As filed with the Securities and Exchange Commission
on January 29, 1996
Registration No. 33-4038; 811-4614
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (_)
Post-Effective Amendment No. 28 (X)
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (_)
Amendment No. 29 (X)
(Check appropriate box or boxes)
------------------------
NATIONS FUND, INC.
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------
Registrant's Telephone Number, including Area Code: (800) 321-7854
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With copies to:
Robert M. Kurucza, Esq. Carl Frischling, Esq.
Marco E. Adelfio, Esq. Kramer, Levin, Naftalis,
Morrison & Foerster Nessen, Kamin & Frankel
2000 Pennsylvania Ave., N.W., Suite 5500 919 Third Avenue
Washington, D.C. 20006 New York, New York 10022
It is proposed that this filing will become effective (check appropriate box):
(_) Immediately upon filing (_) on __________ pursuant to Rule
pursuant to Rule 485(b); or 485(b), or
(X) 60 days after filing pursuant (_) on ___________ pursuant to Rule
to Rule 485(a), or 485(a)
(_) 75 days after filing pursuant (_) on (date) pursuant to paragraph
to paragraph (a)(2) (a)(2) of Rule 485
If appropriate, check the following box:
(_) this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number of shares of its Common
Stock, $.001 par value, under the Securities Act of 1933, pursuant to Rule 24f-2
under the Investment Company Act of 1940, as amended. The Registrant filed the
notice required by Rule 24f-2 for its most recent fiscal period ended May 31,
1995 on July 28, 1995.
<PAGE>
EXPLANATORY NOTE
Nations Fund, Inc. is filing this Post-Effective Amendment in order
to add a Shareholder Administration Plan and a Shareholder Administration
Agreement for the Trust B Shares.
<PAGE>
NATIONS FUND, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus
<S> <C>
1. Cover Page Cover Page
2. Synopsis Expenses Summary
3. Condensed Financial Information Financial Highlights; How Performance is Shown
4. General Description of Registrant Cover Page; Objectives; How Objectives are Pursued;
Organization and History
5. Management of the Fund How the Funds are Managed
6. Capital Stock and Other Securities How to Buy Shares; How the Funds Value Their Shares;
How Dividends and Distributions are Made; Tax
Information
7. Purchase of Securities Being Offered Cover Page; How to Buy Shares
8. Redemption of Repurchase How to Redeem Shares, How to Exchange Shares
9. Pending Legal Proceedings Inapplicable
</TABLE>
<TABLE>
<CAPTION>
Part B Statement of
Item No. Additional Information
<S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Introduction
13. Investment Objectives and Policies Additional Information on Fund Investments
15. Control Persons and Principal Holders of Miscellaneous
Securities
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
16. Investment Advisory and Other Services Investment Advisory, Administration, Custody, Transfer
Agency, Shareholder Administration and Distribution
Agreements
17. Brokerage Allocation Other Practices Fund Transactions and Brokerage
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption and Pricing of Securities Net Asset Value; Distributor
Being Offered
20. Tax Status Additional Information Concerning Taxes
21. Underwriters Distributor
22. Calculations of Performance Additional Information on Performance
23. Financial Statements Not Applicable
</TABLE>
<TABLE>
<CAPTION>
Part C
Item No. Other Information
<S> <C>
Information required
to be included in
Part C is set forth
under the appropriate
item, so numbered, in
Part C of this
document.
2
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED JANUARY 31, 1996
Prospectus
TRUST B SHARES
MARCH , 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund") of
the Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Fund -- Trust B Shares.
This Prospectus sets forth concisely the information
about Nations Fund that a prospective purchaser of
Trust B Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios") is
contained in separate Statements of Additional
Information ("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.
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND:
Nations Balanced Assets Fund
BOND FUNDS:
Nations Short-Intermediate Government Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government Income Fund
For purchase, redemption and
performance information
call:
1-800-626-2275
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
Objectives 5
How Objectives Are Pursued 6
How Performance Is Shown 18
How the Funds Are Managed 18
Organization and History 23
About Your
Investment
How to Buy Shares 25
Shareholder Administration Arrangements 25
How to Redeem Shares 26
How to Exchange Shares 26
How the Funds Value Their Shares 27
How Dividends and Distributions Are Made; Tax
Information 27
Appendix A -- Portfolio Securities 29
Appendix B -- Description of Ratings 37
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
Trust B Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
NATIONS FUND EQUITY/BALANCED FUNDS TRUST B SHARES
SHAREHOLDER TRANSACTION EXPENSES
</TABLE>
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Nations Inter- Nations Pacific Nations Emerging
Value Equity national Emerging Growth Capital Growth
Fund Income Fund Equity Fund Markets Fund Fund Growth Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases None None None None None None None
Deferred Sales Load None None None None None None None
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Disciplined Equity Nations
Equity Index Balanced
Fund Fund Assets Fund
<S> <C> <C> <C>
Sales Load Imposed on
Purchases None None None
Deferred Sales Load None None None
</TABLE>
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Nations Inter- Nations Pacific Nations Emerging
Value Equity national Emerging Growth Capital Growth
Fund Income Fund Equity Fund Markets Fund Fund Growth Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees1 .75% .70% .90% 1.10% .90% .75% .75%
Other Expenses1 .67% .75% .70% 1.30% 1.30% .67% .70%
Total Operating Expenses1 1.42% 1.45% 1.60% 2.40% 2.20% 1.42% 1.45%
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Disciplined Equity Nations
Equity Index Balanced
Fund Fund Assets Fund
<S> <C> <C> <C>
Management Fees1 .75% .10% .75%
Other Expenses1 .75% .80% .70%
Total Operating Expenses1 1.50% .90% 1.45%
</TABLE>
1 After any waivers and reimbursements.
NATIONS FUND BOND FUNDS TRUST B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations
Short-
Inter- Nations Nations Nations
mediate Government Short-Term Diversified
Government Securities Income Income
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
</TABLE>
<TABLE>
<CAPTION>
Nations
Strategic Nations
Fixed Global
Income Government
Fund Income Fund
<S> <C> <C>
Sales Load Imposed on Purchases None None
Deferred Sales Load None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Short-
Inter- Nations Nations Nations
mediate Government Short-Term Diversified
Government Securities Income Income
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Management Fees1 .40% .50% .30% .50%
Other Expenses1 .53% .65% .57% .67%
Total Operating Expenses1 .93% 1.15% .87% 1.17%
</TABLE>
<TABLE>
<CAPTION>
Nations
Strategic Nations
Fixed Global
Income Government
Fund Income Fund
<S> <C> <C>
Management Fees1 .50% 0.70%
Other Expenses1 .52% 0.95%
Total Operating Expenses1 1.02% 1.65%
</TABLE>
1 After any waivers and reimbursements.
3
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Trust B Shares of
the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Equity International Emerging Pacific
Nations Value Fund Income Fund Equity Fund Markets Fund Growth Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 14 $ 15 $ 16 $ 24 $ 22
3 Years $ 45 $ 46 $ 50 $ 75 $ 69
</TABLE>
<TABLE>
<CAPTION>
Nations
Capital Nations Emerging
Growth Fund Growth Fund
<S> <C> <C>
1 Year $ 14 $ 15
3 Years $ 45 $ 46
</TABLE>
<TABLE>
<CAPTION>
Nations Nations Nations Government
Nations Disciplined Equity Index Nations Balanced Short- Intermediate Securities
Equity Fund Fund Assets Fund Government Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 15 $ 9 $ 15 $ 9 $ 12
3 Years $ 47 $ 29 $ 46 $ 30 $ 37
</TABLE>
<TABLE>
<CAPTION>
Nations
Short-Term Income Nations Diversified
Fund Income Fund
<S> <C> <C>
1 Year $ 9 $ 12
3 Years $ 28 $ 37
</TABLE>
<TABLE>
<CAPTION>
Nations Strategic Nations Global
Fixed Income Government Income
Fund Fund
<S> <C> <C>
1 Year $ 10 $ 17
3 Years $ 32 $ 52
</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
Trust B Shares will bear either directly or indirectly. The "Other Expenses"
figures in the above tables are based on estimated amounts for each Fund's
current fiscal year and reflect anticipated fee waivers and reimbursements.
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.
("NASD"). For more complete descriptions of the Funds' operating expenses, see
"How the Funds are Managed."
Absent fee waivers and reimbursements, "Management Fees," "Other Expenses" and
"Total Operating Expenses" for Trust B Shares of the indicated Fund would have
been as follows: Nations Value Fund -- .75%, .75% and 1.52%, respectively;
Nations Equity Income Fund -- .70%, .85% and 1.55%, respectively; Nations
International Equity Fund -- .90%, .80% and 1.70%, respectively; Nations
Emerging Markets Fund -- 1.10%, 1.40% and 2.50%, respectively; Nations Pacific
Growth Fund -- 0.90%, 1.40% and 2.30%, respectively; Nations Capital Growth
Fund -- .75%, .77% and 1.52%, respectively; Nations Emerging Growth
Fund -- .75%, 80% and 1.55%, respectively; Nations Disciplined Equity
Fund -- .75%, .80% and 1.60%, respectively; Nations Equity Index Fund -- .50%,
.90% and 1.00%, respectively; Nations Balanced Assets Fund -- .75%, .80% and
1.55%, respectively; Nations Short-Intermediate Government Fund -- .60%, .78%
and 1.18%, respectively; Nations Government Securities Fund -- .64%, 90% and
1.40%, respectively; Nations Short-Term Income Fund -- .60%, .82% and 1.12%,
respectively; Nations Diversified Income Fund -- .60%, .92% and 1.42%,
respectively; Nations Strategic Fixed Income Fund -- .60%, .77% and 1.27%,
respectively; and Nations Global Government Income Fund -- 0.70%, 1.20% and
1.90%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
4
<PAGE>
Objectives
EQUITY 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's objective is to
seek 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 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).
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.
NATIONS EQUITY INDEX FUND: The investment objective of the Nations Equity Index
Fund is to seek investment results that correspond, before fees and expenses, to
the total return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500" or the "Index").1 The Fund
is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial, and market analyses and investment judgment. Instead, the
Fund, utilizing a "passive" or "indexing" investment approach, attempts to
duplicate the performance of the S&P 500.
BALANCED FUND:
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.
BOND FUNDS:
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 prima-
1 "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation, which does not sponsor and is in no way affiliated with the
Nations Equity Index Fund.
5
<PAGE>
rily in obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
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 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 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 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.
Although the Adviser will seek to achieve the investment objective of each Fund,
there is no assurance that they 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.
How Objectives Are Pursued
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a universe of
approximately 800 stocks monitored by the Adviser, which 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 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
6
<PAGE>
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 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 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;
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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 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 or S&P or, if unrated, determined by
the Adviser to be comparable in quality to instruments so rated. Obligations
with the lowest investment grade rating (e.g., rated "Baa" by Moody's or "BBB"
by S&P) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income 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 Far East include Australia, Hong Kong, India, Indonesia,
South Korea, Malaysia, New Zealand, Pakistan, the People's Republic of China,
the Philippines, Singapore, Sri Lanka, Taiwan and Thailand and may include other
markets that develop in the region. The Fund will not invest in securities of
issuers 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.
8
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In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income 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.
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
9
<PAGE>
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 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.
NATIONS EQUITY INDEX FUND: Under normal conditions, the Fund will invest at
least 80% of its assets in equity securities of companies which compose the S&P
500 Index. The S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and its
current price. In seeking to duplicate the performance of the S&P 500 Index, the
Adviser will attempt to allocate the Fund's portfolio
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<PAGE>
among common stock in approximately the same weightings as the S&P 500 Index,
beginning with the heaviest weighted stocks that make up a larger portion of the
Index's value.
The Adviser generally will seek to match the composition of the S&P 500 Index as
much as possible, but may not always invest the Fund's portfolio to mirror the
Index exactly. Because of the difficulty and expense of executing relatively
small stock transactions, the Fund may not always be invested in the less
heavily weighted S&P 500 Index stocks and may at times have its portfolio
weighted differently from the S&P 500 Index. The Fund may omit or remove an S&P
500 Index stock from its portfolio if, following objective criteria, the Adviser
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. The Adviser may purchase stocks that are not included in the S&P 500
Index to compensate for these differences if it believes that their prices will
move together with the prices of S&P 500 Index stocks omitted from the
portfolio.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical in common stocks. However, the Fund will maintain
a reasonable position in high-quality short-term debt securities and money
market instruments to meet redemption requests. If the Adviser believes that
market conditions warrant a temporary defensive posture, the Fund may invest
without limitation in high-quality short-term debt securities and money market
instruments. These securities and money market instruments may include domestic
and foreign commercial paper, certificates of deposit, bankers' acceptances and
time deposits, U.S. government securities and repurchase agreements.
The Fund may also invest a portion of its portfolio in instruments whose return
depends on stock market prices. These may include debt securities whose prices
or interest rates are indexed to the return of the S&P 500 Index, or swap
agreements linked to the S&P 500 Index, and options and futures contracts. The
Fund would invest in these types of instruments in order to seek to match the
total return of the Index in accordance with its investment objective. However,
instruments linked to stock market returns may not track the return of the Index
in all cases, and may involve additional credit risks. For additional
information concerning the Fund's investment practices, see "Appendix A."
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 Index in no way implies that S&P believes the stock to
be an attractive investment. The Index is determined, composed and calculated by
S&P without regard to the Fund. S&P is neither a sponsor of, nor in any way
affiliated with the Fund, and S&P makes no representation or warranty, expressed
or implied on the advisability of investing in the Fund or as to the ability of
the Index to track general stock market performance, and S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein. "Standard and Poor's 500" is
a service mark of S&P.
The 500 securities, most of which trade on the New York Stock Exchange,
represented, as of February 28, 1995, approximately 70% of the market value of
all U.S. common stocks. Each stock in the S&P 500 Index is weighted by its
market value. Because of the market-value weighting, the 50 largest companies in
the S&P 500 Index currently account for approximately 47% of the Index.
Typically, companies included in the S&P 500 Index are the largest and most
dominant firms in their respective industries. As of February 28, 1995, the five
largest companies in the Index were: General Electric (2.6%), Exxon Corporation
(2.2%), American Telephone & Telegraph (2.2%), Coca-Cola (2.0%) and Royal
Dutch/Shell (1.7%). The largest industry categories were telephone companies
(8.2%), pharmaceuticals (5.8%), financial institutions (5.4%), retail (5.1%) and
producer goods (5.0%).
GENERAL: Each Equity Fund may invest in certain specified derivative securities,
including: exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Each Equity Fund may lend its portfolio securities to
qualified institutional investors. Each Equity Fund (except the Nations Equity
Index Fund) also may invest in restricted, private placement and other illiquid
securities, real estate investment trust securities and securities issued by
other investment companies, consistent with the Fund's investment objective and
policies.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset 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
11
<PAGE>
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. S&P, Moody's, D&P, Fitch, IBCA and BankWatch
are the six Nationally Recognized Statistical Rating Organizations
(collectively, "NRSROs"). Obligations with the lowest investment grade rating
(e.g. rated "BBB" by S&P or "Baa" by Moody's) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. See "Appendix B" for a description of
these ratings designations. Subsequent to its purchase by the Fund, an issue of
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund. The Adviser will consider such an
event in determining whether the Fund should continue to hold the obligation.
Unrated obligations may be acquired by the Fund if they are determined by the
Adviser to be of comparable quality at the time of purchase to rated obligations
that may be acquired. 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."
The Fund also 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 CFTC-approved U.S. and
foreign exchange-traded financial futures and options thereon for market
exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors and engage in dollar roll transactions. The
Fund also may invest in restricted, private placement and other illiquid
securities, and may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies. See "Appendix A"
below for additional information concerning the investment practices of this
Fund.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: The Nations Short-Intermediate
Government Fund invests substantially all of its assets in 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 Fed-
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<PAGE>
eral 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 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 six 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 GNMA, 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 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 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 NRSRO's, 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
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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 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 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.
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
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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 International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and 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 dollar-weighted average 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.
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 CFTC-approved U.S. and foreign exchange-traded financial futures and
options thereon for market exposure risk-management. Each of those Funds also
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 Nations Global Government Income Fund may invest in money
market instruments, forward foreign currency exchange contracts, futures and
options and other instruments. Additionally, each Bond Fund may purchase
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NATIONS
INTERNATIONAL EQUITY FUND, NATIONS EMERGING MARKETS FUND, NATIONS PACIFIC GROWTH
FUND AND NATIONS GLOBAL GOVERNMENT INCOME FUND: Investors should understand and
consider carefully the special risks involved in foreign
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investing. In addition, each of these Funds presents 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 it's 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 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 markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
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, 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 an additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund.
PORTFOLIO TURNOVER: Generally, the Equity Funds, the Balanced Fund and the Bond
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 and 175%
for Nations Global Government Income Fund. The portfolio turnover rates of the
indicated Funds for the fiscal years ended November 30, 1994 and 1993 were as
follows: Nations Value Fund -- 75% and 64%, respectively; Nations Capital Growth
Fund -- 56% and 81%, respectively; Nations Balanced Assets -- 156% and 50%,
respectively; Nations Short-Intermediate Government Fund -- 133% and 92%,
respectively; Nations Short-Term Income Fund -- 293% and 121%, respectively;
Nations Diversified Income Fund -- 144% and 86%, respectively; and Nations
Strategic Fixed Income Fund -- 307% and 161%, respectively. The portfolio
turnover rates for the Nations Disciplined Equity Fund for the periods ended
November 30, 1995 and April 30, 1994 were 177% and 475%, respectively. The
portfolio
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turnover rates of the Nations Emerging Growth Fund for the fiscal year ended
November 30, 1994 and the period from commencement of operations to November 30,
1993 were 129% and 159%, respectively. The portfolio turnover rate of the
Nations Equity Index Fund for the period from commencement of operations to
November 30, 1994 was 14%. The portfolio turnover rates for the indicated Fund
for the fiscal years ended May 31, 1995 and 1994 were as follows: Nations Equity
Income Fund -- 158% and 116%, respectively; Nations International Equity
Fund -- 92% and 39%, respectively; and Nations Government Securities Fund --
413% and 56%, respectively. If a Fund's portfolio turnover exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders.
RISK CONSIDERATIONS: Although the Adviser of the Nations International Equity
Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
Global Government Income Fund 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, i.e.,
that the issuer may not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with 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
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. In addition, this
limitation does not apply to investments by "money market funds" as that term is
used under the Investment Company Act of 1940, as amended (the "1940 Act") in
obligations of domestic banks.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund (other than 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 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.
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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. 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 a Fund may be calculated on an average annual total return basis or
an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, assuming the reinvestment of all dividend
and capital 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.
"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.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Trust B Shares, the Money Market Funds offer Trust A, Investor A,
Investor B, Investor C and Investor D Shares. In addition to Trust B Shares, the
Non-Money Market Funds offer Trust A, Investor A, 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. Performance
quotations will be computed separately for each class of a Fund's shares. Any
fees charged by an institution 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 Institution, as defined below.
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 Board 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. and Nations Portfolio's SAIs contain the names of and general
background information concerning each Director of Nations Fund, Inc. and
Nations Portfolios, respectively.
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. NationsBank 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.
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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. Although Nations Portfolios, as
a new registrant, does not have an operating history, NationsBank has
significant experience managing mutual funds.
Nations Gartmore 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, Nations Pacific Growth Fund and
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").
Seventy-five percent of the equity of Gartmore plc is owned by Banque Indosuez
S.A., a leading French bank. 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. Although Nations Gartmore is
newly formed with no experience managing mutual funds, many of its professionals
have, in their capacity as employees of the Gartmore Group, managed mutual
funds.
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 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. With
respect to the Non-Money Market Funds, the Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank 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: 0.50% of the average daily net assets
of Nations Equity Index Fund; 0.60% of the average daily net assets of each of
the Nations Short-Intermediate Government Fund, Nations Short-Term Income Fund,
Nations Diversified Income Fund and Nations Strategic Fixed Income Fund; 0.75%
of the average daily net assets of each of Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund and
Nations Balanced Assets Fund; 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; 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; 0.90% of the average daily net assets of
Nations International Equity Fund; 1.10% of the average daily net assets of
Nations Emerging Markets Fund; 0.90% of the average daily net assets of Nations
Pacific Growth Fund; 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 to TradeStreet sub-advisory fees, computed daily and
paid monthly, at the annual rates of: 0.15% of the average daily net assets of
each of Nations Short-Intermediate Government Fund, Nations Government
Securities Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund
and Nations Strategic Fixed Income Fund; 0.20% of the average daily net assets
of each of Nations Equity Income Fund and Nations Equity Index Fund; 0.25% of
the average daily net assets of each of Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund and
Nations Balanced Assets Fund.
For services provided and expenses assumed pursuant to sub-advisory agreements,
NBAI will pay Nations Gartmore sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.70% of Nations International Equity Fund's
daily net assets; 0.85% of Nations Emerging Markets Fund's daily net assets;
0.70% of Pacific Growth Fund's daily net assets; and 0.54% of Nations Global
Government Income Fund's daily net assets. For the fiscal year ended May 31,
1994, Nations International Equity Fund paid its prior sub-adviser fees at the
rate of 0.41% of the Fund's average
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daily net assets. Although the advisory fees for the Nations Value Fund, Nations
Equity Income Fund, Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund, Nations Global Government Income Fund,
Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined
Equity Fund and Nations Balanced Assets Fund 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, TradeStreet and/or Nations Gartmore may waive (either
voluntarily or pursuant to applicable state limitations) advisory or
sub-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 Value Fund -- 0.74%; Nations Capital Growth
Fund -- 0.75%; Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity
Fund -- 0.05%; Nations Equity Index Fund -- 0.10%; Nations Balanced Assets
Fund -- 0.75%; Nations Short-Intermediate Government Fund -- 0.40%; Nations
Short-Term Income Fund -- 0.29%; Nations Diversified Income Fund -- 0.40%; and
Nations Strategic Fixed Income Fund -- 0.52%. 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 fees at the indicated rate of the
following Funds' average daily net assets: Nations Government Securities
Fund -- 0.46%; Nations Equity Income Fund -- 0.68%; and Nations International
Equity Fund -- 0.40%. 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.
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.
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.
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.
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 a M.B.A. from the
University of North Carolina at Charlotte. He 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 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.
Steve Smith, a Senior Vice President at NationsBank, has been portfolio manager
for Nations Disciplined Equity Fund since April 1995. Mr. Smith has
approximately twenty years of investment management experience, the last twelve
years with NationsBank and its affiliates. Mr. Smith is a Chartered Financial
Analyst
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and a member of the Association of Investment Management and Research. Mr. Smith
earned a B.S. in engineering and an M.B.A. from the University of Alabama.
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 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.
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 at Chapel Hill.
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 the 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.
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 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.
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.
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.
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 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
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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 following Funds' average daily
net assets: Nations Value Fund, Nations Capital Growth Fund, Nations Emerging
Growth Fund, Nations Disciplined Equity Fund, Nations Equity Index Fund, Nations
Balanced Assets Fund, Nations Short-Intermediate Government Fund, Nations
Short-Term Income Fund, Nations Diversified Income Fund, Nations Strategic Fixed
Income 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 following
Funds' average daily net assets: Nations Equity Income Fund, Nations
International Equity Fund and Nations Government Securities Fund.
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 Institutions which assist customers in purchasing
Trust Shares of the Funds.
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, Nations Pacific Growth
Fund and Nations Global Government Income Fund.
TSSG serves as the Transfer Agent for each of the Fund's Trust Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas", collectively with Morgan
Guaranty, called "Custodians") serves as custodian for the assets of each Fund
except Nations International Equity Fund, Nations Emerging Markets Fund, Nations
Pacific Growth Fund and Nations Global Government Income Fund. NationsBank of
Texas also serves as the sub-transfer agent for each Fund's Trust Shares and 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. In return for
providing sub-transfer agency services for the Trust Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from TSSG of $251,000.
Price Waterhouse LLP serves as independent accountants to Nations Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Trust B Shares, are deducted from the Fund's total accrued
income before dividends are declared. These expenses include, but are not
limited to: fees paid to the Adviser, NationsBank, Stephens and TSSG; taxes;
interest; fees (including fees paid to Nations Fund's trustees, directors and
officers); federal and state securities registration and qualification fees;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodians and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, NationsBank, Stephens
or TSSG under their respective agreements with Nations Fund; and any
extraordinary expenses. Trust B Shares also bear certain shareholder servicing
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
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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 Board of Trustees or the relevant Board of Directors
determines is fair and equitable.
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 Money Market Funds currently offer six classes of
shares -- Trust A Shares, Trust B Shares, Investor A Shares, Investor B Shares,
Investor C Shares and Investor D Shares. The Non-Money Market Funds currently
offer five classes of shares -- Trust A Shares, Trust B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. Certain funds, however, do not
offer shares of each class. This Prospectus relates only to the Trust B Shares
of the following funds of Nations Fund Trust: Nations Value Fund, Nations
Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity
Fund, Nations Equity Index Fund, Nations Balanced Assets Fund, Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund and Nations Strategic Fixed Income Fund. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
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
1940 Act requires voting by fund.
As of January , 1996, 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 Trust B Shares of the following
funds of Nations Fund, Inc.: Nations Equity Income Fund, Nations International
Equity Fund and Nations Government Securities Fund. To obtain additional
information regarding the Funds' other classes of shares which may be available
to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
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
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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 January , 1996, 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 50,000,000,000 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
Trust B Shares of Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Income Fund. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact your Institution (as defined below) or Nations Fund at 1-800-626-2275.
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 January , 1996, 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.
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About Your Investment
How To Buy Shares
Trust B Shares are sold primarily to qualified plans and other financial
institutions (including NationsBank and its affiliated and correspondent banks)
("Institutions") that have entered into shareholder administration agreements
("Administration Agreements") with Nations Fund and that are acting on behalf of
their customers ("Customers") having a qualified trust account at or
relationship with the Institution.
Trust B Shares are purchased at net asset value per share without the imposition
of a sales charge according to procedures established by the Institution.
Institutions, however, may charge their Customers' accounts for services
provided in connection with the purchase of shares. Purchases of the Funds may
be effected on days on which the New York Stock Exchange (the "Exchange") is
open for business ("NYSE Business Day"). A NYSE Business Day is a "Business Day"
as that term is used in this Prospectus.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
The Institutions have entered into Administration Agreements whereby they will
provide various shareholder services for their Customers that own Trust B
Shares. From time to time, Nations Fund may voluntarily reduce the maximum fees
payable for shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Trust B Shares is recorded on the books of the Funds, and share certificates are
not issued.
Purchase orders for Trust B Shares in 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 Fund's
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 Institution placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending
Institution.
Institutions are responsible for transmitting orders for purchases of Trust B
Shares by their Customers, and for delivering required funds, on a timely basis.
