund. NationsBank of Texas is located at 1401 Elm Street,
Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of each Fund for
which it serves as custodian, (ii) $10.00 per repurchase collateral transaction
by such Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving such Funds.
TSSG serves as transfer agent (the "Transfer Agent") for the Funds' Investor C
Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and TSSG; interest; trustees'
and directors' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; cost of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodians and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings, other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or TSSG under their respective agreements with
Nations Fund; and any extraordinary expenses. Investor C Shares may bear certain
class specific retail transfer agency expenses and also bear certain additional
shareholder service and/or sales support costs. Any general expenses of Nations
Fund Trust, Nations Fund, Inc. and/or Nations Portfolios that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund Trust, Nations Fund, Inc. and/or Nations Portfolios
or in such other manner as the relevant Board of Trustees or Board of Directors
deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has 44 distinct investment portfolios and total assets in excess of $16 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. The Funds currently offer five classes of shares -- Trust
A Shares, Trust B Shares, Investor A Shares, Investor C Shares and Investor N
Shares. This Prospectus relates only to the Investor C Shares of Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund,
Nations Value Fund and Nations Balanced Assets Fund of Nations Fund Trust. To
obtain additional information regarding the Funds' other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that
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the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. In addition, as of August
31, 1995, Richard B. Boyle owned of record 25% or more of Investor C Shares of
the Nations Disciplined Equity Fund and therefore could be considered a
controlling person of such class for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations Fund, Inc. consists of
270,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Investor C Shares of Nations
International Equity Fund and Nations Equity Income Fund of Nations Fund, Inc.
To obtain additional information regarding the Fund's other classes of shares
which may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. As of the date of this Prospectus, the authorized capital stock of
Nations Portfolios consists of 150,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of Nations Emerging Markets Fund and Nations Pacific Growth
Fund of Nations Portfolios. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations
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Portfolios. There are no preemptive rights applicable to any of Nations
Portfolios' shares. Nations Portfolios' shares, when issued, will be fully paid
and non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. In addition, as of
August 31, 1995, Carolyn Branan owned of record 25% or more of the Investor C
Shares of the Nations Pacific Growth Fund and therefore could be considered a
controlling person of such class for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios have entered into an indemnification agreement
that creates a right of indemnification from the investment company responsible
for any such misstatement, inaccuracy or incomplete disclosure that may appear
in this Prospectus.
About Your Investment
How To Buy Shares
Stephens has established various procedures for purchasing Investor C Shares in
order to accommodate different investors. Purchase orders for Investor C Shares
may be placed through banks, broker/dealers or other financial institutions
(including certain affiliates of NationsBank) that have entered into a Sales
Support Agreement with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for Individual Retirement Account ("IRA") investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor C Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
With respect to Investor C Shares, the Selling Agents have entered into Sales
Support Agreements with Stephens whereby they will provide various sales support
services to their customers ("Customers") who own Investor C Shares. In
addition, banks, broker/dealers or other financial institutions (including
certain affiliates of NationsBank) that have entered into Servicing Agreements
with Nations Fund ("Servicing Agents") will provide various shareholder services
for their Customers who own Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor C Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on
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the Business Day on which immediately available funds in payment of the purchase
price are received by the Funds' Custodian. Such payment must be received not
later than 4:00 p.m., Eastern time, by the third Business Day following receipt
of the order. If funds are not received by such date, the order will not be
accepted and notice thereof will be given to the Agent placing the order.
Payment for orders which are not received or accepted will be returned after
prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONIC TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How to Redeem Shares" and "How to
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. You should be aware that by electing the telephone transaction
feature, you may be giving up a measure of security that you may have if you
were to authorize written requests only. You may bear the risk of any resulting
losses from a telephone transaction. Nations Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and if Nations Fund and its service providers fail to employ such measures, they
may be liable for any losses due to unauthorized or fraudulent instructions.
Nations Fund requires a form of personal identification prior to acting upon
instructions received by telephone and provides written confirmation to
shareholders of each telephone share transaction. In addition, Nations Fund
reserves the right to record all telephone conversations.
Shareholder Servicing And Distribution Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and Directors have
approved a Distribution Plan with respect to Investor C Shares of the Funds.
Pursuant to the Distribution Plan, the Funds may compensate or reimburse
Stephens for any activities or expenses primarily intended to result in the sale
of the Funds' Investor C Shares. Payments under the Investor C Distribution Plan
will be calculated daily and paid monthly at a rate or rates set from time to
time by the Trustees and Directors provided that the annual rate may not exceed
0.75% of the average daily net asset value of the Funds' Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution Plan will not be used to
pay any interest expenses, carrying charges or other financing costs (except to
the extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
The Trustees and Directors also have approved a shareholder servicing plan
("Servicing Plan") for the Funds which permits the Funds to compensate Servicing
Agents for services provided to their Customers that own Investor C Shares.
Payments under the Servicing Plan are calculated daily and paid monthly at a
rate or rates set from time to time by the Funds, provided that the annual rate
may not exceed 0.25% of the average daily net asset value of the Funds' Investor
C Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor C Shares from Customers and
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transmitting net purchase and redemption orders to Stephens or the Transfer
Agent; (ii) providing Customers with a service that invests the assets of their
accounts in Investor C Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Funds
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor C Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor Shares for various services provided in connection with a
Customer's account. These fees would be in addition to any amounts received by a
Selling Agent under its Sales Support Agreement with Stephens or by a Servicing
Agent under its Servicing Agreement with Nations Fund. The Sales Support
Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.75% of the offering
price per share on all sales of Investor C Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Distribution Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customer's account with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Funds that are redeemed within one year of the date of purchase will be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. Investor C Shares purchased prior
to January 1, 1996 remain subject to the 1.00% CDSC. No CDSC is imposed on
increases in net asset value above the ini-
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tial purchase price, including shares acquired by reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor C Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account if the aggregate net asset value of the
Investor Shares held in the account is less than the minimum account size, (iv)
in connection with the combination of Nations Fund with any other registered
investment company by merger, acquisition of assets or by any other transaction,
and (v) effected pursuant to the Automatic Withdrawal Plan discussed below,
provided that such redemptions do not exceed, on an annual basis, 12% of the net
asset value of the Investor C Shares in the account. Shareholders are
responsible for providing evidence sufficient to establish that they are
eligible for any waiver of the CDSC. Nations Fund may terminate any waiver of
the CDSC by providing notice in the Funds' Prospectus, but any such termination
would affect only shares purchased after such termination.
Within 120 after a redemption of Investor C Shares of a Fund, a shareholder may
reinvest any portion of the proceeds of such redemption in Investor C Shares of
the same Fund. The amount which may be so reinvested is limited to an amount up
to, but not exceeding, the redemption proceeds (or to the nearest full share if
fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinstatement privilege.
In order to exercise this privilege, a written order for the purchase of
Investor C Shares must be received by the Transfer Agent or by Stephens within
120 days after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor C Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor C Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor C Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor C Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund (including the Funds) to acquire shares of the same
class that are offered by another non-money market fund of Nations Fund or
Investor D Shares of any money market fund offered by Nations Fund when he or
she believes that a shift between funds is an appropriate investment decision. A
qualifying exchange is based on the next calculated net asset value per share of
each fund after the exchange order is received. No CDSC will be imposed in
connection with an exchange of Investor Shares that meets the requirements
discussed in this section.
If a shareholder acquires Investor C Shares of a non-money market fund through
an exchange, the CDSC applicable to the original shares purchased (except for
Nations Short-Term Income Fund and Nations Short-Term Municipal Income Fund
Shares purchased prior to January 1, 1996, which will be subject to the CDSC
schedule applicable to the acquired Fund) will be applied to any redemption of
the acquired shares. Additionally, if a shareholder acquires Investor D Shares
of a money market fund or Investor C Shares of Nations Short-Term Income Fund or
Nations Short-Term Municipal Income Fund with shares of another Fund purchased
prior to
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January 1, 1996, the CDSC schedule applicable to the exchanged Investor C Shares
will be applied on any redemption of the acquired shares. Notwithstanding the
foregoing, if a shareholder redeems shares acquired through an exchange, the
shareholder will be subject to the highest CDSC schedule applicable to any
shares that were exchanged within 30 days prior to the redemption. Additionally,
when an investor exchanges Investor C Shares of a Fund for shares of another
fund, the remaining period of time (if any) that the CDSC is in effect will be
computed from the time of the initial purchase of the previously held Investor C
Shares.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. Shareholder may direct proceeds to be exchanged from one Nations Fund to
another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th and/or 30th day of the applicable
month. The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, please
contact your selling agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchange through the AEF). Nations Fund reserves the right to reject
any exchange request. Only shares that may legally be sold in the state of the
investor's residence may be acquired in an exchange. Only shares of a class that
is accepting investments generally may be acquired in an exchange. An investor
may telephone an exchange request by calling his/her Agent which is responsible
for transmitting such request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Funds distribute any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Investor C Shares of the
Funds are eligible to receive dividends when declared, provided, however, that
the purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through
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and including the day before the redemption order is executed. Distributions
paid by the Funds with respect to one class of shares may be greater or less
than those paid with respect to another class of shares due to the different
expenses of the different classes.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor C Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Fund of liability for
Federal income taxes on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional shares. (Federal income taxes for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds (except Nations International Equity Fund,
Nations Emerging Markets Fund and Nations Pacific Growth Fund) may be entitled
to the dividends-received deduction on all or a portion of such Funds'
dividends. Corporate shareholders of the Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds may be eligible for the
dividends-received deduction on the dividends (excluding the net capital gains
dividends) paid by these Funds to the extent that a Fund's income is derived
from dividends (which, if received directly, would qualify for such deduction)
received from domestic corporations. In order to qualify for the
dividends-received deduction, a corporate shareholder must hold the fund shares
paying the dividends upon which the deduction is based for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of each of Nations International Equity Fund, Nations Emerging Markets
Fund and Nations Pacific Growth Fund's investment income may be subject to
foreign income taxes withheld at their source. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Generally,
more than 50% of the value of the total assets of each of those Funds will
consist of securities of foreign issuers, and therefore each of those Funds may
elect to "pass through" to its shareholders these foreign taxes, if any. In such
event each shareholder will be required to include his or her pro rata portion
thereof in his or her gross income, but will be able to deduct or (subject to
various limitations) claim a foreign tax credit against U.S. income taxes for
such amount.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisers with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET BACKED SECURITIES: Asset Backed Securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset Backed
Securities consist of both mortgage and non-mortgage backed securities.