It is the responsibility of Stephens to transmit orders it receives to Nations
Fund.
Shareholder Administration Arrangements
The Funds have adopted a Shareholder Administration Plan (the "Administration
Plan") pursuant to which Institutions provide shareholder administration
services to their Customers who from time to time beneficially own Trust B
Shares. Payments under the Administration Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Funds, provided that the
annual rate may not exceed 0.60% of the average daily net asset value of the
Trust B Shares beneficially owned by Customers with whom the Institutions have a
servicing relationship. Additionally, in no event may the portion of the
shareholder administration fee that constitutes a "service fee," as that term is
defined in Article III, Section 26(b)(9) of the Rules of Fair Practice of the
NASD, exceed 0.25% of the average daily net asset value of such Trust B Shares
of a Fund. Holders of Trust B Shares will bear all fees paid to Institutions
under the Administration Plan.
Such shareholder services supplement the services provided by Stephens, TSSG and
the Transfer Agent to shareholders of record. The shareholder services provided
by Institutions may include: (i) aggregating and processing purchase and
redemption requests for Trust B Shares from Customers and transmitting promptly
net purchase and redemption orders to Stephens or the Transfer Agent; (ii)
providing Customers with a service that invests the assets of their accounts in
Trust B Shares pursuant to specific or pre-authorized instructions; (iii)
processing dividend and distribution payments from the Funds on behalf of
Customers; (iv) providing information periodically to Customers
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showing their positions in Trust B Shares; (v) arranging for bank wires; (vi)
responding to Customers' inquiries concerning their investment in Trust B
Shares; (vii) providing sub-accounting with respect to Trust B Shares
beneficially owned by Customers or the information necessary for sub-accounting;
(viii) if required by law, forwarding shareholder communications (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to Customers; (ix) forwarding to
Customers proxy statements and proxies containing any proposals regarding the
Administration Agreement; (x) employee benefit plan recordkeeping,
administration, custody and trustee services; (xi) general shareholder liaison
services; and (xii) providing such other similar services as may be reasonably
requested.
Nations Fund may suspend or reduce payments under the Administration Plan at any
time, and payments are subject to the continuation of the Administration Plan
described above and the terms of the Administration Agreement between
Institutions and Nations Fund. See the SAIs for more details on the
Administration Plan.
The Administration Plan also provides that, to the extent any portion of the
fees payable under the Administration Plan is deemed to be for services
primarily intended to result in the sale of Fund shares, such fees are deemed
approved and may be paid under the Administration Plan. Accordingly, the
Administration Plan has been approved and will be operated pursuant to Rule
12b-1 under the 1940 Act.
Nations Fund understands that Institutions may charge fees to their Customers
who are the owners of Trust B Shares in connection with their Customers'
accounts. These fees would be in addition to any amounts which may be received
by an Institution under its Administration Agreement with Nations Fund. The
Administration Agreement requires an Institution to disclose to its Customers
any compensation payable to the Institution by Nations Fund and any other
compensation payable by the Customers in connection with the investment of their
assets in Trust B Shares. Customers of Institutions should read this Prospectus
in light of the terms governing their accounts with their Institutions.
Conflict of interest restrictions may apply to the receipt by Institutions of
compensation from Nations Fund in connection with the investment of fiduciary
assets in Trust B Shares. Institutions, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board, or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the SEC, the Department of Labor, or state securities
commissions, are urged to consult their legal advisers before investing such
assets in Trust B Shares.
How To Redeem Shares
Customers may redeem all or part of their Trust B Shares in accordance with
instructions and limitations pertaining to their account at an Institution. It
is the responsibility of the Institutions to transmit redemption orders to
Stephens or to the Transfer Agent and to credit their Customers' accounts with
the redemption proceeds on a timely basis. It is the responsibility of Stephens
to transmit orders that it receives to Nations Fund. No charge for wiring
redemption payments is imposed by Nations Fund, although the Institutions may
charge their Customer accounts for these or other services provided in
connection with the redemption of Trust B Shares. Information concerning these
services and any charges are available from the Institutions. Redemption orders
are effected at the net asset value per share next determined after acceptance
of the order by Stephens or by the Transfer Agent.
With respect to the Funds, redemption proceeds are normally remitted in federal
funds wired to the redeeming Institution within three Business Days following
receipt of the order.
Nations Fund may redeem a shareholder's Trust B Shares if the balance in such
shareholder's account drops below $500 as a result of redemptions, and the
shareholder does not increase his or her balance to at least $500 on 60 days'
written notice. If a shareholder has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the shareholder
may be obliged to redeem all or a part of his or her Trust B Shares in the Funds
to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
How To Exchange Shares
The exchange feature enables a shareholder of Trust B Shares of a Fund to
acquire Trust B Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision.
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An exchange of Trust B Shares for Trust B Shares of another Fund is made on the
basis of the next calculated net asset value per share of each Fund after the
exchange order is received.
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 sixty days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund 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 ninety days after the shares are purchased.
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.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the Institution through which the original shares were
purchased. Investors should consult their Institution or Stephens for further
information regarding exchanges.
Trust B Shares may be exchanged by directing a request directly to the
Institution through which the original Trust B Shares were purchased or in some
cases Stephens or the Transfer Agent. Investors should consult their Institution
or Stephens for further information regarding exchanges. Your exchange feature
may be governed by your account agreement with your Institution.
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Funds are valued as of the close of regular trading
on the Exchange (currently 4:00 p.m., Eastern time) on each NYSE Business Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, President's Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Funds' portfolio securities for which market quotations are readily
available are valued at market value. Short-term investments that will mature in
60 days or less are valued at amortized cost, which approximates market value.
All other securities are valued at their fair value following procedures
approved by the 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
Bond Funds. Dividends from net investment income are declared and paid each
fiscal quarter by the Equity Funds and the Balanced Fund. Each Fund's net
realized capital gains (including net short-term capital gains) are distributed
at least annually.
Trust B Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Trust B Shares of the Equity Funds and the Balanced Fund are
eligible to receive dividends when declared, provided however, that the purchase
order for such shares is received at least one day prior to the dividend
declaration and such shares continue to be eligible for dividends through and
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including the day before the redemption order is executed.
The net asset value of Trust B Shares in the Funds will be reduced by the amount
of any dividend or distribution. Dividends and distributions are paid in cash
within five Business Days of the end of the month or quarter to which the
dividend relates. Certain purchasing Institutions may provide for the
reinvestment of dividends in additional Trust B Shares of the same Fund.
Dividends and distributions payable to a shareholder are paid in cash within
five Business Days after a shareholder's complete redemption of his or her Trust
B Shares in a Fund. Each Fund's net investment income available for distribution
to the holders of Trust B Shares will be reduced by the amount of shareholder
servicing fees payable to Institutions under the Servicing Agreements.
TAX INFORMATION
Each Fund intends to qualify as a separate "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). Such qualification
relieves a Fund of liability for Federal income taxes to the extent its earnings
are 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. Such distributions
by a Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be 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 Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders may be entitled to the dividends received deduction for
distributions from those Funds investing in the stock of domestic corporations
to the extent of the total qualifying dividends received by the distributing
Fund. Corporate shareholders of the Nations International Equity Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund 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 net realized long-term capital gains of the Non-Money
Market Funds, if any, will be distributed at least annually to such Funds'
shareholders. These Funds will generally have no tax liability with respect to
such gains, and the distributions will be taxable to such shareholders who are
not currently exempt from Federal income taxes as long-term capital gains,
regardless of how long the shareholders have held such Funds' shares and whether
such gains are received in cash or reinvested in additional shares. The Money
Market Funds do not expect to realize long-term capital gains and, therefore, do
not expect to distribute any capital gain dividends.
Portions of the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and 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 each Fund will consist of securities of foreign issuers, and
therefore each 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.
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 also 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 a Fund 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. 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, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonres-
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ident alien, non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisers with specific
reference to their own tax situations. 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.
The life of an Asset Backed Security varies depending upon the rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be 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
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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 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
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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 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. 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. In addition, the Nations Treasury Fund
may use reverse repurchase agreements for the purpose of investing the proceeds
in tri-party repurchase agreements as discussed below. 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
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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 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
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currency increase. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of a Fund's portfolio
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primarily to protect the
Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted. 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: 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 equity swap contracts, interest rate swaps,
currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options 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.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts ("GICs") are
investment instruments issued by highly rated insurance companies. Pursuant to
such contracts, a Fund may make cash contributions to a deposit fund of the
insurance company's general as seperate accounts. The insurance company then
credits to a Fund guaranteed interest. The insurance company may assess periodic
charges against a GIC for expense and service costs allocable to it, and the
charges will be deducted from the value of the deposit fund. The purchase price
paid for a GIC becomes part of
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the general assets of the issuer, and the contract is paid from the general
assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, and
meet quality and credit standards established by the Adviser. Generally, GICs
are not assignable or transferable without the permission of the issuing
insurance companies, and an active secondary market in GICs does not currently
exist. Also, a Fund may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less. Therefore, GICs are generally
considered to be illiquid investments.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not knowingly invest more than 10% 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. The Non-Money Market
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 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
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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: With respect to Non-Money Market Funds, the term
"money market instruments" refers to instruments with remaining maturities of
one year or less. With respect to Money Market Funds, the term "money market
instruments" refers to instruments with remaining maturities of 397 days 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 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
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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.
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 of 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.
SHORT SALES: A short sale is the sale of a security that a Fund does not own. A
short sale is "against the box" if at all times when the short position is open
a Fund owns an equal amount of securities convertible into, or exchangeable
without further consideration for, securities of the same issuer as the
securities sold short.
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
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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.
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.
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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.
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.
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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.
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".
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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.
40
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NATIONS FUND, INC.
Statement of Additional Information
NATIONS PRIME FUND
NATIONS TREASURY FUND
NATIONS EQUITY INCOME FUND
NATIONS GOVERNMENT SECURITIES FUND
NATIONS INTERNATIONAL EQUITY FUND
Investor Shares and Trust Shares
September 30, 1995,
as supplemented on
January 29, 1996
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the classes of shares representing interests in the
above listed five investment portfolios of Nations Fund, Inc. (individually, a
"Fund" and collectively, the "Funds"). This SAI is not a prospectus, and should
be read only in conjunction with the current Prospectuses for the aforementioned
Funds related to the class or series of shares in which one is interested, dated
September 30, 1995 for all shares except the Trust B Shares, and March 16, 1996
for the Trust B Shares (each a "Prospectus"). All terms used in this SAI that
are defined in the Prospectuses will have the same meanings assigned in the
Prospectuses. Copies of these Prospectuses may be obtained by writing Nations
Funds c/o Stephens Inc., One NationsBank Plaza, 33rd Floor, Charlotte, North
Carolina 28255, or by calling Nations Fund at 1-800-321-7854.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION ........................................................................................ 1
FUND TRANSACTIONS AND BROKERAGE ..................................................................... 1
General Brokerage Policy..................................................................... 1
Prime, Treasury and Government Securities Funds ............................................. 2
Equity Income and International Equity Funds ................................................ 2
Section 28(e) Standards ..................................................................... 3
ADDITIONAL INFORMATION ON FUND INVESTMENTS .......................................................... 4
General ..................................................................................... 4
When-Issued Securities ...................................................................... 6
Delayed Delivery Transactions ............................................................... 6
Foreign Currency Transactions ............................................................... 6
Futures, Options and Other Derivative
Instruments ........................................................................... 7
Interest Rate Transactions .................................................................. 15
Asset Backed Securities ..................................................................... 16
Special Situations .......................................................................... 18
Reverse Repurchase Agreements ............................................................... 19
Securities Lending .......................................................................... 19
Short Sales ................................................................................. 19
Guaranteed Investment Contracts ............................................................. 19
Illiquid Securities ......................................................................... 20
Commercial Instruments ...................................................................... 20
Municipal Securities ........................................................................ 21
Real Estate Investment Trusts ............................................................... 22
Additional Investment Limitations ........................................................... 22
NET ASSET VALUE ..................................................................................... 24
Purchases and Redemptions ................................................................... 24
Net Asset Value Determination ............................................................... 24
Exchanges ................................................................................... 26
DESCRIPTION OF SHARES ............................................................................... 26
Dividends and Distributions ................................................................. 26
ADDITIONAL INFORMATION CONCERNING TAXES ............................................................. 27
Qualification as a Regulated Investment
Company ............................................................................... 27
Excise Tax on Regulated Investment Companies ................................................ 29
Distributions ............................................................................... 29
Sale or Redemption of Shares ................................................................ 31
Foreign Shareholders ........................................................................ 32
Effect of Future Legislation: Local Tax Considerations ...................................... 32
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DIRECTORS AND OFFICERS .............................................................................. 33
Remuneration of Directors ................................................................... 36
Nations Funds Retirement Plan ............................................................... 37
Nations Funds Deferred Compensation Plan .................................................... 38
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING AND
DISTRIBUTION AGREEMENTS ............................................................................. 38
The Company and Its Common Stock ............................................................ 38
Investment Adviser .......................................................................... 39
Investment Styles ........................................................................... 41
Administrator and Co-Administrator .......................................................... 42
Distribution Plans and Shareholder Servicing
Arrangements for Investor Shares ........................................................ 44
Shareholder Servicing Agreements-Money Market Funds
(Trust B Shares) ........................................................................ 51
Shareholder Servicing Agreements-Non-Money Market Funds
(Trust B Shares) ........................................................................ 51
Expenses .................................................................................... 52
Transfer Agents and Custodians .............................................................. 53
DISTRIBUTOR
54
INDEPENDENT ACCOUNTANTS AND REPORTS ................................................................. 54
COUNSEL.............................................................................................. 54
ADDITIONAL INFORMATION ON PERFORMANCE ............................................................... 54
Yield Calculations .......................................................................... 55
Total Return Calculations ................................................................... 56
MISCELLANEOUS ....................................................................................... 59
Certain Record Holders ...................................................................... 59
SUITABILITY OF NATIONS TREASURY FUND FOR
INVESTMENT BY MUNICIPAL INVESTORS ................................................................... 61
SCHEDULE A - Description of Ratings ................................................................. A-1
SCHEDULE B - Additional Information Concerning Options &
Futures ............................................................................................. B-1
SCHEDULE C - Additional Information Concerning Mortgage
Backed Securities ................................................................................... C-1
</TABLE>
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INTRODUCTION
Nations Fund, Inc. (the "Company") is a mutual fund. The rules and
regulations of the United States Securities and Exchange Commission (the "SEC")
require all mutual funds to furnish prospective investors certain information
concerning the activities of the mutual fund being considered for investment.
This information about the Company is included in various Prospectuses. The
Prospectuses relate to the Trust A, Trust B, Investor A, Investor B, Investor C
and Investor D Shares of Nations Prime Fund (the "Prime Fund") and Nations
Treasury Fund (the "Treasury Fund") (hereinafter the Prime or Treasury Funds,
collectively referred to as the "Money Market Funds"), and the Trust A, Trust B,
Investor A, Investor C and Investor N Shares of Nations Equity Income Fund (the
"Equity Income Fund"), Nations Government Securities Fund (the "Government
Securities Fund") and Nations International Equity Fund (the "International
Equity Fund") (hereinafter the Equity Income, Government Securities and
International Equity Funds, collectively referred to as the "Non-Money Market
Funds"). The Trust A and Trust B Shares are collectively referred to herein as
"Trust Shares" and the Investor A, Investor B, Investor C, Investor D and
Investor N Shares are referred to as "Investor Shares." Prospectuses relating to
these Funds may be obtained without charge by written request to Nations Fund,
c/o Stephens, Inc., One NationsBank Plaza, 33rd Floor, Charlotte, NC 28255.
Investors also may call toll-free at (800) 321-7854.
NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to the
Funds. TradeStreet Investment Associates, Inc. ("TradeStreet") is sub-investment
adviser. Nations Gartmore Investment Management ("Nations Gartmore") serves as
sub-investment adviser to the International Equity Fund. As used herein,
"Adviser" shall mean NBAI, TradeStreet and/or Nations Gartmore as the context
may require.
This SAI is intended to furnish prospective investors with additional
information concerning the Company and the Funds. Some of the information
required to be in this SAI is also included in the Funds' current Prospectuses,
and, in order to avoid repetition, reference will be made to sections of the
Prospectuses. Additionally, the Prospectuses and this SAI omit certain
information contained in the registration statement filed with the SEC. Copies
of the registration statement, including items omitted from the Prospectuses and
this SAI, may be obtained from the SEC by paying the charges prescribed under
its rules and regulations.
FUND TRANSACTIONS AND BROKERAGE
General Brokerage Policy
Subject to policies established by the Board of Directors of the Company,
the Adviser is responsible for decisions to buy and sell securities for each
Fund, for the selection of broker/dealers, for the execution of such Fund's
securities transactions, and for the allocation of brokerage fees in connection
with such transactions. The Adviser's primary consideration in effecting a
security transaction is to obtain the best net price and the most favorable
execution of the order. While the Adviser generally seeks reasonably competitive
commission rates, a Fund does not necessarily pay the lowest commission or
spread available.
During the fiscal years ended May 31, 1993, 1994 and 1995, the Equity
Income Fund paid Shearson Lehman Brothers Inc. $10, $0 and $0, respectively in
brokerage commissions. During the fiscal years ended May 31, 1993, 1994 and
1995, the percentage of the Company's aggregate brokerage commissions paid to
Shearson Lehman Brothers Inc. were 0%, 0% and 0%, respectively, and the
percentage of the Company's aggregate dollar amount of transactions involving
the payment of commissions effected through Shearson Lehman Brothers Inc. was
0%, 0% and 0%, respectively.
During the fiscal year ended May 31, 1994, the Equity Income Fund and the
International Equity Fund paid $56,184 and $4,500, respectively, in brokerage
commissions to Dean Witter and during the fiscal year ended May 31, 1995, the
Equity Income Fund paid $71,240 in brokerage commissions to Dean Witter. During
the fiscal year ended May 31, 1995 the percentage of the Equity Income Fund's
aggregate brokerage commissions paid to Dean Witter was 3.43% and the percentage
of the Company's aggregate dollar amount of transactions involving the payment
of commissions effected through Dean Witter was .37%.
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During the fiscal years ended May 31, 1993, 1994 and 1995, the Company did
not pay brokerage commission to NationsBanc Securities, Inc., NationsBanc
Capital Markets, Inc., Nations Securities or Stephens.
As of May 31, 1995, the Equity Income Fund and International Equity Fund
did not hold any securities of the Company's regular brokers or dealers.
Prime, Treasury and Government Securities Funds
Since purchases and sales of fund securities by the Prime, Treasury, and
Government Securities Funds are usually principal transactions, these Funds
incur little or no brokerage commissions. Fund securities are normally purchased
directly from the issuer or from a market maker for the securities. The purchase
price paid to dealers serving as market makers may include a spread between the
bid and asked prices. These Funds may also purchase securities from underwriters
at prices which include a commission paid by the issuer to the underwriter.
The Company does not generally seek to profit from short-term trading, and
will generally (although not always) hold fund securities to maturity, but the
Adviser may seek to enhance the yield of the Money Market Funds by taking
advantage of yield disparities or other factors that occur in the money market.
For example, market conditions frequently result in similar securities trading
at different prices. The Adviser may dispose of any portfolio security prior to
its maturity if such disposition and reinvestment of proceeds are expected to
enhance yield consistent with the Adviser's judgment as to desirable fund
maturity structure or if such disposition is believed to be advisable due to
other circumstances or conditions. The fundamental policies of each of the Funds
require that investments mature within one year or less. The amortized cost
method of valuing fund securities requires that each Fund maintain an average
weighted portfolio maturity of 90 days or less. Thus, there is likely to be
relatively high fund turnover, but since brokerage commissions are not normally
paid on money market instruments, the high rate of portfolio turnover is not
expected to have a material effect on the net income or expenses of the Money
Market Funds.
Equity Income and International Equity Funds
During the fiscal years ended May 31, 1993, 1994 and 1995, the Equity
Income Fund paid aggregate brokerage commissions of $257,775, $1,268,685 and
$2,076,553, respectively. A portion of the securities in which the Equity Income
Fund invests are traded in over-the-counter markets, and in such transactions
such Fund deals directly with the dealers who make markets in the securities
involved, except in those circumstances where better prices and executions are
available elsewhere. Equity Income Fund transactions placed through dealers
serving as primary market makers are effected at net prices, without commissions
as such, but which include compensation in the form of a mark up or mark down.
During the fiscal years ended May 31, 1993, 1994 and 1995, the
International Equity Fund paid aggregate brokerage commissions of $235,475,
$1,200,255 and $2,108,611, respectively. Subject to policies established by the
Board of Directors of the Company, the Adviser is responsible for decisions to
buy and sell securities for the Fund, for the selection of broker/dealers, for
the execution of the Fund's securities transactions, and for the allocation of
brokerage fees in connection with such transactions. The primary consideration
in effecting a security transaction is to obtain the best net price and the most
favorable execution of the order. While the Adviser generally seeks reasonably
competitive commission rates, the Fund does not necessarily pay the lowest
commission or spread available.
The Adviser anticipates that most brokerage services will be provided by
brokerage companies located in London. A portion of the securities in which the
Funds invest are traded in over-the-counter markets, and in such transactions
each such Fund deals directly with the dealers who make markets in the
securities involved, except in those circumstances where better prices and
executions are available elsewhere. Portfolio transactions placed through
dealers serving as primary market makers are effected at net prices, without
commissions as such, but which include compensation in the form of a mark up or
mark down.
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The Adviser may from time to time determine target levels of commission
business to transact with various brokers on behalf of its clients (including
the Company) over a certain time period. The target levels will be determined
based upon the following factors, among others: (1) the execution services
provided by the broker; (2) the research services provided by the broker; and
(3) the broker's attitude toward and interest in mutual funds in general and in
the Company and other mutual funds advised by the Adviser in particular. No
specific formula will be used in connection with any of the foregoing
considerations in determining the target levels. However, if a broker has
indicated a certain level of desired commissions in return for certain research
services provided by the broker, this factor will be taken into consideration by
the Adviser.
Subject to the overall objective of obtaining best price and execution for
a Fund, the Adviser may also consider sales of shares of such Fund and of the
other mutual funds managed or advised by the Adviser as a factor in the
selection of broker/dealers to execute portfolio transactions for the Funds.
The Adviser will seek, whenever possible, to recapture for the benefit of
a Fund any commission, fees, brokerage or similar payments paid by such Fund on
portfolio transactions. Normally, the only fees which may be recaptured are the
soliciting dealer fees on the tender of an account's portfolio securities in a
tender or exchange offer.
The Funds are not under any obligation to deal with any broker or group of
brokers in the execution of transactions in portfolio securities. Brokers who
provide supplemental investment research to the Adviser may receive orders for
transactions by a Fund. Information so received will be in addition to and not
in lieu of the services required to be performed by the Adviser under their
agreements with each Fund and the expenses of the Adviser will not necessarily
be reduced as a result of the receipt of such supplemental information. Certain
research services furnished by broker/dealers may be useful to the Adviser in
connection with their services to other advisory clients, including the
investment companies which they advise. Also, the Fund may pay a higher price
for securities or higher commissions in recognition of research services
furnished by broker/dealers.
The Adviser and its affiliates manage several other investment accounts
some of which may have investment objectives similar to those of one or more of
the Funds. It is possible that, at times, identical securities will be
appropriate for investment by one or more of the Funds and by one or more of
such investment accounts. The position of each account, however, in the
securities of the same issuer may vary and the length of time that each account
may choose to hold its investment in the securities of the same issuer may
likewise vary. The timing and amount of purchase by each account will also be
determined by its cash position. If the purchase or sale of securities
consistent with the investment policies of a Fund and one or more of these
accounts is considered at or about the same time, transactions in such
securities will be allocated among the accounts in a manner deemed equitable by
the Adviser. The Adviser may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Simultaneous transactions could, however, adversely affect
the ability of a Fund to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
In some cases the procedure for allocating securities transactions among
the various investment accounts advised by the Adviser and their affiliates
could have an adverse effect on the price or amount of securities available to a
Fund. In making such allocations, the main factors considered by the Adviser are
the respective investment objectives and policies of such advisory clients, the
relative size of holdings of the same or comparable securities, the availability
of cash for investment, the size of investment commitments generally held and
the judgments of the persons responsible for recommending the investment.
Section 28(e) Standards
Under Section 28(e) of the Securities Exchange Act of 1934, the Adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), ana adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided ...viewed in terms of either that particular
transaction or its overall
3
<PAGE>
responsibilities with respect to the accounts as to which it exercises
investment discretion and that the services provided by a broker provide an
adviser with lawful and appropriate assistance in the performance of its
investment decision making responsibilities." Accordingly, the price to a Fund
in any transaction may be less favorable than that available from another broker
dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered.
Broker/dealers utilized by the Adviser may furnish statistical, research
and other information or services which are deemed by the Adviser to be
beneficial to the Funds' investment programs. Research services received from
brokers supplement the Adviser's own research and may include the following
types of information: statistical and background information on industry groups
and individual companies; forecasts and interpretations with respect to U.S and
foreign economies, securities, markets, specific industry groups and individual
companies; information on political developments; fund management strategies;
performance information on securities and information concerning prices of
securities; and information supplied by specialized services to the Adviser and
to the Company's directors with respect to the performance, investment
activities and fees and expenses of other mutual funds. Such information may be
communicated electronically, orally or in written form. Research services may
also include the providing of equipment used to communicate research
information, the arranging of meetings with management of companies and the
providing of access to consultants who supply research information.
The outside research assistance is useful to the Adviser since the brokers
utilized by the Adviser as a group tend to follow a broader universe of
securities and other matters than the Adviser's staff can follow. In addition,
this research provides the Adviser with a diverse perspective on financial
markets. Research services which are provided to the Adviser by brokers are
available for the benefit of all accounts managed or advised by the Adviser. In
some cases, the research services are available only from the broker providing
such services. In other cases, the research services may be obtainable from
alternative sources in return for cash payments. The Adviser is of the opinion
that because the broker research supplements rather than replaces its research,
the receipt of such research does not tend to decrease its expenses, but tends
to improve the quality of its investment advice. However, to the extent that the
Adviser would have purchased any such research services had such services not
been provided by brokers, the expenses of such services to the Adviser could be
considered to have been reduced accordingly. Certain research services furnished
by broker/dealers may be useful to the Adviser with clients other than the
Funds. Similarly, any research services received by the Adviser through the
placement of fund transactions of other clients may be of value to the Adviser
in fulfilling its obligations to the Funds. The Adviser is of the opinion that
this material is beneficial in supplementing its research and analysis; and,
therefore, it may benefit the Company by improving the quality of the Adviser's
investment advice. The advisory fees paid by the Company are not reduced because
the Adviser receives such services.
Some broker/dealers may indicate that the provision of research services
is dependent upon the generation of certain specified levels of commissions and
underwriting concessions by The Adviser's clients, including the Funds.
For the period ended May 31, 1995, Nations Prime Fund acquired stock in
the following broker dealers in the indicated amounts: Lehman Brothers Holdings,
Inc. -- $20,000,000; Lehman Brothers PLC -$150,000,000 and Goldman Sachs Group,
L.P. - $155,010,413.
ADDITIONAL INFORMATION ON FUND INVESTMENTS
General
Information concerning each Fund's investment objective is set forth in
each of the Prospectuses under the headings "Investment Objectives and
Policies," and "Appendix A." There can be no assurance that the Funds will
achieve their objectives. The principal features of the Funds' investment
programs and the primary risks associated with those investment programs are
discussed in the Prospectuses under the heading "Investment Objectives and
Policies" and "Appendix A." The securities in which the Money Market Funds
invest may not yield as high a level of current income as longer term or lower
grade securities, which generally have less liquidity and
4
<PAGE>
greater fluctuation in value. The values of the securities in which the Funds
invest fluctuate based upon interest rates, foreign currency rates, the
financial stability of the issuer and market factors.
Pursuant to one of the Company's fundamental investment restrictions (see
"Investment Limitations" in the Company's Prospectuses), the Company does not
have authority to purchase any securities which would cause more than 25% of the
value of any Fund's total assets at the time of such purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry, provided that, there is no limitation with
respect to investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and further provided that with
respect to the Money Market Funds only, there is no limitation with respect to
investments in obligations by banks. The position of the staff of the SEC is
that the exclusion with respect to banks may only be applied to domestic banks.
For this purpose, the staff also takes the position that United States branches
of foreign banks and foreign branches of domestic banks may, if certain
conditions are met, be treated as "domestic banks." The Company currently
intends to consider only obligations of "domestic banks" to be within the
exclusion with respect to banks. For this purpose, "domestic banks" will be
construed by the Company to include: (a) United States branches of foreign
banks, to the extent they are subject to the same regulation as United States
banks; and (b) foreign branches of domestic banks with respect to which the
domestic bank would be unconditionally liable in the event that the foreign
branch failed to pay on its instruments for any reason.
When-Issued Securities
Each Fund may purchase securities on a "when-issued" basis, that is, the
date for delivery of the payment for the securities is not fixed at the date of
purchase, but is set after the securities are issued (normally within 45 days
after the date of the transaction). Each Fund may also purchase or sell
securities on a delayed delivery basis. The payment obligation and the interest
rate that will be received on the when-issued securities are fixed at the time
the buyer enters into the commitment. Each Fund will only make commitments to
purchase when-issued or delayed delivery securities with the intention of
actually acquiring such securities, but each Fund may sell these securities
before the settlement date if it is deemed advisable.
If a Fund purchases a when-issued security, the Fund will direct its
custodian bank to place cash or high grade securities in a separate account of
the Fund in an amount equal to the when-issued commitment. If a separate account
must be maintained because a Fund enters into when-issued commitments, the
deposited securities will be valued at market for the purpose of determining the
adequacy of the securities in the account. If the market value of such
securities declines, additional cash or securities will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of the Fund's when-issued commitments. To the extent funds are in a separate
account, they will not be available for new investment or to meet redemptions.
Securities purchased on a when-issued basis and the securities held in the
Funds are subject to changes in market value based upon the public's perception
of the creditworthiness of the issuer and changes in the level of interest rates
(which will generally result in all of those securities changing in value in the
same way, i.e., experiencing appreciation when interest rates fall). Therefore,
if in order to achieve higher interest income a Fund remains substantially fully
invested at the same time that it has purchased securities on a when-issued
basis, there is a possibility that the Fund will experience greater fluctuation
in the market value of its assets.
Furthermore, when the time comes for a Fund to meet its obligations under
when-issued commitments, the Fund will do so by use of its then available cash,
by the sale of securities held in the separate account, by the sale of other
securities or, although it would not normally expect to do so, by directing the
sale of the when-issued securities themselves (which may have a market value
greater or less than the Fund's payment obligation thereunder). The sale of
securities to meet such obligations carries with it a greater potential for the
realization of net short-term capital gains, which are not exempt from federal
income taxes. The value of when-issued securities on the settlement date may be
more or less than the purchase price.
Delayed Delivery Transactions
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<PAGE>
In a delayed delivery transaction, the Fund relies on the other party to
complete the transaction. If the transaction is not completed, the Fund may miss
a price or yield considered to be advantageous.
Foreign Currency Transactions
As described in the Prospectuses, certain Funds may invest in foreign
currency transactions. Foreign securities involve currency risks. The U.S.
dollar value of a foreign security tends to decrease when the value of the U.S.
dollar rises against the foreign currency in which the security is denominated,
and tends to increase when the value of the U.S. dollar falls against such
currency. A Fund may purchase or sell forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk to the Fund from
adverse changes in the relationship between the U.S. dollar and foreign
currencies. A Fund may also purchase and sell foreign currency futures contracts
and related options (see "Purchase and Sale of Currency Futures Contracts and
Related Options"). A forward contract is an obligation to purchase or sell a
specific currency for an agreed price at a future date that is individually
negotiated and privately traded by currency traders and their customers.
Forward foreign currency exchange contracts establish an exchange rate at
a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has no
deposit requirement, and is traded at a net price without commission. A Fund
maintains with its custodian a segregated account of high grade liquid assets in
an amount at least equal to its obligations under each forward foreign currency
exchange contract. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of a Fund's portfolio
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
A Fund may enter into a forward contract, for example, when it enters into
a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when the Adviser believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency, or when the Adviser believes that the U.S. dollar may
suffer a substantial decline against the foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
(a "position hedge").
A Fund may, however, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Adviser believes that
the U.S. dollar value of the currency to be sold pursuant to the forward
contract will fall whenever there is a decline in the U.S. dollar value of the
currency in which the fund securities are denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to protect a Fund
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.
The Fund's custodian will place cash not available for investment or U.S.
Government securities or other high-quality debt securities in a separate
account of the Fund having a value equal to the aggregate amount of the Fund's
commitments under forward contracts entered into with respect to position hedges
and cross-hedges. If the value of the securities placed in a separate account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts. As an alternative to maintaining all
or part of the separate account, the Fund may purchase a call option permitting
the Fund to purchase the amount of foreign currency being hedged by a forward
6
<PAGE>
sale contract at a price no higher than the forward contract price or the Fund
may purchase a put option permitting the Fund to sell the amount of foreign
currency subject to a forward purchase contract at a price as high or higher
than the forward contract price.
Futures, Options and Other Derivative Instruments
A futures contract is an agreement between two parties for the future
delivery of fixed income securities or for the payment or acceptance of a cash
settlement in the case of futures contracts on an index of fixed income
securities or stock index futures contracts. A "sale" of a futures contract
means the contractual obligation to deliver the securities at a specified price
on a specified date, or to make the cash settlement called for by the contract.
Futures contracts have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and must
be executed through a brokerage firm, known as a futures commission merchant,
which is a member of the relevant contract market. Futures contracts trade on
these markets, and the exchanges, through their clearing organizations,
guarantee that the contracts will be performed as between the clearing members
of the exchange. Presently, futures contracts are based on such debt securities
as long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage
Association modified pass-through mortgage-backed securities, three-month U.S.
Treasury Bills, bank certificates of deposit, and on indices of municipal,
corporate and government bonds.
While futures contracts based on securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are very seldom
made. Generally, a futures contract is terminated by entering into an offsetting
transaction. A Fund will incur brokerage fees when it purchases and sells
futures contracts. At the time such a purchase or sale is made, a Fund must
provide cash or money market securities as a deposit known as "margin." The
initial deposit required will vary, but may be as low as 2% or less of a
contract's face value. Daily thereafter, the futures contract is valued through
a process known as "marking to market," and a Fund that engages in futures
transactions may receive or be required to pay "variation margin" as the futures
contract becomes more or less valuable. At the time of delivery of securities
pursuant to a futures contract based on securities, adjustments are made to
recognize differences in value arising from the delivery of securities with a
different interest rate than the specific security that provides the standard
for the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.
Futures contracts on indices of securities are settled through the making
and acceptance of cash settlements based on changes in value of the underlying
rate or index between the time the contract is entered into and the time it is
liquidated.
Futures Contracts on Fixed Income Securities and Related Indices. As noted
in their respective Prospectuses, certain Funds may enter into transactions in
futures contracts for the purpose of hedging a relevant portion of their
portfolios. A Fund may enter into transactions in futures contracts that are
based on U.S. Government obligations, including any index of government
obligations that may be available for trading. Such transactions will be entered
into where movements in the value of the securities or index underlying a
futures contract can be expected to correlate closely with movements in the
value of securities held in a Fund. For example, a Fund may sell futures
contracts in anticipation of a general rise in the level of interest rates,
which would result in a decline in the value of its fixed income securities. If
the expected rise in interest rates occurs, the Fund may realize gains on its
futures position, which should offset all or part of the decline in value of
fixed income fund securities. A Fund could protect against such decline by
selling fixed income securities, but such a strategy would involve higher
transaction costs than the sale of futures contracts and, if interest rates
again declined, the Fund would be unable to take advantage of the resulting
market advance without purchases of additional securities.
The purpose of the purchase or sale of a futures contract on government
securities and indices of government securities, in the case of the
above-referenced Funds, which hold or intend to acquire long-term debt
securities, is to protect a Fund from fluctuations in interest rates without
actually buying or selling long-term debt securities. For example, if long-term
bonds are held by a Fund, and interest rates were expected to increase, the Fund
might
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enter into futures contracts for the sale of debt securities. Such a sale would
have much the same effect as selling an equivalent value of the long-term bonds
held by the Fund. If interest rates did increase, the value of the debt
securities in the Fund would decline, but the value of the futures contracts to
the Fund would increase at approximately the same rate thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. When
a Fund is not fully invested and a decline in interest rates is anticipated,
which would increase the cost of fixed income securities that the Fund intends
to acquire, it may purchase futures contracts. In the event that the projected
decline in interest rates occurs, the increased cost of the securities acquired
by the Fund should be offset, in whole or part, by gains on the futures
contracts by entering into offsetting transactions on the contract market on
which the initial purchase was effected. In a substantial majority of these
transactions, a Fund will purchase fixed income securities upon termination of
the long futures positions, but under unusual market conditions, a long futures
position may be terminated without a corresponding purchase of securities.
Similarly, when it is expected that interest rates may decline, futures
contracts on fixed income securities and indices of government securities may be
purchased for the purpose of hedging against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of such futures
contracts should be similar to that of long-term bonds, a Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund's cash reserves could then be used to
buy long-term bonds in the cash market. Similar results could be accomplished by
selling bonds with long maturities and investing in bonds with short maturities
when interest rates are expected to increase. However, since the futures market
is more liquid than the cash market, the use of these futures contracts as an
investment technique allows a Fund to act in anticipation of such an interest
rate decline without having to sell its portfolio securities. To the extent a
Fund enters into futures contracts for this purpose, the assets in the
segregated asset accounts maintained by a Fund will consist of cash, cash
equivalents or high quality debt securities of the Fund in an amount equal to
the difference between the fluctuating market value of such futures contract and
the aggregate value of the initial deposit and variation margin payments made by
the Fund with respect to such futures contracts.
Stock Index Futures Contracts. As described in the Prospectuses, certain
Funds may sell stock index futures contracts in order to offset a decrease in
market value of its securities that might otherwise result from a market
decline. A Fund may do so either to hedge the value of its portfolio as a whole,
or to protect against declines, occurring prior to sales of securities, in the
value of securities to be sold. Conversely, a Fund may purchase stock index
futures contracts in order to protect against anticipated increases in the cost
of securities to be acquired. As also described above with respect to futures
contracts on fixed income securities and related indices, in a substantial
majority of these transactions, the Fund would purchase such securities upon
termination of the long futures position, but under unusual market conditions, a
long futures position may be terminated without a corresponding purchase of
securities.
In addition, a Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its portfolio, it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. As such securities
are acquired, a Fund's futures positions would be closed out. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of its portfolio will decline prior to the time of sale.
Options on Futures Contracts. An option on a futures contract gives the
purchaser (the "holder") the right, but not the obligation, to enter into a
"long" position in the underlying futures contract (i.e., a purchase of such
futures contract) in the case of an option to purchase (a "call" option), or a
"short" position in the underlying futures contract (i.e., a sale of such
futures contract) in the case of an option to sell (a "put" option), at a fixed
price (the "strike price") up to a stated expiration date. The holder pays a
non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchase of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be lost.
Upon exercise of the option by the holder, the exchange clearing corporation
establishes a corresponding long position in the case of a put option. In the
event that an option is exercised, the parties will be subject to all the risks
associated with the trading of
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futures contracts, such as payment of variation margin deposits. In addition,
the writer of an option on a futures contract, unlike the holder, is subject to
initial and variation margin requirements on the option position.
Options on Futures Contracts on Fixed Income Securities and Related
Indices. As described in the Prospectuses, certain Funds may purchase put
options on futures contracts in which such Funds are permitted to invest for the
purpose of hedging a relevant portion of their portfolios against an anticipated
decline in the values of portfolio securities resulting from increases in
interest rates, and may purchase call options on such futures contracts as a
hedge against an interest rate decline when they are not fully invested. A Fund
would write options on these futures contracts primarily for the purpose of
terminating existing positions.
Options on Stock Index Futures Contracts, Options on Stock Indices and
Options on Equity Securities. As described in the Prospectuses, certain Funds
may purchase put options on stock index futures contracts, stock indices or
equity securities for the purpose of hedging the relevant portion of their
portfolio securities against an anticipated market-wide decline or against
declines in the values of individual portfolio securities, and they may purchase
call options on such futures contracts as a hedge against a market advance when
they are not fully invested. A Fund would write options on such futures
contracts primarily for the purpose of terminating existing positions. In
general, options on stock indices will be employed in lieu of options on stock
index futures contracts only where they present an opportunity to hedge at lower
cost. With respect to options on equity securities, a Fund may, under certain
circumstances, purchase a combination of call options on such securities and
U.S. Treasury bills. The Adviser believes that such a combination may more
closely parallel movements in the value of the security underlying the call
option than would the option itself.
Further, while a Fund generally would not write options on individual
portfolio securities, it may do so under limited circumstances known as
"targeted sales" and "targeted buys," which involve the writing of call or put
options in an attempt to purchase or sell portfolio securities at specific
desired prices. A Fund would receive a fee, or a "premium," for the writing of
the option. For example, where the Fund seeks to sell portfolio securities at a
"targeted" price, it may write a call option at that price. In the event that
the market rises above the exercise price, it would receive its "targeted"
price, upon the exercise of the option, as well as the premium income. Also,
where it seeks to buy portfolio securities at a "targeted" price, it may write a
put option at that price for which it will receive the premium income. In the
event that the market declines below the exercise price, a Fund would pay its
"targeted" price upon the exercise of the option. In the event that the market
does not move in the direction or to the extent anticipated, however, the
targeted sale or buy might not be successful and a Fund could sustain a loss on
the transaction that may not be offset by the premium received. In addition, a
Fund may be required to forego the benefit of an intervening increase or decline
in value of the underlying security.
Options and Futures Strategies. The Adviser may seek to increase the
current return of the Fund by writing covered call or put options. In addition,
through the writing and purchase of options and the purchase and sale of U.S.
and certain foreign stock index futures contracts, interest rate futures
contracts, foreign currency futures contracts and related options on such
futures contracts, the Adviser may at times seek to hedge against a decline in
the value of securities included in the Fund or an increase in the price of
securities that it plans to purchase for the Fund. Expenses and losses incurred
as a result of such hedging strategies will reduce the Fund's current return. A
Fund's investment in foreign stock index futures contracts and foreign interest
rate futures contracts, and related options on such futures contracts, are
limited to only those contracts and related options that have been approved by
the CFTC for investment by U.S. investors. Additionally, with respect to a
Fund's investment in foreign options, unless such options are specifically
authorized for investment by order of the CFTC or meet the definition of trade
options as set forth in CFTC rule 32.4, a Fund will not make these investments.
The ability of a Fund to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to stock indices,
foreign government securities and foreign currencies are relatively new and
still developing. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore, no assurance
can be given that a Fund will be able to utilize these instruments effectively
for the purposes stated below. Furthermore, a Fund's ability to engage in
options and futures transactions may be limited by tax considerations. Although
a Fund will only engage in options and futures transactions for limited
purposes, these activities will
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involve certain risks which are described below under "Risk Factors Associated
with Futures and Options Transactions." A Fund will not engage in options and
futures transactions leveraging purposes.
Writing Covered Options on Securities. A Fund may write covered call
options and covered put options on optionable securities of the types in which
it is permitted to invest from time to time as the Adviser determines is
appropriate in seeking to attain its objective. Call options written by a Fund
give the holder the right to buy the underlying securities from a Fund at a
stated exercise price; put options give the holder the right to sell the
underlying security to the Fund at a stated price.
A Fund may write only covered options, which means that, so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, a Fund will
maintain in a separate account cash or short-term U.S. Government securities
with a value equal to or greater than the exercise price of the underlying
securities. A Fund may also write combinations of covered puts and calls on the
same underlying security.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's return in the event the option expires unexercised or is
closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a call option, a Fund limits
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, the Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss if the purchase price exceeds the
market value plus the amount of the premium received, unless the security
subsequently appreciates in value.
A Fund may terminate an option that it has written prior to its expiration
by entering into a closing purchase transaction in which it purchases an option
having the same terms as the option written. A Fund will realize a profit or
loss from such transaction if the cost of such transaction is less or more than
the premium received from the writing of the option. In the case of a put
option, any loss so incurred may be partially or entirely offset by the premium
received from a simultaneous or subsequent sale of a different put option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by a Fund.
Purchasing Put and Call Options on Securities. A Fund may purchase put
options to protect its portfolio holdings in an underlying security against a
decline in market value. Such hedge protection is provided during the life of
the put option since a Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. In order for a put option to be profitable,
the market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might otherwise have realized
in its underlying security by the premium paid for the put option and by
transaction costs.
A Fund may also purchase call options to hedge against an increase in
prices of securities that it wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Fund will reduce any
profit it might have realized had it bought the underlying security at the time
it purchased the call option by the premium paid for the call option and by
transaction costs.
Purchase and Sale of Options and Futures on Stock Indices. A Fund may
purchase and sell options on non-U.S. stock indices and stock index futures as a
hedge against movements in the equity markets.
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Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars multiplied by a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike options on specific securities, all settlements
of options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks. A stock index futures contract is an agreement in which one
party agrees to deliver to the other an amount of cash equal to a specific
amount multiplied by the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made.
If the Adviser expects general stock market prices to rise, a Fund might
purchase a call option on a stock index or a futures contract on that index as a
hedge against an increase in prices of particular equity securities it wants
ultimately to buy. If in fact the stock index does rise, the price of the
particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of a Fund's
index option or futures contract resulting from the increase in the index. If,
on the other hand, the Adviser expects general stock market prices to decline, a
Fund might purchase a put option or sell a futures contract on the index. If
that index does in fact decline, the value of some or all of the equity
securities in a Fund may also be expected to decline, but that decrease would be
offset in part by the increase in the value of the Fund's position in such put
option or futures contract.
Purchase and Sale of Interest Rate Futures. A Fund may purchase and sell
interest rate futures contracts on foreign government securities including, but
not limited to, debt securities of the governments and central banks of France,
Germany, Denmark and Japan for the purpose of hedging fixed income and interest
sensitive securities against the adverse effects of anticipated movements in
interest rates.
A Fund may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the fixed income securities held by a Fund will fall,
thus reducing the net asset value of the Fund. This interest rate risk can be
reduced without employing futures as a hedge by selling long-term fixed income
securities and either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to a Fund in the form of dealer spreads and
brokerage commissions.
The sale of interest rate futures contracts provides an alternative means
of hedging against rising interest rates. As rates increase, the value of a
Fund's short position in the futures contracts will also tend to increase, thus
offsetting all or a portion of the depreciation in the market value of a Fund's
investments that are being hedged. While a Fund will incur commission expenses
in selling and closing out futures positions (which is done by taking an
opposite position which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.
Options on Stock Index Futures Contracts and Interest Rate Futures
Contracts. A Fund may purchase and write call and put options on non-U.S. stock
index and interest rate futures contracts. A Fund may use such options on
futures contracts in connection with its hedging strategies in lieu of
purchasing and writing options directly on the underlying securities or stock
indices or purchasing and selling the underlying futures. For example, a Fund
may purchase put options or write call options on stock index futures, or
interest rate futures, rather than selling futures contracts, in anticipation of
a decline in general stock market prices or rise in interest rates,
respectively, or purchase call options or write put options on stock index or
interest rate futures, rather than purchasing such futures, to hedge against
possible increases in the price of equity securities or debt securities,
respectively, which the Fund intends to purchase.
Purchase and Sale of Currency Futures Contracts and Related Options. In
order to hedge its portfolio and to protect it against possible variations in
foreign exchange rates pending the settlement of securities transactions, a
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Fund may buy or sell currency futures contracts and related options. If a fall
in exchange rates for a particular currency is anticipated, a Fund may sell a
currency futures contract or a call option thereon or purchase a put option on
such futures contract as a hedge. If it is anticipated that exchange rates will
rise, a Fund may purchase a currency futures contract or a call option thereon
or sell (write) a put option to protect against an increase in the price of
securities denominated in a particular currency a Fund intends to purchase.
These futures contracts and related options thereon will be used only as a hedge
against anticipated currency rate changes, and all options on currency futures
written by a Fund will be covered.
A currency futures contract sale creates an obligation by a Fund, as
seller, to deliver the amount of currency called for in the contract at a
specified futures time for a special price. A currency futures contract purchase
creates an obligation by a Fund, as purchaser, to take delivery of an amount of
currency at a specified future time at a specified price. Although the terms of
currency futures contracts specify actual delivery or receipt, in most instances
the contracts are closed out before the settlement date without the making or
taking of delivery of the currency. Closing out of a currency futures contract
is effected by entering into an offsetting purchase or sale transaction. Unlike
a currency futures contract, which requires the parties to buy and sell currency
on a set date, an option on a currency futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract. If the
holder decides not to enter into the contract, the premium paid for the option
is fixed at the point of sale.
The Fund will write (sell) only covered put and call options on currency
futures. This means that a Fund will provide for its obligations upon exercise
of the option by segregating sufficient cash or short-term obligations or by
holding an offsetting position in the option or underlying currency future, or a
combination of the foregoing. A Fund will, so long as it is obligated as the
writer or a call option on currency futures, own on a contract-for-contract
basis an equal long position in currency futures with the same delivery date or
a call option on stock index futures with the difference, if any, between the
market value of the call written and the market value of the call or long
currency futures purchased maintained by a Fund in cash, Treasury bills, or
other high-grade short-term obligations in a segregated account with its
custodian. If at the close of business on any day the market value of the call
purchased by a Fund falls below 100% of the market value of the call written by
the Fund, a Fund will so segregate an amount of cash, Treasury bills or other
high grade short-term obligations equal in value to the difference.
Alternatively, a Fund may cover the call option through segregating with the
custodian an amount of the particular foreign currency equal to the amount of
foreign currency per futures contract option times the number of options written
by a Fund. In the case of put options on currency futures written by the Fund,
the Fund will hold the aggregate exercise price in cash, Treasury bills, or
other high grade short-term obligations in a segregated account with its
custodian, or own put options on currency futures or short currency futures,
with the difference, if any, between the market value of the put written and the
market value of the puts purchased or the currency futures sold maintained by a
Fund in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its custodian. If at the close of business on any day
the market value of the put options purchased or the currency futures by a Fund
falls below 100% of the market value of the put options written by the Fund, a
Fund will so segregate an amount of cash, Treasury bills or other high grade
short-term obligations equal in value to the difference.
If other methods of providing appropriate cover are developed, a Fund
reserves the right to employ them to the extent consistent with applicable
regulatory and exchange requirements. In connection with transactions in stock
index options, stock index futures, interest rate futures, foreign currency
futures and related options on such futures, a Fund will be required to deposit
as "initial margin" an amount of cash or short-term government securities equal
to from 5% to 8% of the contract amount. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from the broker to reflect
changes in the value of the futures contract.
Limitations on Purchase of Options. The staff of the SEC has taken the
position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid and, therefore, together with
other illiquid securities, cannot exceed 15% of a Fund's assets. The Adviser
intends to limit a Fund's writing of over-the-counter options in accordance with
the following procedure. Each Fund intends to write over-the-counter options
only with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. Also, the contracts which a Fund has in place with
such primary dealers will provide that the Fund has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as
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determined in good faith through negotiation between the parties, but which in
no event will exceed a price determined pursuant to a formula in the contract.
Although the specific formula may vary between contracts with different primary
dealers, the formula will generally be based on a multiple of the premium
received by a Fund for writing the option, plus the amount, if any, of the
option's intrinsic value (i.e., the amount that the option is in-the-money). The
formula also may include a factor to account for the difference between the
price of the security and the strike price of the option if the option is
written out-of-the-money. A Fund will treat all or a part of the formula price
as illiquid for purposes of the 15% test imposed by the SEC staff.
Risk Factors Associated with Futures and Options Transactions. The
effective use of options and futures strategies depends on, among other things,
a Fund's ability to terminate options and futures positions at times when its
the Adviser deems it desirable to do so. Although a Fund will not enter into an
option or futures position unless the Adviser believes that a liquid secondary
market exists for such option or future, there is no assurance that a Fund will
be able to effect closing transactions at any particular time or at an
acceptable price. A Fund generally expects that its options and futures
transactions will be conducted on recognized U.S. and foreign securities and
commodity exchanges. In certain instances, however, a Fund may purchase and sell
options in the over-the-counter market. A Fund's ability to terminate option
positions established in the over-the-counter market may be more limited than in
the case of exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would fail to meet their
obligations to the Fund.
Options and futures markets can be highly volatile and transactions of
this type carry a high risk of loss. Moreover, a relatively small adverse market
movement with respect to these types of transactions may result not only in loss
of the original investment but also in unquantifiable further loss exceeding any
margin deposited.
The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
securities which are the subject of the hedge. Such correlation, particularly
with respect to options on stock indices and stock index futures, is imperfect,
and such risk increases as the composition of a Fund diverges from the
composition of the relevant index. The successful use of these strategies also
depends on the ability of the Adviser to correctly forecast interest rate
movements, currency rate movements and general stock market price movements.
In addition to certain risk factors described above, the following sets
forth certain information regarding the potential risks associated with the
Funds' futures and options transactions.