Interests in pools of these assets differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specified call dates. Instead, Asset Backed
Securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage backed securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), parallel pay CMOs, planned
amortization class CMOs ("PAC Bonds") and stripped mortgage-backed securities
("SMBS"), including interest-only and principal-only SMBS. SMBS may be more
volatile than other debt securities. For additional information concerning
mortgage backed securities, see the related SAI.
Non-mortgage asset backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker-dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under
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the agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the Funds' use of proceeds of the agreement may be restricted pending
a determination by the other party, or its trustee or receiver, whether to
enforce the Funds' obligation to repurchase the securities. In addition, there
is a risk of delay in receiving collateral or securities or in repurchasing the
securities covered by the reverse repurchase agreement or even of a loss of
rights in the collateral or securities in the event the buyer of the securities
under the reverse repurchase agreement files for bankruptcy or becomes
insolvent. The Fund only enters into reverse repurchase agreements (and
repurchase agreements) with counterparties that are deemed by the Adviser to be
credit worthy. Reverse repurchase agreements are speculative techniques
involving leverage, and are subject to asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objectives. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objections Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the United States Dollar. A Fund either
enters into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies. A forward foreign currency exchange
contract is an obligation by a Fund to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
The Nations International Equity Fund, the Nations Emerging Markets Fund and/or
the Nations Pacific Growth Fund will generally enter into forward currency
exchange contracts only under two circumstances: (i) when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, to "lock" in the U.S. dollar price of the security; and (ii) when the
Adviser believes that the currency of a particular foreign country may
experience a substantial movement against another currency. Under certain
circumstances, the Fund may commit a substantial portion of its portfolio to the
execution of these contracts. The Adviser will consider the effects such a
commitment would have on the investment program of the Fund and the flexibility
of the Fund to purchase additional securities. Although forward contracts will
be used primarily to protect the Fund from adverse currency movements,
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they also involve the risk that anticipated currency movements will not be
accurately predicted. The Nations International Equity Fund will generally not
enter into a forward contract with a term of greater than one year.
FOREIGN SECURITIES: Foreign securities include obligations of foreign
corporations and banks as well as obligations of foreign governments and their
political subdivisions (which will be limited to direct government obligations
and government-guaranteed securities). Such investments may subject a Fund to
special investment risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. In addition, foreign issuers in general may be subject to different
accounting, auditing, reporting, and record keeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign stock
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the U.S. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign stock exchanges, brokers, and companies
than in the U.S. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not knowingly
invest more than 15% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements and time
deposits that do not provide for payment to a Fund within seven days after
notice, guaranteed investment contracts and some commercial paper issued in
reliance upon the exemption in Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act") (other than variable amount master demand notes with
maturities of nine months or less), are subject to the limitation on illiquid
securities.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities which are not registered under the 1933 Act but
which can be sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act. Any such security will not be considered illiquid so
long as it is determined by a Fund's Board of Trustees or Board of Directors or
the Adviser, acting under guidelines approved and monitored by the Fund's Board,
after considering trading activity, availability of reliable price information
and other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A, the
level of illiquidity of a Fund holding such securities may increase during such
period.
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INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating rate payments for fixed rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Lower-rated, high-yielding securities are those
rated Ba or B by Moody's or BB or B by S&P which are commonly referred to as
"junk bonds." These bonds provide poor protection for payment of principal and
interest. Lower-quality bonds involve greater risk of default or price changes
due to changes in the issuer's creditworthiness than securities assigned a
higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. The
Funds intend to limit their investments in lower-quality debt securities to 35%
of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition are adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund,
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a Fund may demand payment of the principal and accrued interest on the
instrument or may resell it to a third party as specified in the instruments.
The absence of an active secondary market, however, could make it difficult for
a Fund to dispose of the instrument if the issuer defaulted on its payment
obligation or during periods the Fund is not entitled to exercise its demand
rights, and the Fund could, for these or other reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax-exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
security. To the extent that municipal participation interests are considered to
be "illiquid securities," such instruments are subject to each Fund's limitation
on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, a Fund
may invest more than 25% of its total assets in Municipal Securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in Municipal Securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if its assets were not so concentrated.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker-dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund and Nations Institutional Reserves.
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SECURITIES LENDING: To increase return on portfolio securities, certain of the
Funds may lend their portfolio securities to broker-dealers and other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. There is a risk of delay in receiving
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to be credit worthy and
when, in their judgment, the income to be earned from the loan justifies the
attendant risks. The aggregate of all outstanding loans of a Fund may not exceed
30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indexes, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to
35
<PAGE>
capacity to pay interest and repay principal in accordance with the terms
of the obligation. BB represents the lowest degree of speculation and B a
higher degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to
36
<PAGE>
pay interest and repay principal is very strong, although not quite as
strong as bonds rated AAA. Because bonds rated in the AAA and AA categories
are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are Duff 1, Duff 2 and Duff 3.
D&P employs three designations, Duff 1+, Duff 1 and Duff 1-, within the highest
rating category. Duff 1+ indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations." Duff 1 indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by good fundamental protection factors. Risk factors are considered to be minor.
Duff 1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. Duff 2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. Duff 3 indicates satisfactory liquidity and other protection factors
which qualify the issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
37
<PAGE>
affected by external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following is the four investment grade ratings used by BankWatch
for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is very high.
AA -- The second highest category; indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Obligations supported by the highest capacity for timely repayment
and possessing a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
38
<PAGE>
Prospectus
INVESTOR C SHARES
SEPTEMBER 30, 1995
AS SUPPLEMENTED ON
JANUARY 19, 1996
This Prospectus describes the NATIONS SHORT-TERM
INCOME FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT
FUND, NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND, NATIONS DIVERSIFIED
INCOME FUND AND NATIONS GLOBAL GOVERNMENT INCOME
FUND (the "Funds") of the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes one class of shares of the
Funds -- Investor C Shares.
This Prospectus sets forth concisely the information
about the Funds that prospective purchasers of
Investor C Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios") is
contained in separate Statements of Additional
Information (the "SAIs"), which have been filed with
the Securities and Exchange Commission (the "SEC")
and are available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAIs for Nations
Fund Trust, Nations Fund, Inc. and Nations
Portfolios, dated September 30, 1995, September 30,
1995 and July 1, 1995, respectively, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc. ("NBAI")
is the investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to certain of the Funds and
Nations Gartmore Investment Management ("Nations
Gartmore") is sub-investment adviser to the Nations
Global Government Income Fund. As used herein the
"Adviser" shall mean NBAI, TradeStreet and/or
Nations Gartmore as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Nations Short-Term Income
Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations Strategic Fixed
Income Fund
Nations Diversified Income
Fund
Nations Global Government
Income Fund
For purchase, redemption and
performance information
call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo)
<PAGE>
Table Of Contents
About The Funds
Expenses Summary 3
Financial Highlights 4
Objectives 8
How Objectives Are Pursued 8
How Performance is Shown 13
How the Funds are Managed 14
Organization and History 17
About Your Investment
How to Buy Shares 19
Shareholder Servicing and Distribution Plans 20
How to Redeem Shares 21
How to Exchange Shares 22
How the Funds Value Their Shares 23
How Dividends and Distributions are Made; Tax
Information 23
Appendix A -- Portfolio Securities 24
Appendix B -- Description of Ratings 32
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor C Shares of the
indicated Fund over specified periods.