Risk of Imperfect Correlation. A Fund's ability effectively to hedge all
or a portion of its portfolio through transactions in futures, options on
futures or options on stock indices depends on the degree to which movements in
the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the relevant portion of the Fund's
securities. If the values of the securities being hedged do not move in the same
amount or direction as the underlying security or index, the hedging strategy
for a Fund might not be successful and the Fund could sustain losses on its
hedging transactions which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation between the security or
index underlying a futures or option contract and the portfolio securities being
hedged, which could result in losses both on the hedging transaction and the
fund securities. In such instances, a Fund's overall return could be less than
if the hedging transactions had not been undertaken. Stock index futures or
options based on a narrower index of securities may present greater risk than
options or futures based on a broad market index, as a narrower index is more
susceptible to rapid and extreme fluctuations resulting from changes in the
value of a small number of securities. A Fund would, however, effect
transactions in such futures or options only for hedging purposes.
The trading of futures and options on indices involves the additional risk
of imperfect correlation between movements in the futures or option price and
the value of the underlying index. The anticipated spread between the prices may
be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase of
an option on a futures contract also involves the risk that changes in the value
of underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred
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in purchasing an option on a futures contract is limited to the amount of the
premium plus related transaction costs, although it may be necessary under
certain circumstances to exercise the option and enter into the underlying
futures contract in order to realize a profit. Under certain extreme market
conditions, it is possible that a Fund will not be able to establish hedging
positions, or that any hedging strategy adopted will be insufficient to
completely protect the Fund.
A Fund will purchase or sell futures contracts or options only if, in the
Adviser's judgment, there is expected to be a sufficient degree of correlation
between movements in the value of such instruments and changes in the value of
the relevant portion of the Fund's portfolio for the hedge to be effective.
There can be no assurance that the Adviser's judgment will be accurate.
Potential Lack of a Liquid Secondary Market. The ordinary spreads between
prices in the cash and futures markets, due to differences in the natures of
those markets, are subject to distortions. First, all participants in the
futures market are subject to initial deposit and variation margin requirements.
This could require a Fund to post additional cash or cash equivalents as the
value of the position fluctuates. Further, rather than meeting additional
variation margin requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures or options market
may be lacking. Prior to exercise or expiration, a futures or option position
may be terminated only by entering into a closing purchase or sale transaction,
which requires a secondary market on the exchange on which the position was
originally established. While a Fund will establish a futures or option position
only if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular futures or option
contract at any specific time. In such event, it may not be possible to close
out a position held by a Fund, which could require the Fund to purchase or sell
the instrument underlying the position, make or receive a cash settlement, or
meet ongoing variation margin requirements. The inability to close out futures
or option positions also could have an adverse impact on a Fund's ability
effectively to hedge its securities or the relevant portion thereof.
The liquidity of a secondary market in a futures contract or an option on
a futures contract may be adversely affected by "daily price fluctuation limits"
established by the exchanges, which limit the amount of fluctuation in the price
of a contract during a single trading day and prohibit trading beyond such
limits once they have been reached. The trading of futures and options contracts
also is subject to the risk of trading halts/suspensions, exchange or clearing
house equipment failures, government intervention, insolvency of the brokerage
firm or clearing house or other disruptions of normal trading activity, which
could at times make it difficult or impossible to liquidate existing positions
or to recover excess variation margin payments.
Risk of Predicting Interest Rate Movements. Investments in futures
contracts on fixed income securities and related indices involve the risk that
if the Adviser's investment judgment concerning the general direction of
interest rates is incorrect, a Fund's overall performance may be poorer than if
it had not entered into any such contract. For example, if a Fund has been
hedged against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of the increased
value of its bonds which have been hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell bonds from its portfolio to meet daily
variation margin requirements, possibly at a time when it may be disadvantageous
to do so. Such sale of bonds may be, but will not necessarily be, at increased
prices which reflect the rising market.
Trading and Position Limits. Each contract market on which futures and
option contracts are traded has established a number of limitations governing
the maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Adviser does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding the Funds' investments.
Regulations on the Use of Futures and Options Contracts. Regulations of
the CFTC require that the Funds enter into transactions in futures contracts and
options thereon for hedging purposes only, in order to assure that they are not
deemed to be a "commodity pool" under such regulations. In particular, CFTC
regulations require that all short futures positions be entered into for the
purpose of hedging the value of investment securities held by a
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Fund, and that all long futures positions either constitute bona fide hedging
transactions, as defined in such regulations, or have a total value not in
excess of an amount determined by reference to certain cash and securities
positions maintained for the Fund, and accrued profits on such positions. In
addition, a Fund may not purchase or sell such instruments if, immediately
thereafter, the sum of the amount of initial margin deposits on its existing
futures positions and premiums paid for options on futures contracts would
exceed 5% of the market value of the Fund's total assets.
When a Fund purchases a futures contract, an amount of cash or cash
equivalents or high debt securities will be deposited in a segregated account
with the Fund's custodian so that the amount so segregated, plus the initial
deposit and variation margin held in the account of its broker, will at all
equal the value of the futures contract, thereby insuring that the use of such
futures is unleveraged.
The Funds' ability to engage in the hedging transactions described herein
may be limited by the current federal income tax requirement that a Fund derive
less than 30% of its gross income from the sale or other disposition of stock or
securities held for less than three months. The Funds may also further their
ability to engage in such transactions in response to the policies and concerns
of various federal and state regulatory agencies. Such policies may be changed
by vote of the Board of Directors.
Interest Rate Transactions
Among the strategic transactions into which a Fund may enter are interest
rate swaps and the purchase or sale of related caps and floors. The Funds expect
to enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. A Fund intends to use these transactions as hedges and not as speculative
investments and will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or receive interest, e.g.
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount.
A Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. In as much as these swaps, caps and
floors are entered into for good faith hedging purposes, The Adviser and the
Fund believe such obligations do not constitute senior securities under the
Investment Company Act of 1940 (the "1940 Act") and, accordingly, will not treat
them as being subject to its borrowing restrictions. A Fund will not enter into
any swap, cap and floor transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the counterparty, combined with any
credit enhancements, is rated at least "A" by Standard & Poor's Corporation or
Moody's Investors Service, Inc. or has an equivalent rating from a Nationally
Recognized Statistical Rating Organization ("NRSRO") or is determined to be of
equivalent credit quality by the Adviser. If there is a default by the
counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps and floors are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
With respect to swaps, a Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps and floors require segregation
of assets with a value equal to the Fund's net obligation, if any.
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Asset Backed Securities
In General. Asset Backed Securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset Backed
Securities consist of both mortgage and non-mortgage backed securities.
Interests in pools of these assets 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. 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.
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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 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.
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Non-Mortgage Asset Backed Securities. Non-mortgage asset backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt.
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 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, the Adviser, as adviser to
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.
Special Situations
As described in the Prospectuses, certain Funds may invest in "special
situations." A special situation arises when, in the opinion of the Adviser, the
securities of a particular company will, within a reasonably estimable period of
time, be accorded market recognition at an appreciated value solely by reason of
a development applicable to that company, and regardless of general business
conditions or movements of the market as a whole. Developments creating special
situations might include, among others: liquidations, reorganizations,
recapitalizations, mergers, material litigation, technical breakthroughs and new
management or management policies. Although large and well known companies may
be involved, special situations more often involve comparatively small or
unseasoned companies. Investments in unseasoned companies and special situations
often involve much greater risk than is inherent in ordinary investment
securities.
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Reverse Repurchase Agreements
At the time a Fund enters into a reverse repurchase agreement, it may
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. Government securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities the Funds are obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. Reverse repurchase agreements are
speculative techniques involving leverage, and are subject to asset coverage
requirements if the Funds do not establish and maintain a segregated account (as
described above). In addition, some or all of the proceeds received by a Fund
from the sale of a portfolio instrument may be applied to the purchase of a
repurchase agreement. To the extent the proceeds are used in this fashion and a
common broker/dealer is the counterparty on both the reverse repurchase
agreement and the repurchase agreement, the arrangement might be recharacterized
as a swap transaction. Under the requirements of the 1940 Act, the Funds are
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Funds' asset coverage and other factors at the time of a reverse repurchase,
the Funds may not establish a segregated account when the Adviser believes it is
not in the best interests of the Funds to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
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. Collateral for such loans may include cash, securities of the
U.S. Government, its agencies or instrumentalities, an irrevocable letter of
credit issued by (i) a U.S. bank that has total assets exceeding $1 billion and
that is a member of the Federal Deposit Insurance Corporation, or (ii) a foreign
bank that is one of the 75 largest foreign commercial banks in terms of total
assets, or any combination thereof. Such loans will not be made if, as a result,
the aggregate of all outstanding loans of the Fund involved exceeds 30% of the
value of its total assets. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Adviser to be of good standing
and when, in its judgment, the income to be earned from the loan justifies the
attendant risks. Pursuant to the securities loan agreement a Fund is able to
terminate the securities loan upon notice of not more than five business days
and thereby secure the return to the Fund of securities identical to the
transferred securities upon termination of the loan.
Short Sales
As described in the Prospectuses, certain Funds may from time to time
enter into short sales transactions. A Fund will not make short sales of
securities nor maintain a short position unless at all times when a short
position is open, such Fund owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short. This is a technique known as selling short "against the
box." Such short sales will be used by a Fund for the purpose of deferring
recognition of gain or loss for federal income tax purposes.
Guaranteed Investment Contracts
Guaranteed Investment Contracts ("GICs") are issued by highly rated
insurance companies. Pursuant to such contracts, Fund makes cash contributions
to a deposit fund of the insurance company's general or separate accounts. The
insurance company then credits to a Fund guaranteed interest. The insurance
company may assess periodic charges against a GIC for expense and service costs
allocable to it, and the charges will be deducted from the value
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of the deposit fund. The purchase price paid for a GIC becomes part of the
general assets of the issuer, and the contract is paid from the general assets
of the issuer.
A Fund will only purchase GlCs from issuers which, at the time of
purchase, meet quality and credit standards established by the Adviser.
Generally, GlCs are not assignable or transferable without the permission of the
issuing insurance companies, and an active secondary market in GlCs does not
currently exist. Also, a Fund may not receive the principal amount of a GIC from
the insurance company on seven days' notice or less. Therefore, GlCs are
generally considered to be illiquid investments.
A Money Market Fund will acquire GlCs so that they, together with other
instruments in this Fund's portfolio which are not readily marketable, will not
exceed 10% of such Fund's total assets. A Money Market Fund will restrict its
investments in GlCs to those having a term of 397 days or less. In determining
average weighted portfolio maturity, a GIC will be deemed to have a maturity
equal to the period of time remaining under the next readjustment of the
guaranteed interest rate.
Illiquid Securities
Certain of the Non-Money Market Funds may invest up to 15% of their net
assets, and certain of the Money Market Funds may invest up to 10% of their net
assets, in securities that are considered illiquid because of the absence of a
readily available market or due to legal or contractual restrictions. Certain
restricted securities that are not registered for sale to the general public but
that can be resold to institutional investors may not be considered illiquid,
provided that a dealer or institutional trading market exists. The institutional
trading market is relatively new, and liquidity of a Fund's investments could be
impaired if trading does not develop or declines.
Commercial Instruments
Commercial Instruments consist of short-term U.S. dollar-denominated
obligations issued by domestic corporations or issued in the U.S. by foreign
corporations and foreign commercial banks. The Nations Prime Fund will limit
purchases of commercial instruments to instruments which: (a) if rated by at
least two Nationally Rated Statistical Rating Organizations ("NRSROs"), are
rated in the highest rating category for short-term debt obligations given by
such organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
organization; or (b) if not rated, are (i) comparable in priority and security
to a class of short-term instruments of the same issuer that has such rating(s),
or (ii) of comparable quality to such instruments as determined by Nations Fund,
Inc.'s Board of Directors on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in
a manner consistent with such Fund's investment policies and objectives. In
addition, the Funds may acquire unrated commercial paper and corporate bonds
that are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by such Funds as previously
described.
Variable rate master demand notes are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. While some of these notes are not rated by credit rating
agencies, issuers of variable rate master demand notes must satisfy the Adviser
that similar criteria to that set forth above with respect to the issuers of
commercial paper purchasable by the Nations Prime Fund are met. Variable rate
instruments acquired by a Fund will be rated at a level consistent with such
Fund's investment objective and policies of high quality as determined by a
major rating agency or, if not rated, will be of comparable quality as
determined by the Adviser. Substantial holdings of variable rate instruments
could reduce portfolio liquidity.
Variable and floating rate instruments are unsecured instruments that
permit the indebtedness thereunder to vary. While there may be no active
secondary market with respect to a particular variable or floating rate
instrument purchased by a Fund, a Fund may, from time to time as specified in
the instrument, demand payment of the principal or may resell the instrument to
a third party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of an instrument if the issuer defaulted on its
payment obligation or during periods when a Fund is not entitled to exercise its
demand rights, and a Fund could, for these or other
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reasons, suffer a loss. The instruments are not typically rated by credit rating
agencies, but issuers of variable and floating rate instruments must satisfy
similar criteria to that set forth above for issuers of commercial paper. A Fund
may invest in variable and floating rate instruments only when the Adviser deems
the investment to involve minimal credit risk. If such instruments are not
rated, the Adviser will consider the earning power, cash flows, and other
liquidity ratios of the issuers of such instruments and will continuously
monitor their financial status to meet payment on demand. In determining average
weighted portfolio maturity, an instrument will be deemed to have a maturity
equal to the longer of the period remaining to the next interest rate adjustment
or the demand notice period specified in the instrument.
The Nations Prime Fund also may purchase short-term participation
interests in loans extended by banks to companies, provided that both such banks
and such companies meet the quality standards set forth above.
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." Generally such loans are unrated, in which case they will be determined
by the Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged loans
have variable interest rates and may be backed by a bank letter of credit. In
other cases, they may be unsecured or may be secured by assets not easily
liquidated. Moreover, such loans in most cases are not backed by the taxing
authority of the issuers and may have limited marketability or may be marketable
only by virtue of a provision requiring repayment following demand by the
lender. Such loans made by a Fund may have a demand provision permitting the
Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject to
each Fund's limitation on investments in illiquid securities. Recovery of an
investment in any such loan that is illiquid and payable on demand may depend on
the
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ability of the municipal borrower to meet an obligation for full repayment of
principal and payment of accrued interest within the demand period, normally
seven days or less (unless a Fund determines that a particular loan issue,
unlike most such loans, has a readily available market). As it deems
appropriate, the Adviser will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
Municipal securities may include units of participation in trusts holding
pools of tax-exempt leases. Municipal participation interests may be purchased
from financial institutions, and give the purchaser an undivided interest in one
or more underlying municipal security. To the extent that municipal
participation interests are considered to be "illiquid securities," such
instruments are subject to each Fund's limitation on the purchase of illiquid
securities. Municipal leases and participating interests therein which may take
the form of a lease or an installment sales contract, are issued by state and
local governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income taxes.
In addition, certain of the Funds may acquire "stand-by commitments" from
banks or broker/dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified Municipal Securities at a specified price. A Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity and do not
intend to exercise their rights thereunder for trading purposes.
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.
Real Estate Investment Trusts
A real estate investment trust ("REIT") is a managed portfolio of real
estate investments which may include office buildings, apartment complexes,
hotels and shopping malls. An Equity REIT holds equity positions in real estate,
and it seeks to provide its shareholders with income from the leasing of its
properties, and with capital gains from any sales of properties. A Mortgage REIT
specializes in lending money to developers of properties, and passes any
interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property
owned or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Internal Revenue Code or 1986, as amended.
Additional Investment Limitations
The most significant investment restrictions applicable to the Funds'
investment programs are set forth in the Prospectuses under the heading
"Investment Limitations." Additionally, as a matter of fundamental policy which
may not be changed without a majority vote of a Fund's shareholders (as that
term is defined under the heading "Investment Advisory, Administration, Custody,
Transfer Agency, Shareholder Servicing and Distribution Agreements -- The
Company and Its Common Stock" in this SAI), each Fund will not:
1. Borrow money or issue senior securities as defined in the 1940 Act except
that (a) a Fund may borrow money from banks for temporary purposes in
amounts up to one-third of the value of such Fund's total assets at the
time of borrowing, provided that borrowings in excess of 5% of the value of
such Fund's total assets will be repaid prior to the purchase of additional
portfolio securities by such Fund, (b) a Fund may enter into
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commitments to purchase securities in accordance with the Fund's investment
program, including delayed delivery and when-issued securities, which
commitments may be considered the issuance of senior securities, and (c) a
Fund may issue multiple classes of shares in accordance with SEC
regulations or exemptions under the 1940 Act. The purchase or sale of
futures contracts and related options shall not be considered to involve
the borrowing of money or issuance of senior securities.
2. Purchase any securities on margin (except for such short-term credits as
are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except against the box.) For
purposes of this restriction, the deposit or payment by the Fund of initial
or maintenance margin connection with futures contracts and related options
and options on securities is not considered to be the purchase of a
security on margin.
3. Underwrite securities issued by any other person, except to the extent that
the purchase of securities and the later disposition of such securities in
accordance with the Fund's investment program may be deemed an
underwriting. This restriction shall not limit a Fund's ability to invest
in securities issued by other registered investment companies.
4. Invest in real estate or real estate limited partnership interests. (The
Fund may, however, purchase and sell securities secured by real estate or
interests therein or issued by issuers which invest in real estate or
interests therein.) This restriction does not apply to real estate limited
partnerships listed on a national stock exchange (e.g., the New York Stock
Exchange).
5. Purchase or sell commodity contracts except that each Fund may, to the
extent appropriate under its investment policies, purchase publicly traded
securities of companies engaging in whole or in part in such activities,
may enter into futures contracts and related options, may engage in
transactions on a when-issued or forward commitment basis, and may enter
into forward currency contracts in accordance with its investment policies.
In addition, certain non-fundamental investment restrictions are also
applicable to various investment portfolios, including the following:
1. The Company will not purchase or retain the securities of any issuer if the
officers, or directors of the Company, its advisers, or managers owning
beneficially more than one half of one percent of the securities of each
issuer together own beneficially more than five percent of such securities.
2. No Fund of the Company will purchase securities of unseasoned issuers,
including their predecessors, that have been in operation for less than
three years, if by reason thereof the value of such Fund's investment in
such classes of securities would exceed 5% of such Fund's total assets. For
purposes of this limitation, issuers include predecessors, sponsors,
controlling persons, general partners, guarantors and originators of
underlying assets which have less than three years of continuous operation
or relevant business experience.
3. No Fund will purchase puts, calls, straddles, spreads and any combination
thereof if by reason thereof the value of its aggregate investment in such
classes of securities will exceed 5% of its total assets except that: (a)
this restriction shall not apply to standby commitments, (b) this
restriction shall not apply to a Fund's transactions in futures contracts
and related options, and (c) a Fund may obtain short-term credit as may be
necessary for the clearance of purchases and sales of portfolio securities.
4. No Fund will invest in warrants, valued at the lower of cost or market, in
excess of 5% of the value of such Fund's assets, and no more than 2% of the
value of the Fund's net assets may be invested in warrants that are not
listed on the New York or American Stock Exchange (for purposes of this
undertaking, warrants acquired by a Fund in units or attached to securities
will be deemed to have no value).
5. Nations Prime Fund and Nations Treasury Fund may not purchase securities of
any one issuer (other than obligations issued or guaranteed by the U.S.
government, its agencies, authorities or instrumentalities and
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repurchase agreements fully collateralized by such obligations) if,
immediately after such purchase, more than 5% of the value of the Fund's
assets would be invested in the securities of such issuer. Notwithstanding
the foregoing, up to 25% of each Fund's total assets may be invested for a
period of three business days in the securities of a single issuer without
regard to such 5% limitation.
6. No Fund of the Company will purchase securities of companies for the
purpose of exercising control.
7. No Money Market Fund of the Company will invest more than 10% of the value
of its net assets in illiquid securities, including repurchase agreements
with remaining maturities in excess of seven days, time deposits with
maturities in excess of seven days, restricted securities, and other
securities which are not readily marketable. For purposes of this
restriction, illiquid securities shall not include securities which may be
resold under Rule 144A under the Securities Act of 1933 that the Board of
Directors, or its delegate, determines to be liquid, based upon the trading
markets for the specific security.
8. No Non-Money Market Fund of the Company will invest more than 15% of the
value of its net assets in illiquid securities, including repurchase
agreements with remaining maturities in excess of seven days, time deposits
with maturities in excess of seven days, restricted securities, and other
securities which are not readily marketable. For purposes of this
restriction, illiquid securities shall not include securities which may be
resold under Rule 144A under the Securities Act of 1933 that the Board of
Directors, or its delegate, determines to be liquid, based upon the trading
markets for the specific security.
9. No Fund of the Company will mortgage, pledge or hypothecate any assets
except to secure permitted borrowings and then only in an amount up to
one-third of the value of the Fund's total assets at the time of borrowing.
For purposes of this limitation, collateral arrangements with respect to
the writing of options, futures contracts, options on futures contracts,
and collateral arrangements with respect to initial and variation margin
are not considered to be a mortgage, pledge or hypothecation of assets.
10. No Fund of the Company will invest in securities of other investment
companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets and except to the extent otherwise
permitted by the 1940 Act.
11. No Fund of the Company will purchase oil, gas or mineral leases or other
interests (a Fund may, however, purchase and sell the securities of
companies engaged in the exploration, development, production, refining,
transporting and marketing of oil, gas or minerals).
NET ASSET VALUE
Purchases and Redemptions
See "How to Buy Shares" and "How to Redeem Shares" in the Prospectuses for
a complete description of the manner in which shares of the various classes of
the Funds may be purchased and redeemed.
The right of redemption may be suspended or the date of payment postponed
when (a) trading on the New York Stock Exchange is restricted, as determined by
applicable rules and regulations of the SEC, (b) the New York Stock Exchange is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposal of portfolio securities or the valuation of the net
assets of a Fund of the Company not reasonably practicable.
Net Asset Value Determination
Shares of the common stock of each class of shares of each Fund that are
offered by the Prospectuses are sold at their respective net asset value next
determined after the receipt of the purchase order, plus any applicable sales
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charge. Shareholders may at any time redeem all or a portion of their shares at
net asset value next determined following receipt of a redemption order, less
any contingent deferred sales charge applicable to Investor Shares.
The net asset value per share of each of the Funds is determined at the
times and in the manner described in the Prospectuses.
The securities of the Money Market Funds are valued on the basis of
amortized cost, as are short-term obligations (with maturities of 60 days or
less) held by any Fund. This method values a security at its cost on the date of
purchase and thereafter assumes a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the security. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price a Fund would receive if the
security were sold. During such periods, the daily yield on shares of a Fund's
class computed as described under "Yield Information" may differ somewhat from
an identical computation made by another investment company with identical
investments utilizing available indications as to the market value of its
portfolio securities.
The valuation of the portfolio instruments based upon their amortized cost
and the concomitant attempt to maintain the net asset value per share of $1.00
for the Money Market Funds is permitted in accordance with applicable rules and
regulations of the SEC which require each such Fund to adhere to certain
conditions, which are more fully described in the Prospectuses for the Money
Market Funds.
With respect to the Equity Income and International Equity Funds, a
security listed or traded on an exchange is valued at its last sales price on
the exchange where the security is principally traded or, lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. Each security reported on the
NASDAQ National Market System is valued at the last sales price on the valuation
date. With respect to the Government Securities Fund, securities may be valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance on
quoted prices, and may reflect appropriate factors such as yield, type of issue,
coupon rate maturity and seasoning differential. Securities for which prices are
not provided by the pricing service are valued at the mean between the last bid
and asked prices based upon quotes furnished by market makers for such
securities.
With respect to the Equity Income, Government Securities and International
Equity Funds, securities for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the supervision
of the Company's officers in a manner specifically authorized by the Board of
Directors of the Company. Short-term obligations having 60 days or less to
maturity are valued at amortized cost, which approximates market value.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the shares of the Fund are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the New York
Stock Exchange. Occasionally, events affecting the value of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange, which will not be reflected in the
computation of net asset value. If during such periods events occur which
materially affect the value of such securities, the securities will be valued at
their fair market value as determined in good faith by the directors.
For purposes of determining the net asset value per Share of the
International Equity Fund, all assets and liabilities of the International
Equity Fund initially expressed in foreign currencies will be converted into
U.S. dollars at the mean between the bid and offer prices of such currencies
against U.S. dollars quoted by a major bank
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that is a regular participant in the foreign exchange market or on the basis of
a pricing service that takes into account the quotes provided by a number of
such major banks.
Exchanges
By use of the exchange privilege, the holder of Investor Shares and/or
Trust B Shares authorizes the transfer agent or the shareholder's financial
institution to rely on telephonic instructions from any person representing
himself to be the investor and reasonably believed to be genuine. The transfer
agent's or a financial institution's records of such instructions are binding.
Exchanges are taxable transactions for Federal income tax purposes; therefore, a
shareholder will realize a capital gain or loss depending on whether the
Investor Shares and/or Trust B Shares being exchanged have a value which is more
or less than their adjusted cost basis.
The Company may limit the number of times the exchange privilege may be
exercised by a shareholder within a specified period of time. Also, the exchange
privilege may be terminated or revised at any time by Nations Fund, Inc. upon
such notice as may be required by applicable regulatory agencies (presently
sixty days for termination or material revision), provided that the exchange
privilege may be terminated or materially revised without notice under certain
unusual circumstances.
The Prospectuses for the Investor Shares and Trust B Shares of each Fund
describe the exchange privileges available to holders of such Investor Shares
and Trust B Shares, respectively.
DESCRIPTION OF SHARES
Dividends and Distributions
Nations Prime and Treasury Funds. All of the net investment income earned
by each of the Money Market Funds is declared daily as a dividend to the
shareholders of record of each class of shares of each Fund. The Investor A,
Investor B, Investor C and Trust B Shares of each such Fund shall accrue an
additional expense not borne by the Trust A Shares as a result of the Rule 12b-1
Plans and/or the Shareholder Servicing Plans or Shareholder Administration Plan
and/or Shareholder Administration Agreements applicable to each such class of
shares. Consequently, a separate calculation shall be made to arrive at the
dividends of each class of shares. Dividends normally accrue on the first day
that a purchase order is effective but not on the date that a redemption order
is effective. Thus, if a purchase order is accepted prior to 12:00 noon Eastern
Standard Time, the shareholder will receive dividends beginning that day. All
dividends declared during a month will be paid in cash within five business days
after the end of the month. If a shareholder of record redeems all of the shares
in its account at any time during the month, all dividends declared through the
date of redemption are paid to the shareholder along with the proceeds of the
redemption within five business days of the redemption.
Equity Income Fund and International Equity Fund. Dividends and
distributions from net investment income, if any, are declared and paid
quarterly, and capital gains distributions are declared and paid annually. The
Investor A, Investor C, Investor N and Trust B Shares of the Funds shall accrue
an additional expense not borne by the Trust A Shares as a result of the
applicable Rule 12b-1 Plan and/or Shareholder Servicing Plan or Shareholder
Administration Plan and/or Shareholder Administration Agreements. Consequently,
a separate calculation shall be made to arrive at the net asset value per share
and dividends of each class of shares of the Funds.
Government Securities Fund. Dividends and distributions from net
investment income are declared daily and paid monthly, and capital gains
distributions are declared and paid annually. The Investor A, Investor C,
Investor N and Trust B Shares of the Fund shall accrue an additional expense not
borne by the Trust A Shares as a result of the 12b-1 Plans and the Shareholder
Servicing Plan or Shareholder Administration Plan and/or Shareholder
Administration Agreements. Consequently, a separate calculation shall be made to
arrive at the net asset value per share and dividends of each class of shares of
the Fund.
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With respect to the Money Market Funds, net investment income for dividend
purposes consists of (i) interest accrued and original issue discount earned on
a Fund's assets, (ii) plus the amortization of market discount and minus the
amortization of market premium on such assets, (iii) less accrued expenses
directly attributable to the Fund and the general expenses of Nations Fund
prorated to a Fund on the basis of its relative net assets. With respect to the
Non-Money Market Funds, net income for dividend purposes consists of (i), (ii)
and (iii) above, plus dividend or distribution income on the Fund's assets.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectuses. No attempt is made to present a detailed explanation of the
tax treatment of each Fund or its shareholders, and the discussion here and in
the Prospectuses is not intended as a substitute for careful tax planning.
The Company has received a private letter ruling from the Internal Revenue
Service to the effect that: (i) the differing fees imposed on Trust A, Trust B,
Investor A, Investor C, Investor D and Investor N Shares with respect to
servicing, distribution and administrative support services, and transfer agency
arrangements; the differing sales charges on purchases and redemptions of such
shares; and the Investor C Shares of the Non-Money Market Funds conversion
feature, applicable to shares purchased prior to April 1, 1994, does not result
in the Company's dividends or distributions constituting "preferential
dividends" under theInternal Revenue Code of 1986, as amended (the "Code"); and
(ii) the Investor C Shares conversion feature does not constitute a taxable
event under the federal income tax law.
Qualification as a Regulated Investment Company
Each Fund expects to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, each Fund is
not subject to federal income tax on the portion of its net investment income
(i.e., taxable interest, dividends and other taxable ordinary income, net of
expenses) and capital gain net income (i.e., the excess of capital gains over
capital losses) that it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (i.e., net
investment income and the excess of it short-term capital gain over net
long-term capital loss) and at least 90% of its tax-exempt income (net of
expenses allocable thereto) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by a Fund made during the taxable year or, under
specified circumstances, within twelve months after the close of the taxable
year, will be considered distributions of income and gains of the taxable year
and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must (i) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (ii) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). However, foreign currency gains,
including those derived from options, futures and forwards, will not be
characterized as Short-Short Gain if they are directly related to the regulated
investment company's investments in stock or securities (or options or futures
thereon). Because of the Short-Short Gain Test, a Fund may have to limit the
sale of appreciated securities that it has held for less than three months.
However, the Short-Short Gain Test will not prevent a Fund from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded. Interest (including original
issue discount) received by a Fund at maturity or upon the disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security within the meaning
of the Short-Short Gain Test.
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However, income that is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including tax-exempt obligations purchased
after April 30, 1993) purchased by a Fund at a market discount (generally, at a
price less than its principal amount) will be treated as ordinary income to the
extent of the portion of the market discount which accrued during the period of
time the Fund held the debt obligation. In addition, under the rules of Code
Section 988, gain or loss recognized on the disposition of a debt obligation
denominated in a foreign currency or an option with respect thereto (but only to
the extent attributable to changes in foreign currency exchange rates), and gain
or loss recognized on the disposition of a foreign currency forward contract,
futures contract, option or similar financial instrument, or of foreign currency
itself, will generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if (i) the asset is used to
close a "short sale" (which includes for certain purposes the acquisition of a
put option) or is substantially identical to another asset so used, (ii) the
asset is otherwise held by the Fund as part of a "straddle" (which term
generally excludes a situation where the asset is stock and the Fund grants a
qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (iii) the asset is stock and the
Fund grants an in-the-money qualified covered call option with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be reduced only in the case of clause (i) above. In
addition, a Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by a Fund will commence on the date it is written and end on the date it lapses
or the date a closing transaction is entered into. Accordingly, a Fund may be
limited in its ability to write options which expire within three months and to
enter into closing transactions at a gain within three months of the writing of
options.
Transactions that may be engaged in by certain of the Funds (such as
futures contracts and options on stock indices and futures contracts) will be
subject to special tax treatment as "Section 1256 contracts." Section 1256
contracts are treated as if they are sold for their fair market value on the
last business day of the taxable year, regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date. The
net amount of such gain or loss for the entire taxable year (including gain or
loss arising as a consequence of the year-end deemed sale of such contracts) is
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. The Internal Revenue Service has held in several private rulings that
gains arising from Section 1256 contracts will be treated for purposes of the
Short-Short Gain Test as being derived from securities held for not less than
three months if the gains arise as a result of a constructive sale under Code
Section 1256. A Fund may elect not to have this special tax treatment apply to
Section 1256 contracts that are part of a "mixed straddle" with other
investments of the Fund that are not Section 1256 contracts.
Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or part of any net capital loss, any
net long-term capital loss or any net foreign currency loss incurred after
October 31 as if they had been incurred in the succeeding year.
In addition to satisfying the requirement described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, Government
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securities, securities of other regulated investment companies, and securities
of other issuers (as to which the Fund has not invested more than 5% of the
value of the Fund's total assets in securities of such issuer and as to which
the Fund does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated earnings
and profits. With respect to the Equity Income Fund, such distributions
generally will be eligible for the dividends-received deduction in the case of
corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election"). Tax-exempt
interest on Municipal Obligations is not subject to the excise tax. The balance
of such income must be distributed during the next calendar year. For the
foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company may (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income to avoid liability
for the excise tax. However, investors should note that a Fund may in certain
circumstances be required to liquidate Fund investments to make sufficient
distributions to avoid excise tax liability.
Distributions
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they may qualify for the 70% dividends-received deduction only
to the extent discussed below with respect to the corporate shareholders of the
Equity Income Fund.
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his/her shares or
whether such gain was recognized by the Fund prior to the date on which the
shareholder acquired his/her shares. Conversely, if a Fund elects to retain its
net capital gain, the Fund will be taxed thereon (except to the extent of any
available capital loss carryovers) at the applicable corporate tax rate. If a
Fund elects to retain its net capital gain, it is expected that the Fund also
will elect to have shareholders treated as if each received a distribution of
its pro rata share of such gain, with the result that each shareholder will be
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<PAGE>
required to report its pro rata share of such gain on its tax return as
long-term capital gain, will receive a refundable tax credit for its share of
tax paid by the Fund on the gain, and will increase the basis for its shares by
an amount equal to the deemed distribution less the tax credit.
Ordinary income dividends paid by the Equity Income Fund with respect to a
taxable year will qualify for the 70% dividends received deduction generally
available to corporate shareholders (other than corporate shareholders, such as
"S" corporations, which are not eligible for the deduction because of their
special characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax) to the extent of
the amount of qualifying dividends received by the Fund from domestic
corporations for the taxable year. A dividend received by the Equity Income Fund
will not be treated as a qualifying dividend (1) if it has been received with
respect to any share of stock that the Fund has held for less than 46 days (91
days in the case of certain preferred stock), excluding for this purpose under
the rules of Code Section 246(c)(3) and (4) (i) any day more than 45 days (or 90
days in the case of certain preferred stock) after the date on which the stock
becomes ex-dividend and (ii) any period during which the Fund has an option to
sell, is under a contractual obligation to sell, has made and not closed a short
sale of, is the grantor of a deep-in-the money or otherwise nonqualified option
to buy or has otherwise diminished its risk of loss by holding other positions
with respect to, such (or substantially identical) stock; (2) to the extent that
the Fund is under an obligation (pursuant to a short sale or otherwise) to make
related payments with respect to positions in substantially similar or related
property; or (3) to the extent the stock on which the dividend is paid is
treated as debt financed under the rules of Code Section 246A. Moreover, the
dividends-received deduction for a corporate shareholder may be disallowed or
reduced (i) if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of the Fund or (ii) by application of
Code Section 246(b) which in general limits the dividends-received deduction to
70% of the shareholder's taxable income (determined without regard to the
dividends-received deduction and certain other items).
For purposes of the corporate alternative minimum tax (the "AMT") and the
environmental supervened tax the corporate dividends received deduction is not
itself an item of tax preference that must be added back to taxable income or is
otherwise disallowed in determining a corporation's alternative minimum taxable
income ("AMTI"). However, corporate shareholders will generally be required to
take the full amount of any dividend received from the Equity Income Fund into
account (without a dividends-received deduction) in determining its adjusted
current earnings.
Investment income that may be received by certain of the Funds (in
particular the International Equity Fund) from sources within foreign countries
may be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries which entitle any such
Fund to a reduced rate of, or exemption from, taxes on such income. It is
impossible to determine the effective rate of foreign tax in advance since the
amount of any such Fund's assets to be invested in various countries is not
known. If more than 50% of the value of the Fund's total assets at the close of
its taxable year consists of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, its pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid its pro rata share of such foreign taxes and would, therefore, be allowed
to either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income its pro
rata share of such foreign taxes plus the portion of dividends received from the
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions.
The International Equity Fund may purchase the securities of certain
foreign investment funds or trusts called passive foreign investment companies
("PFICs"). If this Fund invests in PFICs, it may be subject to U.S. federal
income tax on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income is distributed as a taxable
dividend to shareholders. In addition to bearing their proportionate share of
the International Equity Fund's expenses (management fees and operating
expenses), shareholders will also bear indirectly similar expenses of PFICs in
which the Fund has invested. Additional charges in the nature of interest may be
imposed on either the International Equity Fund or its shareholders in respect
of deferred taxes arising
30
<PAGE>
from such distributions or gains. Capital gains on the sale of such holdings
will be deemed to be ordinary income regardless of how long such PFICs are held.
If the International Equity Fund were to invest in a PFIC and elect to treat the
PFIC as a "qualified electing fund" under the Code, in lieu of the foregoing
requirements, the Fund might be required to include in income each year a
portion of the ordinary earnings and net capital gains of the qualified electing
fund, even if not distributed to the Fund, and such amounts would be subject to
the 90% and calendar year distribution requirements described above.
Distributions by a Fund that do not constitute ordinary income dividends,
exempt-interest dividends or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his/her shares; any excess will be treated as gain from the sale of his/her
shares, as discussed below.
Prior to purchasing shares in one of the Non-Money Market Funds, the
impact of dividends or distributions which are expected to be or have been
declared, but not paid, should be carefully considered. Any dividend or
distribution declared shortly after a purchase of such shares prior to the
record date will have the effect of reducing the per share net asset value by
the per share amount of the dividend or distribution. All or a portion of such
dividend or distribution, although in effect a return of capital, may be subject
to tax.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of a Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Fund, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, distributions
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such distributions are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Funds will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect Taxpayer Identification Number or no number at all,
(2) who is subject to backup withholding by the Internal Revenue Service for
failure to report the receipt of interest or dividend income properly, or (3)
who has failed to certify to a Fund that it is not subject to backup withholding
or that it is a corporation or other "exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund (or substantially identical shares) within 30
days before or after the sale or redemption. In general, any gain or loss
arising from (or treated as arising from) the sale or redemption of shares of a
Fund will be considered capital gain or loss and will be long-term capital gain
or loss if the shares were held for longer than one year. However, any capital
loss arising from the sale or redemption of shares held for six months or less
will be disallowed to the extent of the amount of exempt-interest dividends
received on such shares and (to the extent not disallowed) will be treated as a
long-term capital loss to the extent of the amount of capital gain dividends
received on such shares. For this purpose, the special holding period rules of
Code Section 246(c)(3) and (4) (discussed above in connection with the
dividends-received deduction for corporations) generally will apply in
determining the holding period of
31
<PAGE>
shares. Capital losses in any year are deductible only to the extent of capital
gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of a Fund,
(ii) disposes of such shares less than 91 days after they are acquired and (iii)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of, but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
Nations Fund, Inc. may make payment for redemptions in readily marketable
securities or other property if it is appropriate to do so in light of Nations
Fund, Inc.'s responsibilities under the 1940 Act.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from a Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends will
be subject to U.S. withholding tax at the rate of 30% (or lower applicable
treaty rate) upon the gross amount of the dividend. Furthermore, such a foreign
shareholder may be subject to U.S. withholding tax at the rate of 30% (or lower
applicable treaty rate) on the gross income resulting from the Fund's election
to treat any foreign taxes paid by its shareholders, but may not be allowed a
deduction against this gross income or a credit against this U.S. withholding
tax for the foreign shareholder's pro rata share of such foreign taxes which it
is treated as having paid. Such a foreign shareholder would generally be exempt
from U.S. federal income tax on gains realized on the sale of shares of a Fund,
capital gain dividends and exempt-interest dividends and amounts retained by a
Fund that are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens, U.S.
residents or domestic corporations.
In the case of foreign noncorporate shareholders, a Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisors with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
Effect of Future Legislation: Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences
is based on the Code and the regulations issued thereunder as in effect on the
date of this SAI. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Rules of state and local taxation for ordinary income dividends,
exempt-interest dividends and capital gain dividends from regulated investment
companies often differ from the rules for U.S. federal income taxation described
above. Distributions of net investment income may be taxable to shareholders as
dividend income under state or local law even though a substantial portion of
such distributions may be derived from interest on U.S.
32
<PAGE>
Government obligations, which, if realized directly, would be exempt from such
taxes. Shareholders are urged to consult their tax advisors as to the
consequences of these and other state and local tax rules affecting investment
in the Funds.
DIRECTORS AND OFFICERS
The directors and executive officers of the Company and their principal
occupations during the last five years are set forth below. The address of each,
unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Those directors who are "interested persons" of the Company (as defined in the
1940 Act) are indicated by an asterisk(*).
<TABLE>
<CAPTION>
Principal Occupations
During Past 5 Years
Position with and Current
Name Address and Age the Company Directorships
<S> <C> <C>
Edmund L. Benson, III, 58 Director Director, President and
Saunders & Benson, Inc. Treasurer, Saunders & Benson,
728 East Main Street Inc. (Insurance); Director, The
Suite 400 Capitol Mutual Funds; Director,
Richmond, VA 23219 Nations Fund, Inc.; Trustee,
Nations Fund Trust, Director,
Nations Fund Portfolios, Inc.
James Ermer, 53 Director Since October 1985, Senior Vice
CSX Corporation President- Finance, CSX
One James Center Corporation (transportation and
901 East Cary Street natural resources); Director, The
Richmond. VA 23219 Capital Mutual Funds; Director,
National Mine Service;
Director, Lawyers
Title Corporation; Director,
Nations Fund, Inc.;
Trustee, Nations Fund
Trust, Director,
Nations Fund
Portfolios, Inc.
William H. Grigg, 63 Director Since April 1994, Chairman and
Duke Power Co. Chief Executive Officer; November
422 South Church Street 1991 to April 1994, Vice
PB04G Chairman, Duke Power Co.; from
Charlotte, NC 28242-0001 April 1988 to November 1991,
Executive Vice
President-Customer
Group, Duke
Power Co.;
Director, The
Capital Mutual Funds;
Director, Hatteras
Income Securities, Inc.,
Nations Government
Income Term
Trust 2003, Inc., Nations
Government Income Term Trust
2004, Inc., Nations
Balanced Target Maturity
Fund, Inc.; Director,
33
<PAGE>
Nations Fund, Inc.; Trustee,
Nations Fund Trust, Director,
Nations Fund
Portfolios, Inc.
(investment companies)
Thomas F. Keller, 64 Director R.J. Reynolds Industries
Fuqua School of Business Professor of Business
Duke University Administration and Dean, Fuqua
Durham, NC 27706 School of Business, Duke
University; Director, LADD Furniture,
Inc.; Director, The Capitol Mutual Funds;
Director, Hatteras Income Securities, Inc.,
Nations Government Income Term Trust
2003, Inc., Nations Government Income Term
Trust 2004, Inc., Nations Balanced
Target Maturity Fund, Inc.
(investment companies); Director, Wendy's
International Mantor Growth Fund, and Cambridge
Trust; Director, Nations Fund,
Inc.; Trustee, Nations Fund Trust, Director,
Nations Fund Portfolios. Inc.
Carl E. Mundy, Jr., 60 Director Commandant, United States Marine
9308 Ludgate Drive Corps, from July 1991 to July
Alexandria, VA 23309 1995, Commanding General, Marine
Forces Atlantic,
from June 1990 to June 1991.
A. Max Walker*, 73 President, Director and Financial consultant; Director
6215 Riverwood Drive, N.W. Chairman of the Board and Chairman of the Board,
Atlanta, GA 30328 Hatteras Income Securities, Inc.,
Nations Government Income Term
Trust 2003, Inc., Nations
Government Income Term Trust
2004, Inc., Nations Balanced
Target Maturity Fund, Inc.
(investment companies); Formerly,
President, A. Max Walker, Inc.;
Director, The Capital Mutual
Funds; Director and Chairman of
the Board, Nations Fund, Inc.;
Trustee and Chairman of the
Board, Nations Fund Trust,
Director, Nations Fund
Portfolios, Inc.
Charles B. Walker, 57 Director Since 1989, Director, Executive
Ethyl Corporation Vice President, Chief Financial
P.O. Box 2189 Officer and Treasurer, Ethyl
330 South Fourth Street Corporation (chemicals, plastics,
Richmond, VA 23217 and aluminum manufacturing);
34
<PAGE>
since 1994, Vice Chairman, Ethyl
Corporation and Vice Chairman,
Chief Financial Officer and
Treasurer, Albemarle Corporation,
Director, Nations Fund, Inc.;
Trustee, Nations Fund Trust,
Director, Nations Fund
Portfolios, Inc.
Thomas S. Word, Jr.*, 57 Director Partner, McGuire Woods Battle &
McGuire, Woods, Battle & Boothe Boothe (law); Director, The
One James Center Capital Mutual Funds; Director,
Richmond, VA 23219 Vaughan Bassett Furniture
Company, Director VB Williams
Furniture Company, Inc.;
Director, Nations Fund, Inc.;
Trustee, Nations Fund Trust,
Director, Nations Fund
Portfolios, Inc.
Richard H. Blank, Jr., 39 Secretary Since 1994, Vice President of
Stephens Inc. Mutual Fund Services, Stephens
Inc. 1990 to 1994, Manager Mutual
Fund Services, Stephens Inc. 1983
to 1990, Associate in Corporate
Finance Department, Stephens Inc.
Michael W. Nolte, 34 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
Louise P. Newcomb, 43 Assistant Secretary Corporate Syndicate Associate,
Stephens Inc. Stephens Inc.
James E. Banks, 39 Assistant Secretary Since 1993, Attorney, Stephens
Stephens Inc. Inc.; Associate Corporate
Counsel, Federated Investors;
from 1991 to 1993, Staff
Attorney, Securities and Exchange
Commission from 1988 to 1991
Richard H. Rose, 40 Treasurer Since 1994, Vice President,
The Shareholder Services Group, Inc. Division Manager, The Shareholder
One Exchange Place Services Group; from 1988 to
Boston, MA 02109 1994, Senior Vice President, The
Boston Company Advisors, Inc.
Joseph C. Viselli, 31 Assistant Treasurer Director, The Shareholder Service
The Shareholder Services Group, Inc. Group, Inc. Since 1995 and
One Exchange Place Assistant Vice President, The
Boston, MA 02109 Boston
</TABLE>
35
<PAGE>
Remuneration of Directors
<TABLE>
<CAPTION>
Total Compensation from Nations Fund
Aggregate Registrant and Fund Nations Fund Deferred
Name of Person Compensation Complex Paid Retirement Compensation
Position (1) from Registrant to Directors (3) Plan Plan
- ----------------- --------------- ---------------------- -------------- --------------
<S> <C> <C> <C> <C>
Edmund L. Benson, III $7,000 $36,500 N/A $4,606.14
Director
James Ermer $7,000 $36,500 N/A N/A
Director
William H. Grigg $7,000 $36,500 N/A $9,212.28
Director
Thomas F. Keller $7,000 $36,500 N/A $9,212.28
Director
A. Max Walker $9,000 $42,500 N/A N/A
Chairman of the Board
Charles B. Walker $7,000 $36,500 N/A N/A
Director
Thomas S. Word $7,000 $36,500 N/A $9,212.28
Director
Carl E. Mundy, Jr.,
Trustee $7,000 N/A N/A N/A
</TABLE>
(1) All directors receive reimbursements for expenses related to their
attendance at meetings of the Board of Directors. Officers of the Company
receive no direct remuneration in such capacity from the Company.
(2) For current fiscal year and includes estimated future payments. Each
Director receives (i) an annual retainer of $1,000 ($3,000 for the Chairman
of the Board) plus $500 for each Fund of the Company, plus (ii) a fee of
$1,000 for attendance at each "in-person" meeting of the Board of Directors
(or committee thereof) and $500 for attendance at each other meeting of the
Board of Directors (or Committee thereof).
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from eight
investment companies, including the Company, that are deemed to be part of
the Nations Fund "fund complex," as that term is defined under Rule 14a-101
of the Securities Exchange Act of 1934, as amended. Messrs. Benson, Ermer,
C. Walker, Mundy and Word receive compensation from four investment
companies, including the Company, deemed to be part of the Nations Fund
complex.
36
<PAGE>
Mr. Rose serves as Treasurer to certain other investment companies for
which The Shareholder Services Group, Inc. (the "Co-Administrator") or its
affiliates serve as sponsor, distributor, administrator and/or investment
adviser.
Each Director of the Company is also a Trustee of Nations Fund Trust and
Nations Institutional Reserves and a Director of Nations Fund Portfolios, Inc.,
each a registered investment company that is part of the Nations Fund Family.
Richard H. Blank, Jr., Richard H. Rose, Joseph C. Viselli, Michael W. Nolte,
Louise P. Newcomb and James E. Banks. Jr. also are officers of Nations Fund
Trust, Nations Institutional Reserves and Nations Fund, Portfolios, Inc.
Each Director receives (i) an annual retainer of $1,000 ($3,000 for the
Chairman of the Board) plus $500 for each Fund of the Company, plus (ii) a fee
of $1,000 for attendance at each "in-person" meeting of the Board of Directors
(or committee thereof). All Directors receive reimbursements for expenses
related to their attendance at meetings of the Board of Directors. During the
fiscal year ended May 31, 1995 the Company paid a total of $51,000 in directors'
fees and expenses. Mr. Mundy was not a Director of the Company during the fiscal
year ended May 31, 1995 and therefore received no compensation. Officers receive
no direct remuneration in such capacity from the Company.
As of the date of this SAI, the directors and officers of the Company as a
group owned less than 1% of the outstanding shares of each of the Funds.
The Company has adopted a Code of Ethics which, among other things,
prohibits each access person of the Company from purchasing or selling
securities when such person knows or should have known that, at the time of the
transaction, the security (i) was being considered for purchase or sale by a
Fund, or (ii) was being purchased or sold by a Fund. For purposes of the Code of
Ethics, an access person means (i) a director or officer of the Company, (ii)
any employee of the Company (or any company in a control relationship with the
Company) who, in the course of his/her regular duties, obtains information
about, or makes recommendations with respect to, the purchase or sale of
securities by the Company, and (iii) any natural person in a control
relationship with the Company who obtains information concerning recommendations
made to the Company regarding the purchase or sale of securities. Portfolio
managers and other persons who assist in the investment process are subject to
additional restrictions, including a requirement that they disgorge to the
Company any profits realized on short-term trading (i.e., the purchase/sale or
sale/purchase of securities within any 60-day period). The above restrictions do
not apply to purchases or sales of certain types of securities, including money
market instruments and certain U.S. Government securities. To facilitate
enforcement, the Code of Ethics generally requires that the Company's access
persons, other than its "disinterested" directors, submit reports to the
Company's designated compliance person regarding transactions involving
securities which are eligible for purchase by a Fund.
Nations Funds Retirement Plan
Under the terms of the Nations Funds Retirement Plan for Eligible
Directors (the "Retirement Plan"), each director may be entitled to certain
benefits upon retirement from the Board of Directors. Pursuant to the Retirement
Plan, the normal retirement date is the date on which the eligible director has
attained age 65 and has completed at least five years of continuous service with
one or more of the open-end investment companies ("Funds") advised by the
Adviser. If a director retires before reaching age 65, no benefits are payable.
Each eligible director is entitled to receive an annual benefit from the Funds
commencing on the first day of the calendar quarter coincident with or next
following his date of retirement equal to 5% of the aggregate director's fees
payable by the Funds during the calendar year in which the director's retirement
occurs multiplied by the number of years of service (not in excess of ten years
of service) completed with respect to any of the Funds. Such benefit is payable
to each eligible director in quarterly installments for a period of no more than
five years. If an eligible director dies after attaining age 65, the director's
surviving spouse (if any) will be entitled to receive 50% of the benefits that
would have been paid (or would have continued to have been paid) to the director
if he had not died. The Retirement Plan is unfunded. The benefits owed to each
director are unsecured and subject to the general creditors of the Funds. At
present the Plan is not in effect and therefore there are no fees to disclose.
37
<PAGE>
Nations Funds Deferred Compensation Plan
Under the terms of the Nations Funds Deferred Compensation Plan for
Eligible Directors (the "Deferred Compensation Plan"), each director may elect,
on an annual basis, to defer all or any portion of the annual board fees
(including the annual retainer and all attendance fees) payable to the director
for that calendar year. An application will be submitted to the SEC to permit
deferring directors to elect to tie the rate of return on fees deferred pursuant
to the Deferred Compensation Plan to one or more of certain investment
portfolios of certain Funds. Until approval is received from the SEC, the rate
of return on any fees deferred by a director will be tied to the yield on 90-day
U.S. Treasury Bills. Distributions from the deferring directors' deferral
accounts will be paid in cash, in generally equal quarterly installments over a
period of five years beginning on the date the deferring director's retirement
benefits commence under the Retirement Plan. The Board of Directors, in its sole
discretion, may accelerate or extend such payments after a director's
termination of service. If a deferring director dies prior to the commencement
of the distribution of amounts in his deferral account, the balance of the
deferral account will be distributed to his designated beneficiary in a lump sum
as soon as practicable after the director's death. If a deferring director dies
after the commencement of such distribution, but prior to the complete
distribution of his deferral account, the balance of the amounts credited to his
deferral account will be distributed to his designated beneficiary over the
remaining period during which such amounts were distributable to the director.