INVESTOR C SHARES
<TABLE>
<CAPTION>
Nations Short-
Nations Short-Term Intermediate Nations Government Nations Strategic
Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Charge (as a percentage of
the lower of the original purchase price
or redemption proceeds)1 .50% .50% .50% .50%
</TABLE>
<TABLE>
<CAPTION>
Nations Global
Nations Diversified Government Income
SHAREHOLDER TRANSACTION EXPENSES Income Fund Fund
<S> <C> <C>
Sales Load Imposed on Purchases None None
Deferred Sales Charge (as a percentage of
the lower of the original purchase price
or redemption proceeds)1 .50% .50%
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
net assets)
<TABLE>
<CAPTION> Nations Short-
Nations Short-Term Intermediate Nations Government Nations Strategic
Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
Management Fees2 .30% .40% .50% .50%
Rule 12b-1 Fees2 .10% .25% .25% .25%
Shareholder Servicing Fees2 .25% .25% .25% .25%
Other Expenses .22% .18% .30% .16%
Total Operating Expenses2 .87% 1.08% 1.30% 1.16%
</TABLE>
<TABLE>
<CAPTION>
Nations Global
Nations Diversified Government Income
Income Fund Fund
<S> <C> <C>
Management Fees2 .50% .70%
Rule 12b-1 Fees2 .25% .25%
Shareholder Servicing Fees2 .25% .25%
Other Expenses .32% .60%
Total Operating Expenses2 1.32% 1.80%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of the date of purchase. Investor C Shares purchased
prior to January 1, 1996 will continue to be subject to the 1.00% Deferred
Sales Charge.
2 After any waivers and reimbursements.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations Short-
Nations Short-Term Intermediate Nations Government Nations Strategic
Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
1 Year $ 14 $ 16 $ 18 $ 17
3 Years $ 28 $ 34 $ 41 $ 37
5 Years $ 48 $ 60 $ 71 $ 64
10 Years $ 107 $ 132 $ 157 $ 141
</TABLE>
<TABLE>
<CAPTION>
Nations Global
Nations Diversified Government Income
Income Fund Fund
<S> <C> <C>
1 Year $ 18 $ 23
3 Years $ 42 $ 57
5 Years $ 72 N/A
10 Years $ 159 N/A
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
Nations Short-
Nations Short-Term Intermediate Nations Government Nations Strategic
Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
1 Year $ 9 $ 11 $ 13 $ 12
3 Years $ 28 $ 34 $ 41 $ 37
5 Years $ 48 $ 60 $ 71 $ 64
10 Years $ 107 $ 132 $ 157 $ 141
</TABLE>
<TABLE>
<CAPTION>
Nations Global
Nations Diversified Government Income
Income Fund Fund
<S> <C> <C>
1 Year $ 13 $ 18
3 Years $ 42 $ 57
5 Years $ 72 N/A
10 Years $ 159 N/A
</TABLE>
3
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares of the Funds will bear either directly or indirectly. Except
for the Nations Global Government Income Fund which fees and expenses are based
on estimates, certain figures contained in the above tables are based on amounts
incurred during each Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. There is no assurance that
any fee waivers and reimbursements will continue beyond the current fiscal year.
If fees waivers and/or reimbursements are discontinued, the amounts contained in
the "Examples" above may increase. Long-term shareholders in the Funds could pay
more in sales charges than the economic equivalent of the maximum front-end
sales charges applicable to mutual funds sold by members of the National
Association of Securities Dealers, Inc. For more complete descriptions of the
Funds' operating expenses, see "How the Funds Are Managed." For a more complete
description of the Rule 12b-1 and shareholder servicing fees payable by the
Funds, see "Shareholder Servicing and Distribution Plans."
Absent fee waivers and reimbursements, "Management Fees," "Rule 12b-1 Fees,"
"Shareholder Servicing Fees" and "Total Operating Expenses" for Investor C
Shares of the indicated Fund would have been as follows: Nations Short-Term
Income Fund -- .60%, .75%, .25% and 1.82%, respectively; Nations
Short-Intermediate Government Fund -- .60%, .75%, .25% and 1.78%, respectively;
Nations Government Securities Fund -- .64%, .75%, .25% and 1.94%, respectively;
Nations Strategic Fixed Income Fund -- .60%, .75%, .25% and 1.76%, respectively;
Nations Diversified Income Fund -- .60%, .75%, .25% and 1.92%, respectively; and
Nations Global Government Income Fund -- .70%, .75%, .25% and 2.30%,
respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios. The reports of Price Waterhouse LLP for the
most recent fiscal years of Nations Fund Trust and Nations Fund, Inc. accompany
the financial statements for such periods and are incorporated by reference in
the SAIs, which are available upon request. For more information see
"Organization and History." Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and financial
statements audited by the Funds' independent accountant.
4
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94# 11/30/93
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.48 $ 10.01 $ 9.75
Net investment income 0.28 0.46 0.48
Net realized and unrealized gain/(loss) on investments 0.28 (0.51) 0.26
Net increase/(decrease) in net assets resulting from investment
operations 0.56 (0.05) 0.74
Distributions:
Dividends from net investment income 0.28% (0.44) (0.48)
Distributions in excess of net investment income -- (0.02) --
Distributions from capital -- (0.02) --
Total distributions (0.28) (0.48) (0.48)
Net asset value, end of period $ 9.76 $ 9.48 $ 10.01
Total return++ 6.05% (0.51)% 7.73%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,964 $ 8,102 $ 19,851
Ratio of operating expenses to average net assets 0.86%+ 0.89% 0.87%
Ratio of net investment income to average net assets 6.00%+ 4.84% 4.77%
Portfolio turnover rate 145% 293% 121%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.21%+ 1.21% 1.29%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.26 $ 0.43 $ 0.45
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.08
Net realized and unrealized gain/(loss) on investments (0.26)
Net increase/(decrease) in net assets resulting from investment
operations (0.18)
Distributions:
Dividends from net investment income (0.07)
Distributions in excess of net investment income --
Distributions from capital --
Total distributions (0.07)
Net asset value, end of period $ 9.75
Total return++ (1.82)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,747
Ratio of operating expenses to average net assets 0.80%+
Ratio of net investment income to average net assets 5.04%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.40%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.07
</TABLE>
* The Nations Short-Term Income Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94 11/30/93
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 3.93 $ 4.28 $ 4.16
Net investment income 0.11 0.20 0.20
Net realized and unrealized gain/(loss) on investments 0.16 (0.33) 0.14
Net increase/(decrease) in net assets resulting from investment
operations 0.27 (0.13) 0.34
Distributions:
Dividends from net investment income (0.11) (0.20) (0.20)
Distributions in excess of net investment income -- (0.00)# --
Distributions from net realized capital gains -- (0.02) (0.02)
Total distributions (0.11) (0.22) (0.22)
Net asset value, end of period $ 4.09 $ 3.93 $ 4.28
Total return++ 6.98% (2.80)% 8.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,742 $ 16,725 $ 31,440
Ratio of operating expenses to average net assets 1.08%+ 1.17% 1.30%
Ratio of net investment income to average net assets 5.57%+ 5.18% 4.65%
Portfolio turnover rate 130% 133% 92%
Ratio of operating expenses to average net assets before fee
waivers and/or expense reimbursements 1.29%+ 1.38% 1.54%
Net investment income per share before fee waivers and/or
expense reimbursements $ 0.10 $ 0.19 $ 0.19
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 4.19
Net investment income 0.10
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net assets resulting from investment
operations 0.07
Distributions:
Dividends from net investment income (0.10)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.10)
Net asset value, end of period $ 4.16
Total return++ 1.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 24,352
Ratio of operating expenses to average net assets 1.18%+
Ratio of net investment income to average net assets 4.80%+
Portfolio turnover rate 25%
Ratio of operating expenses to average net assets before fee
waivers and/or expense reimbursements 1.44%+
Net investment income per share before fee waivers and/or
expense reimbursements $ 0.09
</TABLE>
* The Nations Short-Intermediate Government Fund Investor C Shares commenced
operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Value represents less than $0.01 per share.
5
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
INVESTOR C SHARES 05/31/95# 05/31/94
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.80 $ 10.46
Net investment income 0.57 0.55
Net realized and unrealized gain/(loss) on investments 0.06 (0.61)
Net increase/(decrease) in net assets resulting from investment operations 0.63 (0.06)
Distributions:
Dividends from net investment income (0.53) (0.50)
Dividends in excess of net investment income -- (0.01)
Distributions in excess of net realized capital gains -- (0.05)
Distributions from capital (0.04) (0.04)
Total distributions (0.57) (0.60)
Net asset value, end of period $ 9.86 $ 9.80
Total return++ 6.76% (0.69)%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 2,945 $ 5,265
Ratio of operating expenses to average net assets 1.51% 1.48%
Ratio of net investment income to average net assets 5.94% 5.33%
Portfolio turnover rate 413% 56%
Ratio of operating expenses to average net assets without waivers and
reimbursements 1.69% 1.69%
Net investment income per share without waivers and reimbursements $ 0.55 $ 0.53
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 05/31/93*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.52
Net investment income 0.59
Net realized and unrealized gain/(loss) on investments 0.02
Net increase/(decrease) in net assets resulting from investment operations 0.61
Distributions:
Dividends from net investment income (0.63)
Dividends in excess of net investment income --
Distributions in excess of net realized capital gains (0.04)
Distributions from capital --
Total distributions (0.67)
Net asset value, end of period $ 10.46
Total return++ 5.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 5,998
Ratio of operating expenses to average net assets 1.60%+
Ratio of net investment income to average net assets 5.92%+
Portfolio turnover rate 103%
Ratio of operating expenses to average net assets without waivers and
reimbursements 1.75%+
Net investment income per share without waivers and reimbursements $ 0.42
</TABLE>
* The Nations Government Securities Fund Investor C Shares commenced
operations on July 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charge.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94 11/30/93
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.32 $ 10.55 $ 9.94
Net investment income 0.27 0.47 0.48
Net realized and unrealized gain/(loss) on investments 0.70 (0.89) 0.62
Net increase/(decrease) in net assets resulting from investment
operations 0.97 (0.42) 1.10
Distributions:
Dividends from net investment income (0.27) (0.45) (0.48)
Distributions in excess of net investment income -- (0.02) --
Distributions from net realized capital gains -- (0.34) (0.01)
Total distributions (0.27) (0.81) (0.49)
Net asset value, end of period $ 10.02 $ 9.32 $ 10.55
Total return++ 10.57% (4.14)% 11.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 39 $ 41 $ 65
Ratio of operating expenses to average net assets 1.18%+ 1.43% 1.36%
Ratio of net investment income to average net assets 5.68%+ 4.68% 4.65%
Portfolio turnover rate 155% 307% 161%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.29%+ 1.51% 1.52%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.26 $ 0.46 $ 0.47
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.97
Net investment income 0.02
Net realized and unrealized gain/(loss) on investments (0.04)
Net increase/(decrease) in net assets resulting from investment
operations (0.02)
Distributions:
Dividends from net investment income (0.01)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.01)
Net asset value, end of period $ 9.94
Total return++ (0.22)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 84
Ratio of operating expenses to average net assets 1.03%+
Ratio of net investment income to average net assets 5.40%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.63%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.02
</TABLE>
* The Nations Strategic Fixed Income Fund Investor C Shares commenced
operations on November 16, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR YEAR
05/31/95 ENDED ENDED
INVESTOR C SHARES (UNAUDITED) 11/30/94# 11/30/93#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.67 $ 10.88 $ 9.96
Net investment income 0.34 0.67 0.70
Net realized and unrealized gain/(loss) on investments 0.86 (1.06) 0.92
Net increase/(decrease) in net assets resulting from investment
operations 1.20 (0.39) 1.62
Distributions:
Dividends from net investment income (0.34) (0.67) (0.70)
Distributions in excess of net investment income -- (0.00)## --
Distributions from net realized capital gains -- (0.15) --
Total distributions (0.34) (0.82) (0.70)
Net asset value, end of period $ 10.53 $ 9.67 $ 10.88
Total return++ 12.64% (3.77)% 16.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,153 $ 2,636 $ 3,633
Ratio of operating expenses to average net assets 1.52%+ 1.49% 1.30%
Ratio of net investment income to average net assets 6.78%+ 6.56% 6.27%
Portfolio turnover rate 67% 144% 86%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.68%+ 1.70% 1.70%
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.33 $ 0.65 $ 0.64
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.93
Net investment income 0.03
Net realized and unrealized gain/(loss) on investments 0.02
Net increase/(decrease) in net assets resulting from investment
operations 0.05
Distributions:
Dividends from net investment income (0.02)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total distributions (0.02)
Net asset value, end of period $ 9.96
Total return++ (0.54)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 149
Ratio of operating expenses to average net assets 1.00%+
Ratio of net investment income to average net assets 7.01%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets before fee waivers
and/or expense reimbursements 1.60%+
Net investment income per share before fee waivers and/or expense
reimbursements $ 0.03
</TABLE>
* The Nations Diversified Income Fund Investor C Shares commenced operations
on November 9, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed method did not accord with the results of operations.
## Value represents less than $0.01 per share.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 9/30/95*
<S> <C>
Operating Performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss)## 0.10
Net realized and unrealized gain/(loss) on investments 0.04
Net increase/(decrease) in net assets resulting from investment operations 0.14
Distributions:
Dividends from net investment income (0.10)
Total Distributions (0.10)
Net asset value, end of period $ 10.04
Total return++ 1.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 9
Ratio of operating expenses to average net assets 2.30%+
Ratio of net investment income/(loss) to average net assets 4.61%+
Portfolio turnover rate 104%
</TABLE>
* The Fund's Investor C Shares operations on June 30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
## For the Nations Emerging Markets Fund, the amount shown at this caption for
each share outstanding throughout the period may not accord with the change
in the aggregate gains and losses in the portfolio securities for the period
because of the timing of purchases and withdrawals of shares in relation to
the fluctuating market value of the portfolio.
7
<PAGE>
Objectives
NATIONS SHORT-TERM INCOME FUND: The Nations Short-Term Income Fund's investment
objective is to seek as high a level of current income as is consistent with
prudent investment risk. The Fund invests primarily in investment grade
corporate bonds and mortgage-backed bonds. Under normal market conditions, it is
expected that the Fund will have an average dollar-weighted maturity of three
years or less. The Fund's investment program attempts to maintain a higher level
of income than normally provided by money market instruments, and more price
stability than investments in intermediate- and long-term bonds. However, the
value of the Fund's portfolio generally will vary inversely with changes in
prevailing interest rates.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: The Nations Short-Intermediate
Government Fund's investment objective is to seek as high a level of current
income as is consistent with prudent investment risk. The Fund invests
essentially all of its assets in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in repurchase agreements
relating to such obligations. Under normal market conditions, the Fund is
expected to have an average dollar-weighted maturity between two and seven
years.
NATIONS GOVERNMENT SECURITIES FUND: The Nations Government Securities Fund's
investment objective is to provide current income and preservation of capital.
The Fund seeks to achieve its objective by investing primarily in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS STRATEGIC FIXED INCOME FUND: The Nations Strategic Fixed Income Fund's
investment objective is to maximize total investment return through the active
management of fixed income securities. The Fund invests primarily in investment
grade fixed income securities. The Fund may under normal market conditions
invest in long-term, intermediate-term and short-term securities and has not
placed any limitations on the duration of the portfolio.
NATIONS DIVERSIFIED INCOME FUND: The Nations Diversified Income Fund's
investment objective is to seek as high a level of current income as is
consistent with prudent investment risk. The Fund invests primarily in a
diversified portfolio of government and corporate fixed income securities.
NATIONS GLOBAL GOVERNMENT INCOME FUND: The Nations Global Government Income
Fund's investment objective is to seek current income. Although the Fund
emphasizes income when selecting investments, the potential for growth of
capital also is considered. It seeks to achieve this objective by investing
primarily in debt securities issued by governments, banks and supranational
entities located throughout the world.
How Objectives Are Pursued
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the
Nations Short-Term Income Fund may invest in a broad range of debt obligations
such as U.S. Government obligations; corporate debt obligations, including
bonds, notes and debentures rated investment grade by one of the following six
nationally recognized statistical rating organizations, Duff & Phelps Credit
Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), IBCA Limited
or its affiliate, IBCA Inc. (collectively, "IBCA") or Thomson BankWatch, Inc.
("BankWatch") (collectively, "NRSROs"), or, if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments (see "Appendix A -- Foreign Securities"); and mortgage-related
securities of governmental issuers, including the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"), or of private issuers,
including mortgage pass-through certificates, collateralized mortgage
obligations or "CMOs", real estate investment trust securities or
mortgage-backed bonds; other asset-backed securities rated by one of the six
NRSROs, or, if not so rated, determined by the Adviser to be of comparable
quality to instruments so rated. (For more information concerning Asset Backed
Securities, including Mortgage-Backed Securities, see "Appendix A -- Asset
Backed Securities.")
The Fund will invest, under normal market conditions, at least 65% of the total
value of its assets in investment grade corporate bonds and mortgage-backed
bonds. Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund generally will be rated investment grade at the time of
purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
Obligations rated in the lowest of the top four investment grade rating
categories (e.g. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances
8
<PAGE>
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (I.E., those within the two highest
rating categories or unrated instruments determined by the Adviser to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportions as, in the Adviser's opinion, prevailing
market or economic conditions warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its assets in securities of foreign issuers. See "Appendix
A" below for additional information concerning the investment practices of this
Fund.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: The Nations Short-Intermediate
Government Fund invests substantially all of its assets in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government Obligations") and repurchase agreements relating to such obligations.
U.S. Government Obligations have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns shares of the Fund. The value of the Fund's portfolio generally will vary
inversely with changes in prevailing interest rates.
Certain government securities that have variable or floating interest rates or
demand or put features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity of the Fund. See "Investment Objectives and Policies" in the Fund's
SAI. See "Appendix A" below for additional information concerning the investment
practices of this Fund.
NATIONS GOVERNMENT SECURITIES FUND: Under normal circumstances, substantially
all, and in any event, at least 65% of the Fund's assets, will be invested in
U.S. Government Obligations. U.S. Government Obligations include Treasury
obligations, which differ only in their interest rates, maturities and times of
issuance. U.S. Government Obligations also include obligations issued or
guaranteed by U.S. Government agencies, authorities or instrumentalities, some
of which are backed by the full faith and credit of the U.S. Treasury, such as
direct pass-through certificates of the Government National Mortgage Association
("GNMA"); some of which are supported by the right of the issuer to borrow from
the U.S. Government, such as obligations of Federal Home Loan Banks; and some of
which are backed only by the credit of the issuer itself, such as obligations of
the Federal National Mortgage Association ("FNMA"). For a more detailed
description of the investment practices of this Fund, see "Appendix A -- U.S.