Amounts payable under the Deferred Compensation Plan are not funded or secured
in any way and deferring directors have the status of unsecured creditors of the
Funds from which they are deferring compensation.
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING AND DISTRIBUTION AGREEMENTS
The Company and Its Common Stock
The Company is an open-end diversified management investment company
organized as a corporation under the laws of the State of Maryland on December
13, 1983. The Company had no operations prior to December 15, 1986. Effective
October 2, 1989, the Company changed its name from Silver Star Fund, Inc. to
Hatteras Funds, Inc., effective May 1, 1992 the Company began doing business
under the name Nations Fund Portfolios and effective September 24, 1992 the
Company changed its name to Nations Fund, Inc. The Company offers shares of
common stock which represent interests in one of five separate Funds. This SAI
relates to the following Funds of the Company: the Nations Prime Fund, the
Nations Treasury Fund, the Nations Equity Income Fund, the Nations Government
Securities Fund and the Nations International Equity Fund (collectively, the
"Funds"). Each Fund offers the following separate classes of shares (Trust A
Shares, Trust B Shares, Investor A Shares, Investor B, Investor C and Investor D
Shares) of the Money Market Funds and (Trust A Shares, Trust B Shares, Investor
A Shares, Investor C Shares and Investor N Shares) of the Non-Money Market
Funds. Certain classes of the Company are offered on a no load basis, and others
are offered at the public offering price plus a sales charge. shares of each
Fund of the Company are redeemable at the net asset value (less any applicable
contingent deferred sales charge ("CDSC") thereof at the option of the holders
thereof or in certain circumstances at the option of the Company. For
information concerning the methods of redemption and the rights of share
ownership, consult the Prospectuses under the captions "How to Buy Shares," "How
to Redeem Shares" and "Organization and History."
Trust Shares are sold exclusively through banks and certain other
financial institutions primarily to their fiduciary clients and similar
customers. Investor Shares are available to non-fiduciary customers of certain
broker/dealers and other financial institutions. Certain charges that apply to
one class of shares of a Fund may not be charged to the other class of shares of
the same Fund. Consequently, the yield earned on one class of shares of a Fund
may be different from that of the other class of shares of the same Fund, and
the net asset value per share of the classes of shares of each of the Equity
Income Fund, the Government Securities Fund and the International Equity Fund
will differ.
As used in this SAI and in the Prospectuses, the term "majority of the
outstanding shares" of the Company, a particular Fund or a particular class of
shares of a Fund means, respectively, the vote of the lesser of (i) 67% or more
of the shares of the Company, Fund or class (as appropriate) present at a
meeting of shareholders, if the
38
<PAGE>
holders of more than 50% of the outstanding shares entitled to vote, are present
or represented by proxy, or (ii) more than 50% of the outstanding shares of the
Company, Fund or class.
The Board of Directors may classify or reclassify any unissued shares of
the Company into shares of any class, classes or Fund in addition to those
already authorized by setting or changing in any one or more respects, from time
to time, prior to the issuance of such shares, the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption, of such shares and,
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of any Fund or class. Any such classification or
reclassification will comply with the provisions of the 1940 Act. Fractional
shares shall have the same rights as full shares to the extent of their
proportionate interest.
Because certain of the Prospectuses combine disclosure on two separate
open-end management investment companies, there is a possibility that one
investment company might become liable for a misstatement, inaccuracy or
incomplete disclosure in such Prospectuses concerning the other investment
company. Nations Fund Trust and Nations Fund, Inc. have entered into an
indemnification agreement that creates a right of indemnification from the
investment company responsible for any such misstatement, inaccuracy or
incomplete disclosure that may appear in such Prospectuses.
Investment Adviser
Effective January 1, 1996, NBAI began serving as investment adviser to the
Funds, pursuant to an Investment Advisory Agreement dated January 1, 1996.
Effective January 1, 1996, TradeStreet began serving as sub-investment adviser
to the Prime Fund, the Treasury Fund, the Equity Income Fund and the Government
Securities Fund pursuant to a Sub-Advisory Agreement dated January 1, 1996.
Nations Gartmore serves as sub-investment adviser to the International Equity
Fund pursuant to a Sub-Advisory Agreement dated January 1, 1996.
NBAI also serves as the investment adviser to Nations Fund Trust, Nations
Institutional Reserves and Nations Fund Portfolios, Inc., each a registered
investment company that is part of the Nations Fund Family. In addition, NBAI
serves as the investment advisor to Hatteras Income Securities, Inc., Nations
Government Income Term Trust 2003, Inc., Nations Government Income Term Trust
2004, Inc. and Managed Balanced Target Maturity Fund, Inc., each a closed-end
diversified management investment company traded on the New York Stock Exchange.
TradeStreet also serves as the sub-investment adviser to Nations Fund Trust,
Nations Institutional Reserves, Hatteras Income Securities, Inc., Nations
Government Income Term Trust 2003, Inc., Nations Government Income Term Trust
2004, Inc. and Managed Balanced Target Maturity Fund, Inc. Nations Gartmore also
serves as sub-investment adviser to Nations Fund Portfolios, Inc.
NBAI and TradeStreet are each wholly owned banking subsidiaries of Nations
Bank, N.A. ("NationsBank"), which in turn is a wholly owned banking subsidiary
of NationsBank Corporation, a bank holding company organized as a North Carolina
corporation. Nations Gartmore is a joint venture structured as a Delaware
general partnership between NB Partner Corp., a wholly owned subsidiary of
NationsBank and Gartmore U.S. Limited, an indirect wholly owned subsidiary of
Gartmore plc, a publicly listed U.K. company. Banque Indosuez, S.A., a French
bank, indirectly owns 75% of Gartmore plc's outstanding voting shares, and the
remaining 25% are owned by the public and by Gartmore plc's employees. Banque
Indosuez, a wholly owned subsidiary of Companie de Suez, S.A., acquired Gartmore
plc in 1990. Nations Gartmore is a registered investment adviser in the United
States and a member of the Investment Management Regulatory Organization
Limited, a U.K. regulatory authority. The respective principal offices of NBAI,
TradeStreet and Nations Gartmore are located at One NationsBank Plaza,
Charlotte, N.C. 28255.
Prior to January 1, 1996, NationsBank served as investment adviser to the
Funds. Since 1874, NationsBank and its predecessors have been managing money for
foundations, universities, corporations, institutions and individuals. It is a
company dedicated to a goal of providing responsible investment management and
superior service. NationsBank is recognized for its sound investment approaches,
which place it among the nation's foremost financial institutions. NationsBank
and its affiliated organizations make available a wide range of
39
<PAGE>
financial services to its over 6 million customers through over 1700 banking and
investment centers. Approximately 12 of NationsBank personnel are involved in
stock and bond research.
NationsBank restructured its investment management division as of January
1, 1996 by reorganizing the division into two separate, wholly owned advisory
subsidiaries, NBAI and TradeStreet. The restructuring resulted in the transfer
of the division's investment management and advisory functions to NBAI, and the
its day to day investment company portfolio management functions to TradeStreet.
The investment professionals who performed investment company management
functions and who managed the companies portfolios as employees of NationsBank
continue to perform such services as employees of NBAI and TradeStreet,
respectively. The restructuring did not change the scope and nature of
investment advisory services provided to the relevant Funds. The restructuring,
and related Investment Advisory Agreements and Sub-Advisory Agreements, were
approved by the Board of Directors of the Company at the October 12-13, 1995
Board Meeting.
Pursuant to the terms of the Investment Advisory Agreement and
Sub-Advisory Agreements (at times, the "Advisory Agreements") with NBAI,
TradeStreet and Nations Gartmore, respectively, subject at all times to the
control of the Company's Board of Directors and in conformance with the stated
policies of the Company, NBAI, TradeStreet and Nations Gartmore each selects and
manages the investments of the Funds. Each such advisory entity obtains and
evaluates economic, statistical and financial information to formulate and
implement investment policies for the Funds.
The Advisory Agreements for NBAI and TradeStreet each provides that in the
absence of willful misfeasance, bad faith, negligence or reckless disregard of
obligations or duties thereunder on the part of NBAI or Trade Street,
respectively, or any of their respective officers, directors, employees or
agents, NBAI or TradeStreet shall not be subject to liability to the Company or
to any shareholder of the Company for any act or omission in the course of, or
connected with, rendering services under thereunder or for any losses that may
be sustained in the purchase, holding or sale of any security.
The Investment Advisory Agreement with NBAI shall become effective with
respect to a Fund if and when approved by the Directors of the Company, and if
so approved, shall thereafter continue from year to year, provided that such
continuation of the Agreement is specifically approved at least annually by (a)
(i) the Company's Board of Directors or (ii) the vote of "a majority of the
outstanding voting securities" of a Fund (as defined in Section 2(a)(42) of the
1940 Act), and (b) the affirmative vote of a majority of the Company's Directors
who are not parties to such Agreement or "interested persons" (as defined in the
1940 Act) of a party to such Agreement (other than as Directors of the Company),
by votes cast in person at a meeting specifically called for such purpose. The
Investment Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable with respect to a Fund at any time without penalty
by the Company (by vote of the Board of Directors or by vote of a majority of
the outstanding voting securities of the Fund) or by NBAI on 60 days' written
notice.
The Sub-Advisory Agreement with TradeStreet shall become effective with
respect to each Fund as of its execution date and, unless sooner terminated,
shall continue in full force and effect for one year, and may be continued with
respect to each Fund thereafter, provided that the continuation of the Agreement
is specifically approved at least annually by (a) (i) the Company's Board of
Directors (ii) the vote of "a majority of the outstanding voting securities" of
a Fund (as defined in Section 2(a)(42) of the 1940 Act), and (b) the affirmative
vote of a majority of the Company's Directors who are not parties to such
Agreement or "interested persons" (as defined in the 1940 Act) of a party to
such Agreement (other than as Directors of the Company), by votes cast in person
at a meeting specifically called for such purpose. The Sub-Advisory Agreement
will terminate automatically in the event of its assignment, and is terminable
with respect to a Fund at any time without penalty by the Company (by vote of
the Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund), or by NBAI, or by TradeStreet on 60 days' written
notice.
The Sub-Advisory Agreement with Nations Gartmore provides that Nations
Gartmore shall not be liable to the Company or to its shareholders for any act
or omission by Nations Gartmore or for any loss sustained by the Company or by
its shareholders except in the case of Nations Gartmore's willful misfeasance,
bad faith, gross negligence or reckless disregard of duty on the part of Nations
Gartmore, as the case may be.
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NBAI, TradeStreet and Nations Gartmore may waive a portion of their fees;
however, any such waiver may be discontinued at any time. As discussed under the
caption "Expenses," NBAI, TradeStreet and Nations Gartmore will be required to
reduce their fees from the Funds, in direct proportion to the fees payable by
the Funds to NBAI, TradeStreet, Nations Gartmore and the Administrator, if the
expenses of the Funds exceed the applicable expense limitation of any state in
which the Funds' shares are registered or qualified for sale.
Prior to January 1, 1996, NationsBank served as investment adviser to the
Funds pursuant to Investment Advisory Agreements approved by the Company's Board
of Directors on August 3, 1988 with respect to the Prime and Treasury Funds and
by the shareholders on September 30, 1988 with respect to the Prime and Treasury
Funds. The Advisory Agreements with respect to the Equity Income Fund and the
Government Securities Fund were approved by the Company's Board of Directors on
March 22, 1991, and by the shareholders of those Funds on September 6, 1991. The
Advisory and Sub-Advisory Agreements with respect to the International Equity
Fund were approved by the Company's Board of Directors on January 26, 1995 and
by the public shareholders of the International Equity Fund on March 31, 1995.
Subject to reduction in accordance with the expense limitation provisions
which may be imposed by states in which the Funds' shares are qualified for
sale, NationsBank received fees from the Funds for its services as outlined in
the following chart:
ADVISORY FEES
<TABLE>
<CAPTION>
FY 1995 FY 1994 FY 1993
Net Amt. Amount Remind Net Amt. Amount Reimbsd. Net Amt. Amount Reimbsd
Paid Waived by Advsr. Paid Waived by Advsr. Paid Waived by Advr.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nations Prime Fund .. $4,608,731 $2,649,510 $191,636 $3,986,063 $1,836,579 $120,041 $2,352,512 $588,823 $0
Nations Treasury Fund 4,709,550 1,285,177 0 4,161,589 1,354,486 N/A 4,252,606 1,087,695 0
Nations Equity Income
Fund ............. 2,482,606 0 0 1,882,223 26,454 N/A 1,001,388 151,189 0
Nations International
Equity Fund ...... 2,158,263 0 0 1,034,049 6,809 N/A 759,553 0 0
Nations Government
Securities Fund .. 519,421 196,944 0 453,581 167,200 36,928 360,657 79,866 0
</TABLE>
Investment Styles
The Adviser uses various investment strategies during the process of
constructing and managing the Company's portfolios. These strategies have been
categorized into investment styles which consist of (i) the Nations Equity
Income Style, and (ii) the Nations International Equity Style. The Investment
Styles described below relate to the Equity Income Fund and International Equity
Fund.
Nations Equity Income Style. The Equity Income Fund is managed by the
Adviser using the Nations Equity Income Style. The Nations Equity Income Style
investment philosophy is premised on the belief that a diversified portfolio of
stocks with an above average yield can provide long-term returns, higher than
that of the S&P 500 Index (the "S&P 500") and with less volatility.
This style utilizes a "low volatility" approach to stock selection,
focusing on tested factors of fundamental stock valuation. Volatility is reduced
through selecting stocks with Beta Coefficient ("Beta") of less than 1.0 (Beta
is a measurement of volatility relative to the stock market as a whole, which
has a Beta of 1.0). The Equity Income Style seeks to maintain a yield on the
portfolio of at least 50% higher than the dividend yield for the S&P 500. The
Adviser reduces risk by investing in both common stocks and convertible
securities.
The Equity Income Style stock selection process begins with a team of
in-house research specialists aided by a computerized screening process.
Starting with a 2000 company universe, stocks must first pass a rigorous
screening process that selects companies with a yield only one-third less than
the S&P 500 and market
41
<PAGE>
capitalization greater than $500 million. Often stocks with below average yields
grow faster than those with average yields. Therefore, over time, a portfolio
may earn more income by purchasing stocks with below average yields. Stocks are
then ranked relative to other stocks within their industry.
A more sophisticated screening process is then applied to the universe.
Each company is ranked based on the following factor weightings: (i) market
style analyzes correlations between crucial stock characteristics (price/book
ratios, dividends yields, and return on assets) and price performance; (ii)
Insider Trading looks at filings with the SEC and evaluates them by title, date,
transaction size and historical performance; (iii) Earnings Expectations
evaluates changes in annual earnings estimates and quarterly earnings surprises,
and (iv) Price Momentum monitors relative price strength with short term under
performance. The final portfolio of approximately 70 issues is constructed by
the Equity Income Style Group senior portfolio managers working closely with
in-house industry specialists, as well as expert Wall Street sources.
Nations International Equity Income Style. The International Equity Fund
is managed by the Adviser using the International Equity Style. The Nations
International Equity Income Style investment philosophy is premised on the
belief that a diversified portfolio of equity securities of established,
non-United States issuers can provide long-term growth of capital and income.
This style focuses on the country selection process by utilizing
macroeconomic forecasts to identify areas of the world which will exhibit
relatively strong growth within the context of a modest inflation and low
interest rate environment. The political factors and market liquidity
constraints which can affect stock market valuations are also taken into
consideration by the Adviser prior to making stock selections.
The stock selection process begins with the elimination of equity
securities with a market capitalization of less than $250 million. The next step
in the process is the ranking of each country and industry sector by relative
price/earnings ratio using an historical range of not less than ten years from
an universe of approximately 1000 stocks. In addition to the relative historical
price/earnings ratio the portfolio managers also employ a fundamental analysis
of growth opportunities, management and future direction of these stocks.
The International Equity Fund is a dollar-denominated mutual fund and
therefore, consideration is given to hedging part or all of the portfolio back
to U.S. dollars from international currencies. All decisions to hedge are based
upon an analysis of the relative value of the U.S. dollar on an international
purchasing power parity basis (purchasing power parity is a method for
determining the relative purchasing power of different currencies by comparing
the amount of each currency required to purchase a typical bundle of goods and
services to domestic markets) and an estimation of short-term interest rate
differentials (which affect both the direction of currency movements and also
the cost of hedging).
Administrator and Co-Administrator
Effective September 1, 1993 (the "Transition Date"), Stephens Inc. (the
"Administrator") began serving as administrator of the Company and The
Shareholder Services Group, Inc. (the "Co-Administrator") (formerly The Boston
Company Advisors, Inc.) began serving as the co-administrator of the Company.
From February 19, 1992 to the Transition Date, the Co-Administrator served as
the administrator of the Company.
The Administrator and Co-Administrator serve under an administration
agreement ("Administration Agreement") and co-administration agreement
("Co-Administration Agreement"), respectively, each of which was approved by the
Board of Directors on August 4, 1993. The Administrator receives, as
compensation for its services rendered under the Administration Agreement and as
agent for the Co-Administrator for the services it provides under the
Co-Administration Agreement, an administrative fee, computed daily and paid
monthly, at the annual rate of 0.10% of the average daily net assets of each
Fund.
Pursuant to the Administration Agreement, the Administrator has agreed to,
among other things, (i) maintain office facilities for the Funds, (ii) furnish
statistical and research data, data processing, clerical, and internal executive
and administrative services to the Company, (iii) furnish corporate secretarial
services to the Company,
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including coordinating the preparation and distribution of materials for Board
of Directors meetings, (iv) coordinate the provision of legal advice to the
Company with respect to regulatory matters, (v) coordinate the preparation of
reports to the Company's shareholders and the SEC, including annual and
semi-annual reports, (vi) coordinating the provision of services to the Company
by the Co-Administrator, the Transfer Agents and the Custodians, and (vii)
generally assist in all aspects of the Company's operations. Additionally, the
Administrator is authorized to receive, as agent for the Co-Administrator, the
fees payable to the Co-Administrator by the Company for its services rendered
under the Co-Administration Agreement. The Administrator bears all expenses
incurred in connection with the performance of its services.
Pursuant to the Co-Administration Agreement, the Co-Administrator has
agreed to, among other things, (i) provide accounting and bookkeeping services
for the Funds, (ii) compute each Fund's net asset value and net income, (iii)
accumulate information required for the Company's reports to shareholders and
the SEC, (iv) prepare and file the Company's federal and state tax returns, (v)
perform monthly compliance testing for the Company, and (vi) prepare and furnish
the Company monthly broker security transaction summaries and transaction
listings and performance information. The Co-Administrator bears all expenses
incurred in connection with the performance of its services.
The Administration Agreement and the Co-Administration Agreement may be
terminated by a vote of a majority of the Board of Directors, or by the
Administrator or Co-Administrator, respectively, on 60 days' written notice
without penalty. The Administration Agreement and Co-Administration Agreement
are not assignable without the written consent of the other party. Furthermore,
the Administration Agreement and the Co-Administration Agreement provide that
the Administrator and Co-Administrator, respectively, shall not be liable to the
Funds or to their shareholders except in the case of the Administrator's or
Co-Administrator's, respectively, willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
The table set forth below states the net Administration fees paid and
waived for the fiscal years ending May 31, 1995, 1994 and 1993.
ADMINISTRATION FEES
<TABLE>
<CAPTION>
FY 1995 FY 1994 FY 1993
Net Administration Net Administration Net Administration
Admin. Fees Admin. Fees Admin. Fees
Fees Waived Fees Waived Fees Waived
<S> <C> <C> <C> <C> <C> <C>
Nations Prime Fund $3,510,935 $190,996 $2,745,870 $225,471 $1,057,382 $ 77,941
Nations Treasury Fund 2,670,833 307,92 2,533,388 224,650 1,902,420 137,388
Nations Equity Income
Fund 344,917 18,677 247,799 21,548 129,222 10,910
Nations International
Equity Fund 511,883 27,683 240,675 19,540 81,777 17,875
Nations Government
Securities Fund 106,071 6,098 94,826 8,540 49,970 3,092
</TABLE>
As discussed under the caption "Expenses," the Administrator and
Co-Administrator will be required to reduce their fee from the Company, in
direct proportion to the fees payable to the Administrator and Co-Administrator
by the Company, if the expenses of the Company exceed the applicable expense
limitation of any state in which the Funds' shares are registered or qualified
for sale.
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<PAGE>
Distribution Plans and Shareholder Servicing Arrangements for Investor Shares
Investor A Shares. The Company has adopted an Amended and Restated
Shareholder Servicing and Distribution Plan (the "Investor A Plan") pursuant to
Rule 12b-1 under the 1940 Act with respect to each Fund's Investor A Shares. The
Investor A Plan provides that each Fund may pay the Distributor or banks,
broker/dealers or other financial institutions that offer shares of the Fund and
that have entered into a Sales Support Agreement with the Distributor ("Selling
Agents") or a Shareholder Servicing Agreement with the Company, ("Servicing
Agents"), up to 0.10% (on an annualized basis) of the average daily net asset
value of Investor A Shares of the Money Market Funds and up to 0.25% (on an
annualized basis) of the average daily net asset value of the Non-Money Market
Funds.
With respect to the Money Market Funds, such payments may be made to (i)
the Distributor for reimbursements of distribution-related expenses actually
incurred by the Distributor, including, but not limited to, expenses of
organizing and conducting sales seminars, printing of prospectuses and
statements of additional information (and supplements thereto) and reports for
other than existing shareholders, preparation and distribution of advertising
material and sales literature and costs of administering the Investor A Plan, or
(ii) Selling Agents that have entered into a Sales Support Agreement with the
Distributor for providing sales support assistance in connection with the sale
of Investor A Shares of the Money Market Funds. The sales support assistance
provided by a Selling Agent under a Sales Support Agreement may include
forwarding sales literature and advertising provided by Nations Fund Trust or
the Distributor to their customers and providing such other sales support
assistance as may be requested by the Distributor from time to time. Currently,
substantially all fees paid by the Money Market Funds pursuant to the Investor A
Plan are paid to compensate Selling Agents for providing sales support services,
with any remaining amounts being used by the Distributor to partially defray
other expenses incurred by the Distributor in distributing Investor A Shares.
Fees received by the Distributor pursuant to the Investor A Plan will not be
used to pay any interest expenses, carrying charges or other financing costs
(except to the extent permitted by the SEC) and will not be used to pay any
general and administrative expenses of the Distributor.
With respect to the Non-Money Market Funds, payments under the Investor A
Plan may be made to the Distributor for providing the distribution-related
services described in (i) above or to Servicing Agents that have entered into a
Shareholder Servicing Agreement with the Company for providing shareholder
support services to their Customers which hold of record or beneficially
Investor A Shares of a Non-Money Market Fund. Such shareholder support services
provided by Servicing Agents to holders of Investor A Shares of the Non-Money
Market Funds may include (i) aggregating and processing purchase and redemption
requests for Investor A Shares from their Customers and transmitting promptly
net purchase and redemption orders to our distributor or transfer agent; (ii)
providing their Customers with a service that invests the assets of their
accounts in Investor A Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from the
Company on behalf of their Customers; (iv) providing information periodically to
their Customers showing their positions in Investor A Shares; (v) arranging for
bank wires; (vi) responding to their Customers' inquiries concerning their
investment in Investor A Shares; (vii) providing sub-accounting with respect to
Investor A Shares beneficially owned by their Customers or the information
necessary to us for sub-accounting; (viii) if required by law, forwarding
shareholder communications from the Company (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to their Customers (ix) forwarding to their Customers proxy
statements and proxies containing any proposals regarding the Shareholder
Servicing Agreement; (x) providing general shareholder liaison services; and
(xi) providing such other similar services as the Company may reasonably request
to the extent the Selling Agent is permitted to do so under applicable statutes,
rules or regulations.
Expenses incurred by the Distributor pursuant to the Investor A Plan in
any given year may exceed the sum of the fees received under the Investor A
Plan. Any such excess may be recovered by the Distributor in future years so
long as the Investor A Plan is in effect. If the Investor A Plan were terminated
or not continued, a Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund.
44
<PAGE>
In addition, the Company has adopted an Amended and Restated Shareholder
Servicing Plan for the Investor A Shares of the Money Market Funds (the "Money
Market Investor A Servicing Plan"). Pursuant to the Money Market Investor A
Servicing Plan, which became effective on March 28, 1993, each Money Market Fund
may pay banks, broker/dealers or other financial institutions that have entered
into a Shareholder Servicing Agreement with the Company ("Servicing Agents") up
to 0.25% (on an annualized basis) of the average daily net asset value of the
Investor A Shares of each Money Market Fund for providing shareholder support
services. Such shareholder support services provided by Servicing Agents may
include those shareholder support services discussed above with respect to the
Investor A Shares of the Non-Money Market Funds. Fees paid pursuant to the Money
Market Investor A Servicing Plan are calculated daily and paid monthly.
For the fiscal year ending May 31, 1993, the following Funds paid the
indicated fees pursuant to the Investor A Plan: Prime Fund -- $925,943; Treasury
Fund $328,737; Equity Income Fund -- $42,188; International Equity Fund -- $605;
and Government Securities Fund -- $10,180, after taking into effect waivers of
$6,973.
For the fiscal year ending May 31, 1993, the Prime Fund and the Treasury
Fund paid $130,357 and $45,212, respectively, in shareholder servicing fees
pursuant to the Investor A Plan.
For the fiscal year ended May 31, 1993, in connection with the sale of
Investor A Shares, the prior distributor received $757,418 in front end sales
charges; the Prior distributor retained $94,181 of this amount and paid the
balance to selling dealers. During the same period, the prior distributor
received $1,307,653 in Rule 12b-1 fees with respect to Investor A Shares; the
prior distributor retained $0 of this amount.
For the fiscal year ended May 31, 1994 the following funds paid the
indicated fees pursuant to the Investor A Plan: Prime Fund -- $1,728,199;
Treasury Fund -- $291,291; Equity Income Fund -- $86,960; International Equity
Fund - $4,309; and Government Securities Fund -- $25,830.
For the fiscal year ended May 31, 1995 the following Funds paid the
indicated fees pursuant to the Investor A Plan: Prime Fund -- $616,364; Treasury
Fund -- $96,210; Equity Income Fund--S83,892; International Equity Fund --
$10,492 and Government Securities Fund -- $28,881.