Government Obligations" and "Asset Backed Securities."
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Fund's shares, such changes will not
affect the income received by the Fund from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Fund will increase or decrease in relation to
the income received by the Fund from its investments, which will in any case be
reduced by the Fund's expenses before being distributed to the Fund's
shareholders. The value of the Fund's portfolio generally will vary inversely
with changes in prevailing interest rates.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (I.E., those within the two highest
rating categories or unrated instruments deemed by the Adviser to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportion as, in the Adviser's opinion, existing
circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Nations Strategic Fixed Income Fund may invest in corporate convertible and
non-convertible debt obligations, including bonds, notes and debentures rated
investment grade at the time of purchase by one of the six NRSROs, or if not so
rated, determined by the Adviser to be of comparable quality to instruments so
rated; U.S. Government obligations; dollar-denominated debt obligations of
foreign issuers, including foreign corporations and foreign governments (see
"Appendix A -- Foreign Securities"); mortgage-backed securities of governmental
issuers, including GNMA, FNMA and FHLMC, or of private issuers, including
mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. (For more information concerning Asset Backed Securities,
including Mortgage-Backed Securities, see "Appendix A -- Asset Backed
Securities.") Pursuant to its investment objective, the Fund also may invest in
dividend-paying preferred and common stock.
9
<PAGE>
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in government, corporate and mortgage-backed securities.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund will be rated investment grade at the time of purchase by
D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated, determined by the
Adviser to be comparable in quality. Obligations rated in the lowest of the top
four investment grade rating categories (e.g. rated "BBB" by S&P or "Baa" by
Moody's) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund also may hold or invest in short-term U.S. Government obligations,
"high quality" money market instruments (i.e., those within the two highest
rating categories or unrated instruments determined by the Adviser to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportions as, in the Adviser's opinion, existing
circumstances warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. See
"Appendix A -- Foreign Securities." See "Appendix A" below for additional
information concerning the investment practices of this Fund.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the
Nations Diversified Income Fund may invest in a broad range of corporate
convertible and non-convertible debt obligations such as fixed and variable rate
bonds; obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; dollar-denominated and non-dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments (see "Appendix A -- Foreign Securities"); mortgage-backed securities
of governmental issuers, including GNMA, FNMA and FHLMC, or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. (For more information concerning Asset Backed Securities,
including Mortgage-Backed Securities, see "Appendix A -- Asset Backed
Securities.") In pursuing its investment objective, the Fund also may invest in
dividend-paying convertible and non-convertible preferred and common stocks.
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in fixed income securities, such as government, government
agency and corporate bonds. Most obligations acquired by the Fund will be issued
by companies or governmental entities located within the United States. Not less
than 65% of the debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch,
or, if unrated, determined by the Adviser to be comparable in quality to
instruments so rated. Obligations rated in the lowest of the top four investment
grade rating categories (e.g. rated "BBB" by S&P or "Baa" by Moody's) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment-grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds," tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities. See "Appendix A -- Lower-Rated Debt Securities."
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in short-term U.S. Government obligations, "high
quality" money market instruments (i.e., those within the two highest rating
categories or unrated instruments deemed by the Adviser to be of comparable
quality), repurchase agreements and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks. These investments
may be in such proportions as, in the Adviser's opinion, existing circumstances
warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest 10% or more of its total assets in securities of foreign issuers. The
value of the
10
<PAGE>
Fund's portfolio generally will vary inversely with changes in prevailing
interest rates. See "Appendix A" below for additional information concerning the
investment practices of this Fund.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations Global Government Income Fund" below.
Because the Fund intends to invest a large portion of its assets in foreign
Government Securities, the Fund is a "non-diversified" investment company for
purposes of the Investment Company Act of 1940 (the "1940 Act"). The Fund may
invest in securities of issuers located in any region or country and that are
denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various countries and currencies will vary in accordance with the
Adviser's assessment of the relative yield and appreciation of such
securities. Fundamental economic strength, credit quality and interest rate
trends are the principal factors considered by the Adviser in determining
whether to increase or decrease the emphasis placed upon a particular country
or particular type of security within the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by the Adviser. The Fund also may invest in securities rated
"Baa" by Moody's or "BBB" by S&P, but does not as a general matter, intend to
invest more than 10% of its total assets in such securities. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such event in determining whether the Fund should continue
to hold the obligation. In no event will the Fund hold more than 5% of its total
net assets in securities rated below investment grade. See "Appendix B" below
for a description of these rating designations. The Adviser expects that the
Fund's average dollar-weighted maturity will not be greater than fifteen years
under normal market conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank. Supranational entities
generally have no taxing authority and are dependent upon their members for the
funds necessary to pay principal and interest on their debt obligations.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NATIONS GLOBAL
GOVERNMENT INCOME FUND: Investors should understand and consider carefully the
special risks involved in foreign investing. In addition, the Nations Global
Government Income Fund presents unique risks that investors should be aware of.
The Nations Global Government Income Fund's yield and share price will change
based on changes in domestic or foreign interest rates and in an issuer's
creditworthiness. In general, bond prices rise when interest rates fall, and
vice versa.
Moreover, investing in securities denominated in foreign currencies and
utilization of forward foreign currency exchange contracts and other currency
hedging techniques involve certain considerations comprising both opportunities
and risks not typically associated with investing in U.S. dollar-denominated
securities. Additionally, changes in the value of foreign currencies can
significantly affect a Fund's share price. General economic and political
factors in the various world markets also can impact a Fund's share price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Fund offers a more efficient way for individual investors to participate in
foreign markets, its expenses, including
11
<PAGE>
custodial fees, are also higher than the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations Global Government Income Fund.
GENERAL: The Nations Short-Intermediate Government Fund, Nations Government
Securities Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund
and Nations Strategic Fixed Income Fund may invest in certain specified
derivative securities, including: interest rate swaps, caps and floors for
hedging purposes; exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures and options
thereon approved by the Commodity Futures Trading Commission ("CFTC") for market
exposure risk-management. Each of those Funds may lend its portfolio securities
to qualified institutional investors and may invest in restricted, private
placement and other illiquid securities. Each of those Funds may engage in
reverse repurchase agreements and dollar roll transactions. The National Global
Government Income Fund may invest in money market instruments, forward foreign
currency exchange contracts, futures and options and other instruments.
Additionally, each Fund may purchase securities issued by other investment
companies, consistent with the Fund's investment objective and policies.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, annual
portfolio turnover rates will not exceed 175% for Nations Global Government
Income Fund. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the other Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
The value of a Fund's investments in debt securities will tend to decrease when
interest rates rise and increase when interest rates fall. In general,
longer-term debt instruments tend to fluctuate in value more than shorter-term
debt instruments in response to interest rate movements. In addition, debt
securities that are not backed by the United States Government are subject to
credit risk, which is the risk that the issuer may not be able to pay principal
and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the Fund's investment objective and do not unduly increase the
Fund's exposure to market or other risks. For additional risk information
regarding the Funds' investments in particular instruments, see "Appendix
A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
12
<PAGE>
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund (other than Nations Global Government Income Fund) may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time a Fund may advertise the total return and yield on a class of
shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares may be calculated on an average annual total return basis or an
aggregate total return basis. The "total return" of a class of shares refers to
the average annual compounded rates of return over one-, five-, and ten-year
periods or the life of the Fund (as stated in the advertisement) that would
equate an initial amount invested at the beginning of a stated period to the
ending redeemable value of the investment (reflecting the deduction of any
applicable contingent deferred sales charge ("CDSC")), assuming the reinvestment
of all dividend and capital gains distributions. Aggregate total return reflects
the total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
Set forth below is certain performance data for the Global Government Bond
Ex-U.K. Composite, reflecting the performance of private accounts, including
U.K. authorized unit trusts, managed by the Gartmore Group, as defined below.
The performance data for these accounts is deemed relevant because the Global
Government Bond Ex-U.K. Composite has investment objectives, policies and
restrictions that are substantially similar to those of the Nations Global
Government Income Fund. There is substantial continuity between the portfolio
managers of the Gartmore Group who were responsible for managing those accounts
and the portfolio managers of Nations Gartmore who are responsible for managing
the Nations Global Government Income Fund. THIS PERFORMANCE DATA REPRESENTS PAST
PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF THE FUTURE PERFORMANCE OF NBAI,
NATIONS GARTMORE OR THE FUNDS.
<TABLE>
<CAPTION>
<S> <C>
Average Annual Total
Return for the Periods
GLOBAL GOVERNMENT BOND Indicated through
EX-U.K. COMPOSITE* March 31, 1995
One Year 7.90%
Three Year 9.40%
Since Inception on September 1, 1990 11.40%
</TABLE>
Annual Total Returns**
<TABLE>
<CAPTION>
1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
19.30% 3.30% 13.50% (2.40%)
</TABLE>
* The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for the Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J.P. Morgan Global Government
13
<PAGE>
Bond Index, would not have materially affected their total returns.