For the fiscal year ended May 31, 1995 the Funds paid $57,270 in front end
sales loads and $835,839 in 12b-1 fees, of which $0 was retained by the
distributor.
Investor B Shares of the Money Market Funds and Investor C Shares of the
Non-Money Market Funds. The Directors of the Company have approved an Amended
and Restated Distribution Plan in accordance with Rule 12b-1 under the 1940 Act
for the Investor B Shares of Money Market Funds and Investor C Shares of the
Non-Money Market Funds (the "Investor B/C Plan"). Pursuant to the Investor B/C
Plan, each Fund may pay the Distributor for certain expenses that are incurred
in connection with the distribution of shares. Payments under the Investor B/C
Plan will be calculated daily and paid monthly at a rate set from time to time
by the Board of Directors provided that the annual rate may not exceed 0.75% of
the average daily net asset value of Investor C Shares of a Non-Money Market
Fund and 0.10% of the average daily net asset value of Investor B Shares of a
Money Market Fund. Payments to the Distributor pursuant to the Investor B/C Plan
will be used (i) to compensate banks, other financial institutions or a
securities broker/dealer that have entered into a Sales Support Agreement with
the Distributor ("Selling Agents") for providing sales support assistance
relating to Investor B or Investor C Shares, ( for promotional activities
intended to result in the sale of Investor B or Investor C Shares such as to pay
for the preparation, printing and distribution of prospectuses to other than
current shareholders, and (iii) to compensate Selling Agents for providing sales
support services with respect to their Customers who are, from time to time,
beneficial and record holders of Investor B or Investor C Shares. Currently,
substantially all fees paid pursuant to the Investor B/C Plan are paid to
compensate Selling Agents for providing the services described in (i) and (iii)
above, with any remaining amounts being used by the Distributor to partially
defray other expenses incurred by the Distributor in distributing Investor B or
Investor C Shares. Fees received by the Distributor pursuant to the Investor B/C
Plan will not be used to pay any interest expenses, carrying charges or other
financing costs (except to the extent permitted by the SEC) and will not be used
to pay any general and administrative expenses of the Distributor.
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<PAGE>
Pursuant to the Investor B/C Plan, the Distributor may enter into Sales
Support Agreements with Selling Agents for providing sales support services to
their Customers who are the record or beneficial owners of Investor B Shares of
the Money Market Funds and Investor C Shares of the non-Money Market Funds. Such
Selling Agents will be compensated at the annual rate of up to 0.75% of the
average daily net asset value of the Investor C Shares of the Non-Money Market
Funds, and up to 0.10% of the average daily net asset value of the Investor B
Shares of the Money Market Funds held of record or beneficially by such
Customers. The sales support services provided by Setting Agents may include
providing distribution assistance and promotional activities intended to result
in the sales of shares such as paying for the preparation, printing and
distribution of prospectuses to other than current shareholders.
Fees paid pursuant to the Investor B/C Plan are accrued daily and paid
monthly, and are charged as expenses of the relevant shares of a Fund as
accrued. Expenses incurred by the Distributor pursuant to the Investor B/C Plan
in any given year may exceed the sum of the fees received under the Investor B/C
Plan and payments received pursuant to contingent deferred sales charges. Any
such excess may be recovered by the Distributor in future years so long as the
Investor B/C Plan is in effect. If the Investor B/C Plan were terminated or not
continued, a Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.
In addition, the Directors have approved an Amended and Restated
Shareholder Servicing Plan ("Servicing Plan") with respect to the Investor B
Shares of the Money Market Funds and Investor C Shares of the Non-Money Market
Funds (the "Investor B/C Servicing Plan"). Pursuant to the Investor B/C
Servicing Plan, each Fund may pay banks, broker/dealers or other financial
institutions that have entered into a Shareholder Servicing Agreement with
Nations Fund ("Servicing Agents") for certain expenses that are incurred by the
Servicing Agents in connection with shareholder support services that are
provided by the Servicing Agents. Payments under the Investor B/C Servicing Plan
will be calculated daily and paid monthly at a rate set from time to time by the
Board of Directors, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Money Market Funds' Investor B Shares and
the Non-Money Market Funds' Investor C Shares. The shareholder services provided
by the Servicing Agents may include (i) aggregating and processing purchase and
redemption requests for such Investor B or Investor C Shares from Customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Investor B or Investor C Shares pursuant to specific
or pre-authorized instructions; (iii) dividend and distribution payments from
the Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in such Investor B or Investor C Shares; (v)
arranging for bank wires; (vi) responding to Customers' inquiries concerning
their investment in such Investor B or Investor C Shares; (vii) providing
sub-accounting with respect to such Investor B or Investor C Shares beneficially
owned by Customers or providing the information to us necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
from the Company (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Customers;
(ix) forwarding to Customers proxy statements and proxies containing any
proposals regarding the Shareholder Servicing Agreement; (x) providing general
shareholder liaison services; and (xi) providing such other similar services as
the Company may reasonably request to the extent the Servicing Agent is
permitted to do so under applicable statutes, rules or regulations.
For the fiscal year ending May 31, 1993, the following Funds paid the
indicated fees pursuant to the Investor B/C Plan: Equity Income Fund -- $15,796;
International Equity Fund -- $885; and Government Securities Fund -- $13,496,
after taking into effect waivers of $5,217. During the same fiscal year, the
following Funds paid the indicated fees pursuant to the Investor B/C Servicing
Plan: Equity Income Fund -- $1,554; International Equity Fund -- $75; and
Government Securities Fund -- $2,000. The Prime Fund and Treasury Fund did not
offer Investor B Shares during the fiscal year ended May 31, 1993.
During the fiscal year ended May 31,1993, the prior distributor received
the following amounts from front end sales charges, Rule 12b-1 fees and CDSC
fees in connection with Investor B Shares of the Money Market Funds and Investor
C Shares of the Non-Money Market Funds: $37,339; $30,177; and $4,020,
respectively. Of these amounts, the prior distributor retained $5,104, $0, and
$4,020, respectively, and paid the balance to selling dealers.
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For the fiscal year ended May 31,1994 the following funds paid the
indicated fees pursuant to the Investor B/C Plan: Equity Income Fund -- $44,852;
International Equity Fund -- $2,539 and Government Securities Fund -- $47,436.
For the fiscal year ended May 31, 1995, the following funds paid the
indicated fees pursuant to the Investor B/C Plan: Equity Income Fund -- $31,136;
International Equity Fund -- $3,087 and Government Securities Fund -- $29,739.
For the fiscal year ended May 31, 1995 the Funds paid $63,962 in 12b-1
fees.
Investor C Shares of the Money Market funds and Investor N Shares of the
Non-Money Market Funds. The Directors have approved a Distribution Plan (the
"Investor N Distribution Plan") with respect to Investor N Shares of the
Non-Money Market Funds. Pursuant to the Investor N Distribution Plan, a
Non-Money Market Fund may compensate or reimburse the Distributor for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor N Shares, including for sales related services provided by banks,
broker/dealers or other financial institutions that have entered into a Sales
Support Agreement relating to the Investor N Shares with the Distributor
("Selling Agents"). Payments under a Fund's Investor N Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Directors provided that the annual rate may not exceed 0.75% of the
average daily net asset value of each Non-Money Market Fund's Investor N Shares.
The fees payable under the Investor N Distribution Plan are used primarily
to compensate or reimburse the Distributor for distribution services provided by
it, and related expenses incurred, including payments by the Distributor to
compensate or reimburse Selling Agents, for sales support services provided, and
related expenses incurred, by such Selling Agents. Payments under the Investor N
Distribution Plan may be made with respect to preparation, printing and
distribution of prospectuses, sales literature and advertising materials by the
Distributor or, as applicable, Selling Agents, attributable to distribution or
sales support activities, respectively, commissions, incentive compensation or
other compensation to, and expenses of, account executives or other employees of
the Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; overhead and other office expenses of the Distributor
relating to the foregoing (which may be calculated as a carrying charge in the
Distributor's or Selling Agents' unreimbursed expenses), incurred in connection
with distribution or sales support activities. The overhead and other office
expenses referenced above may include, without limitation, (i) the expenses of
operating the Distributor's or Selling Agents' offices in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefit
costs of administrative, operations and support personnel, utility costs,
communication costs and the costs of stationery and supplies, (i) the costs of
client sales seminars and travel related to distribution and sales support
activities, and (ii) other expenses relating to distribution and sales support
activities.
In addition, the Directors have approved a Shareholder Servicing Plan with
respect to Investor C Shares of the Money Market Funds and Investor N Shares of
the Non-Money Market Funds ( "Investor C/N Servicing Plan"). Pursuant to the
Investor C/N Servicing Plan, a Fund may compensate or reimburse banks,
broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Company ("Servicing Agents") for
certain activities or expenses of the Servicing Agents in connection with
shareholder services that are provided by the Servicing Agents. Payments under
the Investor C/N Servicing Plan will be calculated daily and paid monthly at a
rate or rates set from time to time by the Board of Directors, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor C Shares of the Money Market Funds and Investor N Shares of the
Non-Money Market Funds.
The fees payable under the Investor C/N Servicing Plan are used primarily
to compensate or reimburse Servicing Agents for shareholder services provided,
and related expenses incurred, by such Servicing Agents. The shareholder
services provided by Servicing Agents may include: (i) aggregating and
processing purchase and redemption requests for such Investor C or Investor N
Shares from Customers and transmitting promptly net purchase and redemption
orders to the Distributor or Transfer Agent; (ii) providing Customers with a
service that invests the assets of their accounts in such Investor C or Investor
N Shares pursuant to specific or pre-authorized instructions; (iii) processing
dividend and distribution payments from the Company on behalf of Customers; (iv)
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providing information periodically to Customers showing their positions in such
Investor C or Investor N Shares; (v) arranging for bank wires; (vi) responding
to Customers' inquiries concerning their investment in such Investor C or
Investor N Shares; (vii) providing sub-accounting with respect to such Investor
C or Investor N Shares beneficially owned by Customers or providing the
information to us necessary for sub-accounting; (viii) if required by law,
forwarding shareholder communications from the Company (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (ix) forwarding to Customers proxy
statements and proxies containing any proposals regarding the Investor C
Servicing Plan or related agreements; (x) providing general shareholder liaison
Services; and (xi) providing such other similar services as the Company may
reasonably request to the extent such Servicing Agent is permitted to do so
under applicable statutes, rules or regulations.
The fees payable under the Investor N Distribution Plan and Investor C/N
Servicing Plan (together, the "Investor C/N Plans") are treated by the Funds as
an expense in the year they are accrued. At any given time, a Selling Agent
and/or Servicing Agent may incur expenses in connection with services provided
pursuant to its agreements with the Distributor under the Investor C/N Plans
which exceed the total of (i) the payments made to the Selling Agents and
Servicing Agents by the Distributor or the Company and reimbursed by the Fund
pursuant to the Investor C/N Plans, and (ii) the proceeds of contingent deferred
sales charges paid to the Distributor and reallowed to the Selling Agent, upon
the redemption of their Customers' Investor C Shares. Any such excess expenses
may be recovered in future years, so long as the Investor C/N Plans are in
effect. Because there is no requirement under the Investor C/N Plans that the
Distributor be paid or the Selling Agents and Servicing Agents be compensated or
reimbursed for all their expenses or any requirement that the Investor C/N Plans
be continued from year to year, such excess amount, if any, does not constitute
a liability to a Fund or the Distributor. Although there is no legal obligation
for the Fund to pay expenses incurred by the Distributor, a Selling Agent or a
Servicing Agent in excess of payments previously made to the Distributor under
the Investor C/N Plans or in connection with contingent deferred sales charges,
if for any reason the Investor C/N Plans are terminated, the Directors will
consider at that time the manner in which to treat such expenses.
For the fiscal year ended May 31, 1994, the Prime Fund and the Treasury
Fund paid $514 and $19, respectively, in shareholder servicing fees pursuant to
the Money Market Investor C Plan. For the fiscal year ended May 31, 1994, the
following funds paid the indicated fees pursuant to the Investor N Plan: Equity
Income Fund -- $187,452; International Equity Fund -- $50,880 and Government
Securities Fund -- $215.493.
For the fiscal year ended May 31, 1995, the following funds paid the
indicated fees pursuant to the Investor N Plan: Equity Income Fund -- $289,973;
International Equity Fund -- $197,156 and Government Securities Fund --
$224,710.
For the fiscal year ended May 31, 1995 the Funds paid $0 in front-end
sales loads, $506,013 in contingent deferred sales charges on the Non-Money
Market Funds, of which $0 was retained by the distributor and $711,839 in 12b-1
fees of which $5,085.17 was retained by the distributor for the Investor N
Shares and $0 in front-end sales loads and $0 in 12b-1 fees for the Investor C
Money Market Funds.
Investor D Shares of the Money Market Funds. The Directors have approved a
Distribution Plan (the "Investor D Distribution Plan") with respect to Investor
D Shares of the Money Market Funds. Pursuant to the Investor D Distribution
Plan, a Money Market Fund may compensate or reimburse the Distributor for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor D Shares, including for sales related services provided by banks,
broker/dealers or other financial institutions that have entered into a Sales
Support Agreement relating to the Investor D Shares with the Distributor
("Selling Agents"). Payments under a Fund's Investor D Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Directors provided that the annual rate may not exceed 0.45 % of
the average daily net asset value of each Money Market Fund's Investor D Shares.
The fees payable under the Investor D Distribution Plan are used primarily
to compensate or reimburse the Distributor for distribution services provided by
it, and related expenses incurred, including payments by the Distributor to
compensate or reimburse Selling Agents, for sales support services provided, and
related expenses
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incurred, by such Selling Agents. Payments under the Investor D Distribution
Plan may be made with respect to preparation, printing and distribution of
prospectuses, sales literature and advertising materials by the Distributor or,
as applicable, Selling Agents, attributable to distribution or sales support
activities, respectively, commissions, incentive compensation or other
compensation to, and expenses of, account executives or other employees of the
Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; overhead and other office expenses of the Distributor
relating to the foregoing (which may be calculated as a carrying charge in the
Distributor's or Selling Agents' unreimbursed expenses), incurred in connection
with distribution or sales support activities. The overhead and other office
expenses referenced above may include, without limitation, (i) the expenses of
operating the Distributor's or Selling Agents' offices in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefit
costs of administrative operations and support personnel, utility costs,
communication costs and the costs of stationery and supplies, (ii) the costs of
client sales seminars and travel related to distribution and sales support
activities, and (iii) other expenses relating to distribution and sales support
activities.
In addition, the Directors have approved a Shareholder Servicing Plan with
respect to Investor D Shares of the Money Market Funds (the "Investor D
Servicing Plan"). Pursuant to the Investor D Servicing Plan, a Fund may
compensate or reimburse banks, broker/dealers or other financial institutions
that have entered into a Shareholder Servicing Agreement with the Company
("Servicing Agents") for certain activities or expenses of the Servicing Agents
in connection with shareholder services that are provided by the Servicing
Agents. Payments under the Investor D Servicing Plan will be calculated daily
and paid monthly at a rate or rates set from time to time by the Board of
Directors, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Investor D Shares of the Money Market Funds.
The fees payable under the Investor D Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for such Investor D Shares from Customers and
transmitting promptly net purchase and redemption orders to the Distributor or
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Investor D Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Company on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in such Investor D Shares; (v) arranging
for bank wires; (vi) responding to Customers' inquiries concerning their
investment in such Investor D Shares; (vii) providing sub-accounting with
respect to such Investor D Shares beneficially owned by Customers or providing
the information to us necessary for sub-accounting; (viii) if required by law,
forwarding shareholder communications from the Company (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (ix) forwarding to Customers proxy
statements and proxies containing any proposals regarding the Investor D
Servicing Plan or related agreements; (x) providing general shareholder liaison
services; and (xi) providing such other similar services as the Company may
reasonably request to the extent such Servicing Agent is permitted to do so
under applicable statutes, rules or regulations.
The fees payable under the Investor D Distribution Plan and Investor D
Servicing Plan (together, the "Investor D Plans") are treated by the Funds as an
expense in the year they are accrued. At any given time, a Selling Agent and/or
Servicing Agent may incur expenses in connection with services provided pursuant
to its agreements with the Distributor under the Investor D Plans which exceed
the total of (i) the payments made to the Selling Agents and Servicing Agents by
the Distributor or the Company and reimbursed by the Fund pursuant to the
Investor D Plans, and (ii) the proceeds of contingent deferred sales charges
paid to the Distributor and reallowed to the Selling Agent, upon the redemption
of their Customers' Investor D Shares. Any such excess expenses may be recovered
in future years, so long as the Investor D Plans are in effect. Because there is
no requirement under the Investor D Plans that the Distributor be paid or the
Selling Agents and Servicing Agents be compensated or reimbursed for all their
expenses or any requirement that the Investor D Plans be continued from year to
year, such excess amount, if any, does not constitute a liability to a Fund or
the Distributor. Although there is no legal obligation for the Fund to pay
expenses incurred by the Distributor, a Selling Agent or a Servicing Agent in
excess of payments previously made to the Distributor under the Investor D Plans
or in connection with
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contingent deferred sales charges, if for any reason the Investor D Plans are
terminated, the Directors will consider at that time the manner in which to
treat such expenses.
For the fiscal year ended May 31, 1995, the Prime Fund and the Treasury
Fund paid nothing in shareholder servicing fees pursuant to the Money Market
Investor D Plan.
Information Applicable to Investor A, Investor B, Investor C and Investor
D Shares and Investor N Shares. The Investor A Plan, the Money Market Investor A
Servicing Plan, the Investor B/C Plan, the Investor B/C Servicing Plan, the
Investor C Plan, the Investor D Distribution Plan, the Investor D Servicing Plan
and the Investor C/N Servicing Plan (each a "Plan" and collectively the "Plans")
may only be used for the purposes specified above and as stated in each such
Plan. Compensation payable to Selling Agents or Servicing Agents for shareholder
support services under the Investor A Plan, the Money Market Investor A
Servicing Plan, the Investor B/C Servicing Plan, Investor D Servicing Plan and
the Investor C/N Servicing Plan is subject to, among other things, the National
Association of Securities Dealers, Inc. ("NASD") Rules of Fair Practice
governing receipt by NASD members of shareholder servicing plan fees from
registered investment companies (the "NASD Servicing Plan Rule"), which became
effective on July 7, 1993. Such compensation shall only be paid for services
determined to be permissible under the NASD Servicing Plan Rule.
Each Plan requires the officers of the Company or the Distributor to
provide the Board of Directors at least quarterly with a written report of the
amounts expended pursuant to the Plan and the purposes for which such
expenditures were made. The Board of Directors reviews these reports in
connection with their decisions with respect to the Plans.
As required by Rule 12b-1 under the 1940 Act, each Plan was approved by
the Board of Directors, including a majority of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("Qualified Directors") on September 27, 1989,
with respect to the Investor C Shares of the Money Market Funds, on March 22,
1991, with respect to the Investor A Shares of the Equity Income and Government
Securities Funds, on June 24, 1992 with respect to the Investor A Shares of the
International Equity Fund, and on March 19, 1992, with respect to the Investor C
Shares of the Non-Money Market Funds. Additionally, each Plan with respect to
the Investor B Shares of the Money Market Funds and with respect to the Investor
N Shares of all the Non-Money Market Funds was approved by the Board of
Directors, including a majority of the Qualified Directors, on February 3, 1993.
The Plan with respect to the Investor C Shares of the Money Market Funds was
initially approved on August 4, 1993. The Plan with respect to the Investor D
Shares of the Money Market Funds was initially approved on August 4, 1993. The
Plans continue in effect as long as such continuance is specifically approved at
least annually by the Board of Directors, including a majority of the Qualified
Directors. On November 6, 1994, the Board of Directors (including a majority of
the Qualified Directors) voted to continue each Plan for an additional one year
period.
In approving the Plans in accordance with the requirements of Rule 12b-1,
the directors considered various factors and determined that there is a
reasonable likelihood that each Plan will benefit the respective Investor A,
Investor B, Investor C Shares or Investor N Shares and the holders of such
shares. The Investor A Plan was approved by the Shareholders of the Investor A
Shares of each of the Funds except the International Equity Fund on September 6,
1991, and the Investor B/C Plan applicable to Investor C Shares of the
International Equity and Equity Income Funds and the Investor A Plan applicable
to Investor A Shares of the International Equity Fund were approved on September
22, 1992 by the Investor C Shareholders of the respective International Equity
and Equity Income Funds with respect to the Investor B/C Plan and by the
Investor A Shareholders of the International Equity Fund with respect to the
Investor A Plan. The Plans applicable to the Investor B Shares of the Money
Market Funds and Investor N Shares of the Non-Money Market Funds were approved
by such Funds' initial shareholder of Investor B and Investor N Shares.
The Investor A Shares' Plans with respect to the Money Market Funds
originally became effective on December 4, 1989, and were amended February
12,1990, March 19, 1992 and February 3, 1993. The Investor A Shares' Plan with
respect to the Equity Income and Government Securities Funds became effective on
March 22,
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1991, and was amended March 19, 1992. The Investor A Shares' Plan with respect
to the International Equity Fund became effective September 6, 1991 and was
amended March 19, 1992 and February 3, 1993.
The Investor A Plan, Investor B/C Plan and Investor C/N Plan may be
terminated with respect to their respective shares by vote of a majority of the
Qualified Directors, or by vote of a majority of the holders of the outstanding
voting securities of the Investor A, Investor B, Investor C or Investor N
Shares, as appropriate. Any change in such a Plan that would increase materially
the distribution expenses paid by the Investor A, Investor B, Investor C or
Investor N Shares requires shareholder approval; otherwise, each Plan may be
amended by the directors, including a majority of the Qualified Directors, by
vote cast in person at a meeting called for the purpose of voting upon such
amendment. The Money Market Investor A Servicing Plan, the Investor B/C
Servicing Plan and the Investor C/N Servicing Plan may be terminated by a vote
of a majority of the Qualified Directors. As long as a Plan is in effect, the
selection or nomination of the Qualified Directors is committed to the
discretion of the Qualified Directors.
Conflict of interest restrictions may apply to the receipt by Selling
and/or Servicing Agents of compensation from the Company in connection with the
investment of fiduciary assets in Investor Shares. Selling and/or Servicing
Agents, including banks regulated by the Comptroller of the Currency, the
Federal Reserve Board, or the Federal Deposit Insurance Corporation, and
investment advisers and other money managers subject to the jurisdiction of the
SEC, the Department of Labor, or state securities commissions, are urged to
consult their legal advisers before investing such assets in Investor Shares.
Shareholder Servicing Agreements (Trust B Shares) - Money Market Funds
As stated in the Prospectuses for the Money Market Funds' Trust Shares,
the Company has a separate Shareholder Servicing Plan with respect to the
Non-Money Market Funds' Trust B Shares. Pursuant to the Shareholder Servicing
Plans, the Company has entered into agreements with certain banks pertaining to
the provision of administrative services to their customers who may from time to
time own of record or beneficially Trust B Shares ("Customers") in consideration
for the payment of up to 0.25% (on an annualized basis) of the net asset value
of such shares. Such services may include: (i) aggregating and processing
purchase, exchange and redemption requests for Trust B Shares from Customers and
transmitting promptly net purchase and redemption orders with the Distributor or
the transfer agents; (ii) providing Customers with a service that invests the
assets of their accounts in Trust B Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Company on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in Trust B Shares; (v) arranging for bank
wires; (vi) responding to Customer inquiries concerning their investment in
Trust B Shares; (vii) providing sub-accounting with respect to Trust B Shares
beneficially owned by Customers or the information necessary for sub-accounting;
(viii) if required by law, forwarding shareholder communications (such as
proxies, shareholder reports annual and semi-annual financial statements and
dividend, distribution and tax notices) to Customers; (ix) forwarding to
Customers proxy statements and proxies containing any proposals regarding the
Shareholder Servicing Agreements or Shareholder Serving Plan; and (x) providing
such other similar services as may reasonably be requested to the extent
permitted under applicable statutes, rules, or regulations.
Such plan shall continue in effect as long as the Board of Directors,
including a majority of the Qualified Directors, specifically approves the plan
at least annually.
Shareholder Administration Plan (Trust B Shares) - Non-Money Market Funds
As stated in the Prospectus for the Non-Money Market Funds' Trust B
Shares, the Company has a separate Shareholder Administration Plan (the
"Administration Plan") with respect to such shares. Pursuant to the
Administration Plan, the Company may enter into agreements ("Administration
Agreements") with broker/dealers, banks and other financial institutions that
are dealers of record or holders of record or which have a servicing
relationship with the beneficial owners of Non-Money Market Fund Trust B Shares
("Servicing Agents"). The
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Administration Plan provides that pursuant to the Administration Agreements,
Servicing Agents shall provide the shareholder support services as set forth
therein to their customers who may from time to time own of record or
beneficially Trust B Shares ("Customers") in consideration for the payment of up
to 0.60% (on an annualized basis) of the net asset value of such shares. Such
services may include: (i) aggregating and processing purchase, exchange and
redemption requests for Trust B Shares from Customers and transmitting promptly
net purchase and redemption orders with the Distributor or the transfer agents;
(ii) providing Customers with a service that invests the assets of their
accounts in Trust B Shares pursuant to specific or pre-authorized instructions;
(iii) processing dividend and distribution payments from the Company on behalf
of Customers; (iv) providing information periodically to Customers showing their
positions in Trust B Shares; (v) arranging for bank wires; (vi) responding to
Customer inquiries concerning their investment in Trust B Shares; (vii)
providing sub-accounting with respect to Trust B Shares beneficially owned by
Customers or the information necessary for sub-accounting; (viii) if required by
law, forwarding shareholder communications (such as proxies, shareholder reports
annual and semi-annual financial statements and dividend, distribution and tax
notices) to Customers; (ix) forwarding to Customers proxy statements and proxies
containing any proposals regarding an Administration Agreement; (x) employee
benefit plan recordkeeping, administration, custody and trustee services; (xi)
general shareholder liaison services and (xii) providing such other similar
services as may reasonably be requested to the extent permitted under applicable
statutes, rules, or regulations.
The Administration Plan also provides that in no event may the portion of
the shareholder administration fee that constitutes a "service fee," as the term
is defined in NASD Servicing Plan Rule, exceed 0.25% of the average daily net
asset value of the Trust B Shares of a Non-Money Market Fund. In addition, to
the extent any portion of the fees payable under the Plan is deemed to be for
services primarily intended to result in the sale of Fund Shares, such fees are
deemed approved and may be paid under the Administration Plan. Accordingly, the
Administration Plan has been approved and will be operated pursuant to Rule
12b-1 under the 1940 Act. Such plan shall continue in effect as long as the
Board of Directors, including a majority of the Qualified Directors,
specifically approves the plan at least annually.