** The average annual total returns and annual total returns are net of fees.
The fees on these accounts varied by contractual agreement and have been
assumed to be 1.5% per annum.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and a Fund's operating
expenses. Investment performance also often reflects the risks associated with
such Fund's investment objective and policies. These factors should be
considered when comparing a Fund's investment results to those of other mutual
funds and other investment vehicles. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in a Fund with bank deposits,
savings accounts, and similar investment alternatives which often provide an
agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer Trust A, Trust B, Investor A
and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in a Fund will not be included in calculations of
yield and total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or your selling agent.
How The Funds Are Managed
The business and affairs of Nations Fund Trust, Nations Fund, Inc., and Nations
Portfolios are managed under the direction of its Board of Trustees and Boards
of Directors, respectively. The SAI for Nations Fund Trust contains the names of
and general background information concerning the Trustees of Nations Fund
Trust. The SAIs for Nations Fund, Inc. and Nations Portfolios contain the names
of and general background information concerning the respective Directors of
Nations Fund, Inc. and Nations Portfolios.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for the Nations Global Government Income
Fund, for which Nations Gartmore serves as sub-investment adviser. TradeStreet
is a wholly owned subsidiary of NationsBank, which in turn is a wholly owned
banking subsidiary of NationsBank Corporation, a bank holding company organized
as a North Carolina corporation.
TradeStreet provides trust and banking services to individuals, corporations,
and institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency, and personal and corporate banking.
Nations Gartmore Investment Management, with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Nations Global Government Income Fund pursuant to a sub-advisory
agreement. Nations Gartmore is a joint venture structured as a general
partnership between NB Partner Corp., a wholly owned subsidiary of NationsBank,
and Gartmore U.S. Limited, a wholly owned subsidiary of Gartmore plc, a UK
company listed on the London Stock Exchange which is the holding company for a
leading UK based international fund management group of companies (the "Gartmore
Group"). Banque Indosuez S.A., a leading French bank owns 75% of the equity of
Gartmore plc. The initial asset management company in the Gartmore Group was
founded in 1969 and the Gartmore Group currently provides investment management
and advisory services to pension funds, unit trusts, offshore funds and invest-
14
<PAGE>
ment funds. As of December 31, 1994 the Gartmore Group had over $30 billion in
assets under management.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc. and Nations Portfolios' Boards of Directors, and in
accordance with the Funds' investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares of a Fund, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank or Banque Indosuez S.A. has a
lending relationship. For the services provided and expenses assumed pursuant to
an Investment Advisory Agreement, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rate of 0.60% of the average
daily net assets of each of Nations Short-Term Income Fund, Nations Diversified
Income Fund, Nations Strategic Fixed Income Fund, and Nations Short-Intermediate
Government Fund; and 0.65% of the first $100 million of the Nations Government
Securities Fund's average daily net assets, plus 0.55% of the Fund's average
daily net assets in excess of $100 million and up to $250 million, plus 0.50% of
the Fund's average daily net assets in excess of $250 million; and 0.70% of the
average daily net assets of Nations Global Government Income Fund.
For the services provided and the expenses assumed pursuant to a sub-advisory
agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.15% of Nations Short-Term Income Fund's,
Nations Short-Intermediate Fund's, Nations Governmental Securities Fund's,
Nations Strategic Fixed Income Fund's and Nations Diversified Income Fund's
average daily net assets.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
NBAI will pay Nations Gartmore sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.54% of Nations Global Government Income Fund's
average daily net assets.
Although the advisory fees for the Nations Global Government Income Fund are
higher than the advisory fees
paid by most other mutual funds, Nations Portfolios believes that the fees are
comparable to the advisory fees paid by many other funds with similar investment
objectives and policies. From time to time, NBAI and/or TradeStreet and/or
Nations Gartmore may waive (either voluntarily or pursuant to applicable state
limitations) advisory fees payable by a Fund. For the fiscal year ended November
30, 1994, after waivers, Nations Fund Trust paid NationsBank under a prior
Advisory Agreement advisory fees at the indicated rate of the Funds' average
daily net assets: Nations Short-Term Income Fund -- 0.29%; Nations Diversified
Income Fund -- 0.40%; Nations Strategic Fixed Income Fund -- 0.52%; Nations
Short-Intermediate Government Fund -- 0.40%. For the fiscal year ended May 31,
1995, after waivers, Nations Fund, Inc. paid NationsBank fees at the rate of
0.46% of Nations Government Securities Fund's average daily net assets.
David M. Hetherington is Senior Vice President, Director of Fixed Income
Management and a member of the Investment Policy Committee. Mr. Hetherington has
been the principal portfolio manager of the Nations Short-Term Income Fund since
1995. Mr. Hetherington has over 16 years of investment experience including
security analysis and portfolio management. Mr. Hetherington received a B.A.
from Duke University and holds the Chartered Financial Analyst designation.
Mark S. Ahnrud is a Vice President and Fixed Income Portfolio Manager at
NationsBank. He has been the principal portfolio manager for Nations Diversified
Income Fund since 1992. Mr. Ahnrud is a member of the Fixed Income Team and has
eight years of investment experience. Mr. Ahnrud received a B.S. from Babson
College and an M.B.A. from Duke University. Mr. Ahnrud holds the Chartered
Financial Analyst designation.
Gregory H. Cobb is a Vice President and Fixed Income Portfolio Manager at
NationsBank and has been principal portfolio manager for Nations Strategic Fixed
Income Fund since 1995. Mr. Cobb, who joined NationsBank in 1993, is a member of
the Fixed Income Group and has over 7 years of portfolio management experience.
Mr. Cobb received a B.A. from the University of North Carolina-Chapel Hill.
John Swaim joined NationsBank in 1986 and has been the principal portfolio
manager for Nations Short-Intermediate Government Fund and Nations Government
Securities Fund since 1995. Mr. Swaim is a member of the Fixed Income Team and
has over eight years of investment experience. Mr. Swaim previously served as
derivative products manager for the NationsBank Texas Corporate Investment
Division portfolio. Mr. Swaim received his B.S. from the University of North
Texas and holds an M.B.A. from the University of Texas, Arlington.
Mark Rimmer is the principal portfolio manager of the Nations Global Government
Income Fund and has been
15
<PAGE>
an International Fixed Income Manager with the Gartmore Group since 1990. He
joined Gulf International Bank in 1986 on the trading desk, and subsequently
joined their Investment Management Group in 1988, managing multi-currency funds
for institutional clients in the Gulf region. Prior to that he was associated
with Sumitomo Finance International as a senior trader. Mr. Rimmer graduated
from Cambridge University in 1984 with an honors degree in Economics. Mr. Rimmer
also is a member of the Institute of Investment Management and Research.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that subsidiaries of
NationsBank may perform the services contemplated by the Investment Advisory
Agreement without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Such counsel has pointed out, however, that there
are no controlling judicial or administrative interpretations or decisions and
that future judicial or administrative interpretations of, or decisions relating
to, present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such subsidiaries of NationsBank from continuing to perform, in whole or
in part, such services. If such subsidiaries of NationsBank were prohibited from
performing any such services, it is expected that the Trustees of Nations Fund
Trust and the Boards of Directors of Nations Fund, Inc. and Nations Portfolios
would recommend to the Funds' shareholders that they approve a new advisory
agreement with another entity or entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
The Shareholder Services Group, Inc. ("TSSG"), a wholly owned subsidiary of
First Data Corporation, with principal offices at One Exchange Place, Boston,
Massachusetts 02109, serves as the co-administrator of the Funds pursuant to a
Co-Administration Agreement. Under the terms of the Co-Administration Agreement,
TSSG provides various administrative and accounting services to the Funds,
including performing the calculations necessary to determine net asset values
and dividends, preparing tax returns and financial statements, maintaining the
portfolio records and certain general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and TSSG are entitled to receive a combined fee at the
annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal year ended November 30, 1994, after waivers, Nations Fund Trust paid its
administrators fees at the rate of 0.09% of the average daily net assets of
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund and Nations Short-Intermediate Government Fund. For
the fiscal year ended May 31, 1995, after waivers, Nations Fund, Inc. paid its
administrators fees at the rate of 0.09% of the Nations Government Securities
Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of .01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund Trust
has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Funds. Stephens may
pay service fees or commissions to selling agents that assist customers in
purchasing Investor Shares. See "Shareholder Servicing and Distribution Plans."
Morgan Guaranty Trust Company ("Morgan Guaranty"), Avenue des Arts, 35 1040
Brussels, Belgium, serves as custodian for the assets of the Nations Global
Government Income Fund.
NationsBank of Texas, N.A., ("NationsBank of Texas", and, collectively with
Morgan Guaranty, the "Custodians"), serves as the Funds' (other than Nations
Global Government Income Fund's) custodian. NationsBank of Texas is located at
1401 Elm Street, Dallas, Texas 75202 and is a wholly owned subsidiary of
NationsBank Corporation. In return for providing custodial services, NationsBank
of Texas is entitled to receive, in addition to out-of-pocket expenses, fees
payable monthly (i) at the rate of 1.25% of 1% of the average daily net assets
of each Fund, (ii) $10.00 per repurchase collateral transaction by the Funds,
and (iii) $15.00 per purchase, sale and maturity transaction involving the
Funds.
16
<PAGE>
TSSG serves as transfer agent (the "Transfer Agent") for the Funds' Investor C
Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Their
address is 160 Federal Street, Boston, Massachuetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. Each fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and TSSG; interest; trustees'
and directors' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or TSSG under their respective agreements with
Nations Fund; and any extraordinary expenses. Investor C Shares may bear certain
class specific retail transfer agency expenses and also bear certain additional
shareholder service and sales support costs. Any general expenses of Nations
Fund Trust, Nations Fund, Inc., and/or Nations Portfolios that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bear to
the assets of Nations Fund Trust, Nations Fund, Inc., and/or Nations Portfolios
or in such other manner as the Board of Trustees or Boards of Directors deems
appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional Reserves
(formerly known as The Capitol Mutual Funds). The Nations Fund Family currently
has 44 distinct investment portfolios and total assets in excess of $16 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. The Funds currently offer five classes of
shares -- Investor A, Investor B, Investor C, Trust A and Trust B Shares. This
Prospectus relates only to the Investor C Shares of Nations Short-Term Income
Fund, Nations Diversified Income Fund, Nations Strategic Fixed Income Fund and
Nations Short-Intermediate Government Fund of Nations Fund Trust. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Each share is without par value, represents an equal proportionate interest in
the related fund with other shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such fund as are declared in the discretion of Nations Fund Trust's Board of
Trustees. Nations Fund Trust's Declaration of Trust authorizes the Board of
Trustees to classify or reclassify any class of shares into one or more series
of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the 1940 Act
requires voting by fund.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. In addition, as of August
31, 1995, the Mary Jane Bakery Salesman Association and Walter St. George
Gladding owned of record 25% or more of Investor C shares of the Nations
Strategic Fixed Income Fund and therefore could be considered a controlling
person of such class for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund Trust's related SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. As of the date of
this Prospectus, the authorized capital stock of Nations
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Fund, Inc. consists of 270,000,000,000 shares of common stock, par value of
$.001 per share, which are divided into series or funds each of which consists
of separate classes of shares. This Prospectus relates only to the Investor C
Shares of Nations Government Securities Fund of Nations Fund, Inc. To obtain
additional information regarding the Fund's other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. As of the date of this Prospectus, the authorized capital stock of
Nations Portfolios consists of 150,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of Nations Global Government Income Fund of Nations
Portfolios. To obtain additional information regarding the Fund's other classes
of shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class or allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of August 31, 1995, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, would be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios have entered into an indemnification agreement
that creates a right of indemnification from the investment company responsible
for any such misstatement, inaccuracy or incomplete disclosure that may appear
in this Prospectus.
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About Your Investment
How To Buy Shares
Stephens has established various procedures for purchasing Investor C Shares in
order to accommodate different investors. Purchase orders for Investor C Shares
may be placed through banks, broker/dealers or other financial institutions
(including certain affiliates of NationsBank) that have entered into a Sales
Support Agreement with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for Individual Retirement Account ("IRA") investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor C Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
With respect to Investor C Shares, the Selling Agents have entered into Sales
Support Agreements with Stephens whereby they will provide various sales support
services to their customers ("Customers") who own Investor C Shares. In
addition, banks, broker/dealers or other financial institutions (including
certain affiliates of NationsBank) that have entered into Servicing Agreements
with Nations Fund ("Servicing Agents") will provide various shareholder services
for their Customers who own Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor C Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONIC TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How to Redeem Shares" and "How to
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. You should be aware that by electing the telephone transaction
feature, you may be giving up a measure of security
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that you may have if you were to authorize written requests only. You may bear
the risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
Shareholder Servicing And Distribution Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have approved a
Distribution Plan with respect to the Investor C Shares of each Fund. Pursuant
to the Distribution Plan, each Fund may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor C Shares. Payments under the Distribution Plan will be calculated daily
and paid monthly at a rate or rates set from time to time by the Trustees
provided that the annual rate may not exceed 0.75% of the average daily net
asset value of each Fund's Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution Plan will not be used to
pay any interest expenses, carrying charges or other financing costs (except to
the extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAI for more details on the
Distribution Plan.
The Trustees and Directors also have approved a shareholder servicing plan
("Investor C Servicing Plan") for each Fund which permits the Funds to
compensate Servicing Agents for services provided to their Customers that own
Investor C Shares. Payments under the Investor C Servicing Plan are calculated
daily and paid monthly at a rate or rates set from time to time by the Funds,
provided that the annual rate may not exceed 0.25% of the average daily net
asset value of the Investor C Shares.
The fees payable under the Investor C Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for Investor C Shares from Customers and
transmitting net purchase and redemption orders to Stephens or the Transfer
Agent; (ii) providing Customers with a service that invests the assets of their
accounts in Investor C Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor C Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Investor C Servicing Plan
at any time, and payments are subject to the continuation of the Investor C
Servicing Plan described above and the terms of the Servicing Agreements. See
the SAI for more details on the Investor C Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor Shares for various services provided in connection with a
Customer's account. These fees would be in addition to any amounts received by a
Selling Agent under its Sales Support Agreement with Stephens or by a Servicing
Agent under its Servicing Agreement with Nations Fund. The Sales Support
Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or
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incentive to Agents who sell a minimum dollar amount of shares of a Fund during
a specified period of time. Stephens also may, from time to time, pay additional
consideration to Agents not to exceed 0.75% of the offering price per share on
all sales of Investor C Shares as an expense of Stephens or for which Stephens
may be reimbursed under the Distribution Plan or upon receipt of a CDSC. Any
such additional consideration or incentive program may be terminated at any time
by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customer's account with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Funds that are redeemed within one year of the date of purchase will be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. Investor C Shares purchased prior
to January 1, 1996 remain subject to the 1.00% CDSC (except for Nations
Short-Term Income Fund). No CDSC is imposed on increases in net asset value
above the initial purchase price, including shares acquired by reinvestment of
distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
retirement plans, (except in cases of plan level terminations); (b)
distributions from an IRA following attainment of age 59 1/2; (c) a tax-free
return of an excess contribution to an IRA, and (d) distributions from a
qualified retirement plan that are not subject to the 10% additional Federal
withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected pursuant
to Nations Fund's right to liquidate a shareholder's account if the aggregate
net asset value of the Investor Shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pur-
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suant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor C Shares in the account. Shareholders are responsible for providing
evidence sufficient to establish that they are eligible for any waiver of the
CDSC. Nations Fund may terminate any waiver of the CDSC by providing notice in
the Prospectus, but any such termination would affect only shares purchased
after such termination.
Within 120 days after a redemption of Investor C Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor C Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinstatement privilege.
In order to exercise this privilege, a written order for the purchase of
Investor C Shares must be received by the Transfer Agent or by Stephens within
120 days after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of a Fund if the value of the
Investor C Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor C Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the and Investor C Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer or to a checking or savings account in a stated amount of
not less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor C Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling or Servicing Agent or by Nations Fund at any time.
How To Exchange Shares
SHARES ACQUIRED DIRECTLY: The exchange feature enables a shareholder of Investor
C Shares of a Nations Fund non-money market fund (including the Funds) to
acquire shares of the same class that are offered by another non-money market
fund of Nations Fund or Investor D Shares of any money market fund of Nations
Fund when he or she believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquires Investor C Shares of a non-money market fund through
an exchange, the CDSC applicable to the original shares purchased (except for
Nations Short-Term Income Fund and Nations Short-Term Municipal Income Fund
Shares purchased prior to January 1, 1996, which will be subject to the CDSC
schedule applicable to the acquired Fund) will be applied to any redemption of
the acquired shares. Additionally, if a shareholder acquires Investor D Shares
of a money market fund or Investor C Shares of Nations Short-Term Income Fund or
Nations Short-Term Municipal Income Fund with shares of another Fund purchased
prior to January 1, 1996, the CDSC schedule applicable to the exchanged Investor
C Shares will be applied on any redemption of the acquired shares.
Notwithstanding the foregoing, if a shareholder redeems shares acquired through
an exchange, the shareholder will be subject to the highest CDSC schedule
applicable to any shares that were exchanged within the 30 days prior to the
redemption. Additionally, when an investor exchanges Investor C Shares of
Nations Diversified Income Fund, Nations Strategic Fixed Income Fund, Nations
Short-Intermediate Government Fund, Nations Government Securities Fund, Nations
Global Government Income Fund or Investor C Shares of Nations Short-Term Income
Fund purchased after January 1, 1996, for shares of the same class of another
non-money market fund or Investor D Shares of any money market fund of Nations
Fund, the remaining period of time (if any) that the CDSC is in effect will be
computed from the time of the initial purchase of the previously held Investor C
Shares. If an investor exchanges Investor C Shares of Nations Short-Term Income
Fund purchased prior to January 1, 1996 for shares of the same class of another
non-money market fund, the remaining period of time that the CDSC applicable to
the acquired shares is in effect will be computed from the time of the exchange.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. Shareholder may direct proceeds to be
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exchanged from one Nations Fund to another as allowed by the applicable exchange
rules within the prospectus. Exchanges will occur on or about the 15th and/or
30th day of the applicable month. The shareholder must have an existing position
in both Funds in order to establish the AEF. This feature may be established by
directing a request to the Transfer Agent by telephone or in writing. For
additional information, please contact your selling agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the AEF). Nations Fund reserves the right to
reject any exchange request. Only shares that may legally be sold in the state
of the investor's residence may be acquired in an exchange. Only shares of a
class that is accepting investments generally may be acquired in an exchange. An
investor may telephone an exchange request by calling his/her Selling or
Servicing Agent which is responsible for transmitting such request to Stephens
or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling or Servicing Agent through which the original
shares were purchased. An investor should consult his/her Selling or Servicing
Agent or Stephens for further information regarding exchanges.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Selling and Servicing Agents may provide for
the reinvestment of dividends in the form of additional Investor Shares of the
same class in the same Fund. Dividends and distributions are paid in cash within
five Business Days of the end of the month or quarter to which the dividend
relates. Dividends and distributions payable to a shareholder are paid in cash
within five Business Days after a shareholder's complete redemption of his/her
Investor C Shares.
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TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income taxes on amounts distributed in accordance with the Code.
The Funds intend to distribute substantially all of their investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional shares. (Federal income taxes for distributions
to an IRA are generally deferred under the Code.) Corporate investors may be
entitled to the dividends-received deduction on a portion of the dividends from
those Funds investing in the stock of domestic corporations.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of the Nations Global Government Income Fund's investment income may be
subject to foreign income taxes withheld at their source. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Generally, more than 50% of the value of the total assets of the Nations
Global Government Income Fund will consist of securities of foreign issuers, and
therefore the Fund may elect to "pass through" to its shareholders these foreign
taxes, if any. In such event each shareholder will be required to include his or
her pro rata portion thereof in his or her gross income, but will be able to
deduct or (subject to various limitations) claim a foreign tax credit against
U.S. income taxes for such amount.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisers with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET BACKED SECURITIES: Asset Backed Securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset Backed
Securities consist of both mortgage and non-mortgage backed securities.
Interests in pools of these assets differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specified call dates. Instead, Asset Backed
Securities provide periodic payments which generally consist of both interest
and principal payments.
The life of an Asset Backed Security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be pri-
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marily a function of current market interest rates, although other economic and
demographic factors may be involved. For example, falling interest rates
generally result in an increase in the rate of prepayments of mortgage loans
while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. Consequently,
Asset Backed Securities are not as effective in locking in high, long-term
yields. Conversely, in periods of sharply rising rates, prepayments are
generally slow, increasing the security's average life and its potential for
price depreciation.
MORTGAGE BACKED SECURITIES represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by GNMA, by FNMA and FHLMC. Such Certificates
are mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest. Each mortgage loan included in the pool is either
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA").
The average life of a GNMA Certificate is likely to be substantially less than
the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of a single-family dwelling mortgage with a 25- to 30-year maturity, the
type of mortgage which backs most GNMA Certificates, is approximately 12 years.
It is therefore customary practice to treat GNMA Certificates as 30-year
mortgage-backed securities which prepay fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
The yield which will be earned on GNMA Certificates may vary from their coupon
rates for the following reasons: (i) Certificates may be issued at a premium or
discount, rather than at par; (ii) Certificates may trade in the secondary
market at a premium or discount after issuance; (iii) interest is earned and
compounded monthly which has the effect of raising the effective yield earned on
the Certificates; and (iv) the actual yield of each Certificate is affected by
the prepayment of mortgages included in the mortgage pool underlying the
Certificates and the rate at which principal so prepaid is reinvested. In
addition, prepayment of mortgages included in the mortgage pool underlying a
GNMA Certificate purchased at a premium may result in a loss to the Fund.
Due to the large numbers of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments.
Mortgage backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs," are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class pass-
through securities are interests in a trust composed of Mortgage Assets and all
references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if
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any has been paid. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semiannual basis.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets. A Fund will only invest in SMBS
whose mortgage assets are U.S. Government obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the mortgage assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates. Because SMBS were only recently introduced, established trading
markets for these securities have not yet been developed.
The average life of mortgage backed securities varies with the maturities of the
underlying mortgage instruments, which have maximum maturities of 40 years. The
average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as the result of mortgage
prepayments, mortgage refinancings, or foreclosures. The rate of mortgage
prepayments, and hence the average life of the certificates, will be a function
of the level of interest rates, general economic conditions, the location and
age of the mortgage and other social and demographic conditions. Such
prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest and have the effect of reducing future
payments. Estimated average life will be determined by the Adviser and used for
the purpose of determining the average weighted maturity of the Funds. For
additional information concerning mortgage backed securities, see the related
SAI.
NON-MORTGAGE ASSET BACKED SECURITIES include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
Non-mortgage backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities. In addition, such securities generally will have
remaining estimated lives at the time of purchase of five years or less.
The purchase of non-mortgage backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue Asset Backed Securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the Asset Backed Securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the Asset Backed
Securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the Asset Backed Securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related Asset Backed Securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike
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most other Asset Backed Securities, credit card receivables are unsecured
obligations of the card holder.
The development of non-mortgage backed securities is at an early stage compared
to mortgage backed securities. While the market for Asset Backed Securities is
becoming increasingly liquid, the market for mortgage backed securities issued
by certain private organizations and non-mortgage backed securities is not as
well developed. As stated above, each Fund intends to limit its purchases of
mortgage backed securities issued by certain private organizations and
non-mortgage backed securities to securities that are readily marketable at the
time of purchase.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risk, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker-dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, the Fund's asset coverage and other factors at the time of a
reverse repurchase, the Funds may not establish a segregated account when the
Adviser believes it is not in the best interests of the Funds to do so. In this
case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for
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entering into the commitment to purchase. If the broker/dealer to whom a Fund
sells the security becomes insolvent, the Fund's right to purchase or repurchase
the security may be restricted; the value of the security may change adversely
over the term of the dollar roll; the security that the Fund is required to
repurchase may be worth less than the security that the Fund originally held,
and the return earned by the Fund with the proceeds of a dollar roll may not
exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objectives. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
United States Dollar. A Fund either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted. The Funds will generally
not enter into a forward contract with a term of greater than one year.
FOREIGN SECURITIES: Foreign securities include obligations of foreign
corporations and banks as well as obligations of foreign governments and their
political subdivisions (which will be limited to direct government obligations
and government-guaranteed securities). Such investments may subject a Fund to
special investment risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. In addition, foreign issuers in general may be subject to different
accounting, auditing, reporting, and record keeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
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Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign stock
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the U.S. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign stock exchanges, brokers, and companies
than in the U.S. With respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets, or diplomatic developments that could affect
investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not knowingly
invest more than 15% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements and time
deposits that do not provide for payment to a Fund within seven days after
notice, guaranteed investment contracts and some commercial paper issued in
reliance upon the exemption in Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act") (other than variable amount master demand notes with
maturities of nine months or less), are subject to the limitation on illiquid
securities.
If otherwise consistent with its investment objective and policies, certain
Funds may purchase securities which are not registered under the 1933 Act but
which can be sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act. Any such security will not be considered illiquid so
long as it is determined by a Fund's Board of Trustees or Board of Directors or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional buyers cease purchasing such restricted securities pursuant to
Rule 144A, the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating rate payments for fixed rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to
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preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities the Fund
anticipated purchasing at a later date rather than for speculative purposes. A
Fund will not sell interest rate caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Lower-rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. The
Funds intend to limit their investments in lower-quality debt securities to 35%
of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition are adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss. Some of these instruments may be unrated, but unrated
instruments purchased by a Fund will be determined by the Adviser to be of
comparable quality at the time of purchase to instruments rated "high quality"
by any major rating service. Where necessary to ensure that an instrument is of
comparable "high quality," a Fund will require that an issuer's obligation to
pay the principal of the note may be backed by an unconditional bank letter or
line of credit, guarantee, or commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue
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of a provision requiring repayment following demand by the lender. Such loans
made by a Fund may have a demand provision permitting the Fund to require
payment within seven days. Participations in such loans, however, may not have
such a demand provision and may not be otherwise marketable. To the extent these
securities are illiquid, they will be subject to each Fund's limitation on
investments in illiquid securities. As it deems appropriate, the Adviser will
establish procedures to monitor the credit standing of each such municipal
borrower, including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
security. To the extent that municipal participation interests are considered to
be "illiquid securities," such instruments are subject to each Fund's limitation
on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in Municipal Securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in Municipal Securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker-dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund and Nations Institutional Reserves.
SECURITIES LENDING: To increase return on portfolio securities, certain of the
Funds may lend their portfolio securities to broker-dealers and other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. There is a risk of delay in receiving
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to be credit worthy and
when, in their judgment, the income to be earned from the loan justifies the
attendant risks. The aggregate of all outstanding loans of a Fund may not exceed
30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indexes, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
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U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., GNMA certificates; in other cases interest and principal are not
guaranteed, E.G., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
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A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
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The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are Duff 1, Duff 2 and Duff 3.
D&P employs three designations, Duff 1+, Duff 1 and Duff 1-, within the highest
rating category. Duff 1+ indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations." Duff 1 indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by good fundamental protection factors. Risk factors are considered to be minor.
Duff 1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. Duff 2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. Duff 3 indicates satisfactory liquidity and other protection factors
which qualify the issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following is the four investment grade ratings used by BankWatch
for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is very high.
AA -- The second highest category; indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
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TBW-1 -- The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Obligations supported by the highest capacity for timely repayment
and possessing a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
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