Expenses
The Administrator furnishes, without additional cost to the Company, the
services of the Treasurer and Secretary of the Company and such other personnel
(other than the personnel of the Adviser) as are required for the proper conduct
of the Company's affairs. The Distributor bears the incremental expenses of
printing and distributing prospectuses used by the Distributor or furnished by
the Distributor to investors in connection with the public offering of the
Company's shares and the costs of any other promotional or sales literature,
except that to the extent permitted under the Plans relating to the Investor A,
Investor B, Investor C and Investor N Shares of each Fund, sales-related
expenses incurred by the Distributor may be reimbursed by the Company.
The Company pays or causes to be paid all other expenses of the Company,
including, without limitation: the fees of the Adviser, the Administrator and
Co-Administrator; the charges and expenses of any registrar, any custodian or
depository appointed by the Company for the safekeeping of its cash, fund
securities and other property, and any stock transfer, dividend or accounting
agent or agents appointed by the Company; brokerage commissions chargeable to
the Company in connection with fund securities transactions to which the Company
is a party; all taxes, including securities issuance and transfer taxes;
corporate fees payable by the Company to federal, state or other governmental
agencies; all costs and expenses in connection with the registration and
maintenance of registration of the Company and its shares with the SEC and
various states and other jurisdictions (including filing fees, legal fees and
disbursements of counsel); the costs and expenses of typesetting prospectuses
and statements of additional information of the Company (including supplements
thereto) and periodic reports and of printing and distributing such prospectuses
and statements of additional information (including supplements thereto) to the
Company's shareholders; all expenses of shareholders' and directors' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; fees and travel expenses of directors or director members of any
advisory board or committee; all expenses incident to the payment of any
dividend or distribution, whether in shares or cash; charges and expenses of any
outside service used for pricing of the Company's shares; fees and
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expenses of legal counsel and of independent auditors in connection with any
matter relating to the Company; membership dues of industry associations;
interest payable on Company borrowings; postage and long-distance telephone
charges; insurance premiums on property or personnel (including officers and
directors) of the Company which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Company's operation unless otherwise explicitly assumed by the Adviser),
the Administrator or Co-Administrator.
Expenses of the Company which are not directly attributable to the
operations of any class of shares or Fund are pro-rated among all classes of
shares or Fund of the Company based upon the relative net assets of each class
or Fund. Expenses of the Company which are not directly attributable to a
specific class of shares but are directly attributable to a specific Fund are
prorated among all the classes of shares of such Fund based upon the relative
net assets of each such class of shares. Expenses of the Company which are
directly attributable to a class of shares are charged against the income
available for distribution as dividends to such class of shares.
The Advisory Agreement, the Sub-Advisory Agreements, and the
Administration Agreement require NBAI, TradeStreet, Nations Gartmore, and the
Administrator to reduce their fees to the extent required to satisfy any expense
limitations which may be imposed by the securities laws or regulations
thereunder of any state in which a Fund's shares are registered or qualified for
sale, as such limitations may be raised or lowered from time to time, and the
aggregate of all such investment advisory, sub-advisory, and administration fees
shall be reduced by the amount of such excess. The amount of any such reduction
to be borne by NBAI, TradeStreet, Nations Gartmore or the Administrator shall be
deducted from the monthly investment advisory and administration fees otherwise
payable to NBAI, TradeStreet, Nations Gartmore and the Administrator during such
fiscal year. If required pursuant to such state securities regulations, NBAI,
TradeStreet, Nations Gartmore and the Administrator will reimburse the Company
no later than the last day of the first month of the next succeeding fiscal
year, for any such annual operating expenses (after reduction of all investment
advisory and administration fees in excess of such limitation).
Transfer Agents and Custodians
The Shareholder Services Group, Inc. ("TSSG") is located at One Exchange
Place, 53 State Street, Boston, Massachusetts 02109, and acts as transfer agent
for the Company's Trust Shares and Investor Shares. Under the transfer agency
agreements, the transfer agent maintains shareholder account records for the
Company, handles certain communications between shareholders and the Company,
and distributes dividends and distributions payable by the Company to
shareholders, and produces statements with respect to account activity for the
Company and its shareholders for these services. The transfer agent receives a
monthly fee computed on the basis of the number of shareholder accounts that it
maintains for the Company during the month and is reimbursed for out-of-pocket
expenses.
NationsBank of Texas, N.A., 901 Main Street, Dallas, Texas 75201, serves
as sub-transfer agent for each Fund's Trust shares. NationsBank of Texas, N.A.,
also serves as custodian for the portfolio securities and cash of the Money
Market Funds, the Equity Income Fund and the Government Securities Fund. As such
custodian, NationsBank of Texas, N.A., maintains custody of such Funds'
securities cash and other property, delivers securities against payment upon
sale and pays for securities against delivery upon purchase, makes payments on
behalf of such Funds for payments of dividends, distributions and redemptions,
endorses and collects on behalf of such Funds all checks, and receives all
dividends and other distributions made on securities owned by such Funds.
Boston Safe Deposit and Trust Company, One Boston Place, Boston,
Massachusetts, 02108, serves as custodian for the portfolio securities and cash
of the International Equity Fund. Boston Safe Deposit and Trust Company receives
compensation from the Fund for its services in such capacity based on a
percentage of the market value of the Fund's securities and a charge for fund
transactions.
53
<PAGE>
DISTRIBUTOR
On the Transition Date, Stephens Inc. (the "Distributor") began serving as
the principal underwriter and distributor of the shares of the Funds, replacing
Funds Distributor, Inc. which had served in this capacity from February 19, 1992
to the Transition Date. Prior to February 19, 1992, Fund Management Company
served as distributor for the Company.
At a meeting held on August 4, 1993, the Board of Directors selected
Stephens Inc. as Distributor, effective on the Transition Date, and approved a
distribution agreement ("Distribution Agreement") with the Distributor. Pursuant
to the Distribution Agreement, the Distributor, as agent, sells shares of the
Funds on a continuous basis and transmits purchase and redemption orders that
its receives to the Company or the Transfer Agent. Additionally, the Distributor
has agreed to use appropriate efforts to solicit orders for the sale of shares
and to undertake such advertising and promotion as it believes appropriate in
connection with such solicitation. Pursuant to the Distribution Agreement, the
Distributor, at its own expense, finances those activities which are primarily
intended to result in the sale of shares of the Funds, including, but not
limited to, advertising, compensation of underwriters, dealers and sales
personnel, the printing of prospectuses to other than existing shareholders, and
the printing and mailing of sales literature. The Distributor, however, may be
reimbursed for all or a portion of such expenses to the extent permitted by a
distribution plan adopted by the Company pursuant to Rule 12b-1 under the 1940
Act.
The Distribution Agreement will continue year to year as long as such
continuance is approved at least annually by (i) the Board of Directors or a
vote of the majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund and (ii) a majority of the directors who are not parties
to the Distribution Agreement or "interested persons" of any such party by a
vote cast in person at a meeting called for such purpose. The Distribution
Agreement is not assignable and is terminable with respect to a Fund, without
penalty, on 60 days' notice by the Board of Directors, the vote of a majority
(as defined in the 1940 Act) of the outstanding voting securities of the Fund,
or by the Distributor.
INDEPENDENT ACCOUNTANTS AND REPORTS
At least semi-annually, the Company will furnish shareholders of the Funds
with a list of the investments held in the Funds and financial statements for
the Funds. The annual financial statements will be audited by the Company's
independent auditors. The Board of Directors has selected Price Waterhouse, LLP,
160 Federal Street, Boston, Massachusetts, 02110 as the Company's independent
accountant to audit the Company's books and review the Company's tax returns for
the Funds' fiscal years ending on and after May 31, 1993. KPMG Peat Marwick, One
Boston Place, Boston, Massachusetts 02108, were the Company's independent
auditors for the fiscal years ended on and before May 31, 1992.
The audited financial statements and portfolio of investments contained in
the Annual Reports for the fiscal year ended May 31, 1995 are hereby
incorporated herein by reference in this SAI. The Annual Reports will be sent
free of charge with this SAI to any shareholder who requests this SAI.
COUNSEL
Morrison & Foerster LLP serves as legal counsel to the Company. Their
address is 2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006.
ADDITIONAL INFORMATION ON PERFORMANCE
Yield information and other performance information for the Company's
Funds may be obtained by calling the Company at (800) 321-7854.
54
<PAGE>
Yield Calculations
The current yield quotations for the Trust A, Trust B, Investor A,
Investor B, Investor C and Investor D Shares of the Money Market Funds are
computed by determining the net change, exclusive of capital changes, over a
seven-day base period in the value of a hypothetical pre-existing account having
a balance of one share at the beginning of the period. The net change in account
value is divided by the value of the account at the beginning of the base period
to obtain the base period return. The base period return is then multiplied by
(5/7), with the resulting annualized yield figure carried to the nearest 1/100
of 1%. For purposes of calculating current yield, net change in account value
reflects: (i) the value of additional shares purchased with dividends from the
original shares and dividends declared on both the original shares and any such
additional shares, and (ii) all fees (other than non-recurring account charges)
that are charged to all shareholder accounts in proportion to the length of the
base period and the average account size of the Trust A, Trust B, Investor A,
Investor B, Investor C and Investor D Shares of the Money Market Funds. The
capital changes excluded from the calculation of current yield are realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation.
The effective yield quotations for the Trust Shares and Investor Shares of
the Money Market Funds are computed by compounding the unannualized seven-day
base period return as follows: 1 is added to the base period return and this sum
is then raised to a power equal to (5/7), and 1 is then subtracted from the
result. Based on the seven-day period ended May 31, 1995, (the "base period"),
the current and effective yields of the various shares of the Money Market Funds
were as follows:
Seven Day Yield
<TABLE>
<CAPTION>
Effective Yield
Yield Without Without Fee
Yield Fee Waivers Effective Yield Waivers
<S> <C> <C> <C> <C>
Nations Prime Fund
Trust A Shares 5.99% 5.93% 6.16% 6.10%
Trust B Shares 5.74% 5.68% 5.89% 5.83%
Investor A Shares 5.52% 5.46% 5.64% 5.60%
Investor B Shares 5.73% 5.67% 5.89% 5.83%
Investor C Shares 5.71% 5.65% 5.86% 5.80%
Investor D Shares 5.29% 5.23% 5.42% 5.36%
Nations Treasury Fund
Trust A Shares 5.78% 5.75% 5.94% 5.91%
Trust B Shares 5.52% 5.49% 5.67% 5.64%
Investor A Shares 5.41% 5.38% 5.55% 5.52%
Investor B Shares 5.52% 5.49% 5.67% 5.64%
Investor C Shares 5.31% 5.48% 5.66% 5.63%
Investor D Shares 5.52% 5.49% 5.67% 5.64%
</TABLE>
The yield of the Trust Shares and Investor Shares of the Non-Money Market
Funds is a measure of the net investment income per share (as defined) earned
over a 30-day period expressed as a percentage of the maximum offering price of
a share of such classes at the end of the period. Based upon the 30-day period
ended May 31, 1995, the yields of the various shares of the Government
Securities Fund were as follows:
<TABLE>
<CAPTION>
Thirty Day Yield
Yield Without Fee
Nations Government Securities Fund Yield Waivers
----- -----------------
<S> <C> <C>
Trust A Shares 6.15% 6.05%
55
<PAGE>
Investor A Shares 5.62% 5.48%
Investor C Shares 5.40% 5.01%
Investor N Shares 5.50% 5.01%
</TABLE>
During the period for which certain yield quotations are given above,
NationsBank and the Administrator voluntarily waived fees or reimbursed certain
expenses of such shares, thereby increasing yield figures. Such waivers or
expense reimbursements may be discontinued at any time. Trust B Shares were not
offered during the period ended May 31, 1995.
Such yield figures were determined by dividing the net investment income
per share earned during the specified 30-day period by the maximum offering
price per share on the last day of the period, according to the following
formula:
Yield = 2[(a-b + 1)6-1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = average daily number of shares outstanding during the
period that were entitled to receive dividends
d = maximum offering price per share on the last day of the
period
For purposes of yield quotation, income is calculated in accordance with
standardized methods applicable to all stock and bond mutual funds. In general,
interest income is reduced with respect to bonds trading at a premium over their
par value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income.
Capital gains and losses are excluded from the calculation.
Income calculated for the purposes of calculating a Fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions a Fund paid over the same period or the rate of income reported in
the Funds' financial statements.
Total Return Calculations
Total return measures both the net investment income generated by, and the
effect of any realized or unrealized appreciation or depreciation of the
underlying investments in a Non-Money Market Fund. The Non-Money Market Funds'
average annual and cumulative total return figures are computed in accordance
with the standardized methods prescribed by the SEC.
Average annual total return figures are computed by determining the
average annual compounded rates of return over the periods indicated in the
advertisement, sales literature or shareholders' report that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period of
a hypothetical $1,000 payment made at the beginning
of such period.
56
<PAGE>
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory and administrative fees, charged as expenses to all shareholder
accounts.
The Non-Money Market Funds did not offer Trust B Shares during the period
ended May 31, 1995. The following figures, for the period ended May 31, 1995,
reflect the deduction of sales charges, if any, that would have been deducted
from a sale of shares.
<TABLE>
<CAPTION>
Average Annual Total Return
Period Ended
3/31/95 Inception to 5/31/95
<S> <C> <C>
Equity Income Fund
Trust A Shares 14.79% 12.25%
Investor A 7.95% 10.26%
Investor C 12.49% 10.99%
Investor N 9.03% 7.60%
International Equity Fund
Trust A (0.46%) 6.01%
Investor A (6.40%) 3.18%
Investor C (2.52%) 5.46%
Investor N (6.14%) 4.37%
Government Securities Fund
Trust A 7.55% 6.85%
Investor A 2.19% 5.38%
Investor C 5.76% 3.91%
Investor N 1.86% 0.97%
</TABLE>
Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
CTR = (ERV-P) 100
P
Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of
a hypothetical $1,000 payment made at the beginning
of such period
P = initial payment of $1,000.
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory and administrative fees, charged as expenses to all shareholder
accounts.
57
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
Period Ended 5/31/95 Inception to 5/31/95
Total Return Total Return
Total Without Sales Without Sales
Return Charge Total Return Charge
<S> <C> <C> <C> <C>
Equity Income Fund
Trust A Shares N/A 14.79% N/A 61.28%
Investor A 7.95% 14.53% 49.59% 58.72%
Investor C 12.49% 13.49% 36.04% 36.04%
Investor N 9.03% 14.03% 15.62% 19.55%
International Equity Fund
Trust A N/A (0.46%) N/A 22.62%
Investor A (6.40%) (0.69%) 9.81% 16.51%
Investor C (2.52%) (1.56%) 16.99% 16.99%
Investor N (6.14%) (1.30%) 8.48% 12.84%
Government Securities Fund
Trust A N/A 7.55% N/A 31.51%
Investor A 2.19% 7.29% 24.09% 30.28%
Investor C 5.76% 6.76% 11.77% 11.77%
Investor N 1.86% 6.86% 1.93% 5.69%
</TABLE>
* Trust A Shares of the Company do not carry a sales charge.
The Trust Shares and Investor Shares of the Equity Income Fund, Government
Securities Fund and International Equity Fund may also quote their distribution
rates, which express the historical amount of income dividends paid to their
shareholders during a one-month (in the case of the Government Securities Fund)
or a three-month (in the case of the Equity Income Fund and International Equity
Fund) period as a percentage of the maximum offering price per share on the last
day of such period. The performance figures of the Funds as described above will
vary from time to time depending upon market and economic conditions, the
composition of their portfolios and operating expenses. These factors should be
considered when comparing the performance figures of the Funds with those of
other investment companies and investment vehicles.
The "yield" and "effective yield" of each class of shares of a Money
Market Fund may be compared to the respective averages compiled by Donoghue's
Money Fund Report, a widely recognized independent publication that monitors the
performance of money market funds, or to the average yields reported by the Bank
Rate Monitor for money market deposit accounts offered by the 50 leading banks
and thrift institutions in the top five metropolitan statistical areas. The
Funds also may compare the performance and yield of a class or series of shares
to those of other mutual funds with similar investment objectives and to other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the performance and yield of a class of shares in a Fund may be
compared to data prepared by Lipper Analytical Services, Inc. Performance and
yield data as reported in national financial publications such as Money
Magazine, Forbes, Barron's, The Wall Street Journal, and The New York Times, or
in publications of a local or regional nature, also may be used in comparing the
performance of a class of shares in a Fund.
In addition, the performance and yield of a class of shares in Nations
Equity Income Fund and Nations International Equity Fund may be compared to the
Standard & Poor's 500 Stock Index, an unmanaged index of a group of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange. The
58
<PAGE>
performance and yield of a class of shares in the Nations International Equity
Fund may be compared to the Europe, Far East and Australia Index, a recognized
unmanaged index of international stocks. Any given performance comparison should
not be considered representative of a Fund's performance for any future period.
Each Fund of the Company may quote information obtained from the
Investment Company Institute in its advertising materials and sales literature.
MISCELLANEOUS
Certain Record Holders
The following indicates those persons who owned 5% or more of the
indicated class of shares as of January 24, 1996. Unless otherwise indicated,
the address for each recordholder of Trust Shares is 1401 Elm Street, 11th
Floor, Dallas, Texas 75202.
<TABLE>
<CAPTION>
<S> <C>
Percentage of Shares
Name and Address Held of Record Only
Nations Prime Fund
Investor A Shares
Stephens Inc. Omnibus Account 6.29%
Attn: Jean Geiger
P.O. Box 3507
Little Rock, AR 72203
Nations Treasury Fund
Investor A Shares
Inspire Pharmaceuticals 6.46%
c/o Tim C. Gupton
4222 Emperor Blvd.
Morrisville, NC 27560
Stephens Inc. Omnibus Account 5.91%
Attn. Jean Geiger
P.O. Box 3507
Little Rock, AR 72203
Investor C Shares
Lois H. Bohler 22.43%
6 Bransford Place
Augusta, GA 30904
Donald S. Pratt 16.91%
4911 Sentinel Post Road
Charlotte, NC 28226-7444
Robert L. Hancock 13.31%
263 McLaws Circle
Williamsburg, VA 23185
59
<PAGE>
David Philip Svetz TTEE 5.47%
Philip Svetz REVOC TRUST
DTD 6-21-93
8262 Cedar Landing Ct.
Alexandria, VA 22306-3237
Nations Equity Income Fund
Investor C Shares
Dean Witter Reynolds Cust for 7.20%
Dale Morris
IRA Standard Dated 6/14/93
818 19th Avenue South
Nashville, TN 37203-3202
Phillip P. Brown and 6.35%
Sue N. Brown, JTWROS
518 Park Center Drive
Nashville, TN 37205
Nations Government Securities Fund
Investor A Shares
Southside Bank TTEE 19.57%
East Texas Regional
Health Facilities Trust
U/A DTD 10/20/89
Tyler, TX 75711
Dodson Brothers 11.66%
Exterminating Co. Inc.
Attn: H.P. Dawson
P.O. Box 10249
Lynchburg, VA 24506
Investor C Shares
Dean Witter Reynolds
CUST FOR Gene H. Sloan
IRA Standard Dated 06/141
412 Lillard Road
Murfreesboro, TN 37130-3130
Nations International Equity Fund
Investor C Shares
Janet C. Howard & 18.97%
Dr. Mark Clark for The Tidewater
Heart Specialists
Profit Sharing Plan DTD 1/1/94
2112-B Hartford Road
Hampton, VA 23666
Nations Securities Margin Acct. FBO
Diana Rhodes 14.97%
3980 Ridgeway
San Antonio, TX 78259-1756
</TABLE>
60
<PAGE>
As of January 24, 1996, NationsBank and its affiliates owned of record
more than 25% of the outstanding shares of the Company acting as agent,
fiduciary, or custodian for its customers and may be deemed a controlling person
of the Company under the 1940 Act.
SUITABILITY OF NATIONS TREASURY FUND
FOR INVESTMENT BY MUNICIPAL INVESTORS
The Public Funds Investments Act (the "Act"), enacted by the Texas
legislature in 1987, as amended on June 14, 1989, and effective on August 28,
1989, permits Texas municipalities and certain other similar entities that hold
public funds to invest in certain types of financial instruments. These entities
include an incorporated city or town, a county, a public school district, a
district or authority created under Article III, Section 52(b) (i) or (2), or
Article XVI, Section 59 of the Texas Constitution, an institution of higher
education as defined by Section 61.003 of the Texas Education Code, a hospital
district, a fresh water supply district, or any nonprofit corporation or public
funds investment pool created under Chapter 791, Texas Government Code, acting
on behalf of any of such entities (the "Entities"). The Act permits Entities to
invest in U.S. Treasury securities, certain repurchase agreements related
thereto, and in certain mutual funds that invest in such securities. Special
counsel to the Company with respect to the Treasury Fund has rendered an opinion
to the effect that, assuming that an Entity complies with applicable law, and
that limitations in the Act with respect to the amount of funds in the control
of the Entity that can be invested in the Company are met, the Entity may invest
in the Treasury Fund of the Company when duly authorized by its governing body.
61
<PAGE>
SCHEDULE A
DESCRIPTION OF RATINGS
The following summarizes the highest six ratings used by Standard & Poor's
Corporation ("S&P") for corporate and municipal bonds. The first four ratings
denote investment grade securities.
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay principal.
AA - Debt rated AA is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in a
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B - Bonds rated BB and B are regarded, on balance as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. 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
exposure 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 Investors
Service, Inc. ("Moody's") for corporate and municipal bonds. The first four
denote investment grade securities.
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds that are rated Baa are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of
A-1
<PAGE>
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 as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not as
well safeguarded during both good times and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bond 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 Aal, A1 or Baal,
respectively.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds, each of which denotes that the securities
are investment grade.
AAA - Bonds that are rated AAA are of the highest credit quality.
The risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A - Bonds that are rated A have protection factors which are
average but adequate. However risk factors are more variable and greater
in periods of economic stress.
BBB - Bonds that are rated BBB have below average protection
factors but still are considered sufficient for prudent investment.
Considerable variability in risk during economic cycles.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch Investors
Service, Inc. ("Fitch") for bonds, each of which denotes that the securities are
investment grade:
AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
A-2
<PAGE>
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for
short-term municipal notes and variable rate demand obligations:
MIG-1/VMIG-1--Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in the
preceding group.
The following summarizes the two highest ratings used by S&P for
short-term municipal notes:
SP-1 - 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 that the securities are
investment grade:
F-1 + securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned the F-1 + and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
A-3
<PAGE>
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime1 (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.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a qualitative
and quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries. BankWatch ratings do not
constitute a recommendation to buy or sell securities of any of these companies.
Further, BankWatch does not suggest specific investment criteria for individual
clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following 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.
A-4
<PAGE>
The following summarizes the three highest long-term debt ratings used by
IBCA Limited and its affiliate, IBCA Inc. (collectively "IBCA"):
AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest
is substantial such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk
significantly.
AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest
is substantial. Adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly.
A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may
lead to increased investment risk.
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 future.
A1 Obligations supported by the highest capacity for timely
repayment.
A2 Obligations supported by a good capacity for timely repayment.
A-5
<PAGE>
B-9
dc14452
SCHEDULE B
ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES
As stated in the Prospectus, each Non-Money Market Fund, may enter into
futures contracts and options for hedging purposes. Such transactions are
described in this Schedule. During the current fiscal year, each of these Funds
intends to limit its transactions in futures contracts and options so that not
more than 5% of the Fund's net assets are at risk. Furthermore, in no event
would any Fund purchase or sell futures contracts, or related options thereon,
for hedging purposes if, immediately thereafter, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract (or futures option) is traded, plus any premiums paid
by the Fund on its open futures options positions, exceeds 5% of the Fund's
total assets, after taking into account any unrealized profits and unrealized
losses on the Fund's open contracts and excluding the amount that a futures
option is "in-the-money" at the time of purchase. (An option to buy a futures
contract is "in-the-money" if the value of the contract that is subject to the
option exceeds the exercise price; an option to sell a futures contract is
"in-the-money" if the exercise Price exceeds the value of the contract that is
subject of the option.)
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Fund may use interest rate futures as a defense,
or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it hopes
to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
B-1
<PAGE>
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. A Fund would deal
only in standardized contracts on recognized changes. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association ("GNMA") modified pass-through
mortgage-backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
Examples of Futures Contract Sale. A Fund would engage in an interest rate
futures contract sale to maintain the income advantage from continued holding of
a long-term bond while endeavoring to avoid part or all of the loss in market
value that would otherwise accompany a decline in long-term securities prices.
Assume that the market value of a certain security in a Fund tends to move in
concert with the futures market prices of long-term United States Treasury bonds
("Treasury Bonds"). The Adviser wishes to fix the current market value of this
portfolio security until some point in the future. Assume the portfolio security
has a market value of 100, and the Adviser believes that, because of an
anticipated rise in interest rates, the value will decline to 95. The Fund might
enter into futures contract sales of Treasury bonds for an equivalent of 98. If
the market value of the portfolio securities does indeed decline from 100 to 95,
the equivalent futures market price for the Treasury bonds might also decline
from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Future Contract Purchase. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter-term securities
whose yields are greater than those available on long-term bonds. The Fund's
basic motivation would be to maintain for a time the income advantage from
investing in the short-term securities; the Fund would be endeavoring at the
same time to eliminate the effect of all or part of an expected increase in
market price of the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the Adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9-1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury
B-2
<PAGE>
bonds might also rise from 98 to 103. In that case, the 5-point increase in the
price that the Fund pays for the long-term bond would be offset by the 5-point
gain realized by closing out the futures contract Purchase.
The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued incremental
income will be reduced by the loss realized on closing out the futures contract
purchase.
In each transaction, expenses also would be incurred.
II. Index Futures Contracts.
A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contract, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100, the
Bond Buyer Municipal Bond Index, an index composed of 40 term revenue and
general obligation bonds, or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a decrease in
market value of its portfolio securities that might otherwise result from a
market decline. The Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in anticipation of
changes in the composition of its portfolio holdings. For example, in the event
that a Fund expects to narrow the range of industry groups represented in its
holdings it may, prior to making purchases of the actual securities, establish a
long futures position based on a more restricted index, such as an index
comprised of securities of a particular industry group. A Fund also may sell
futures contracts in connection with this strategy, in order to protect against
the possibility that the value of the securities to be sold as part of the
restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net of
commissions and premiums, if any).
B-3
<PAGE>
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objection Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
<S> <C> <C>
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Contract
Price = $2,500 Gain on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future Hedge
Objective Protect Against Declining (Value of the Portfolio)
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1 0
<TABLE>
<CAPTION>
Portfolio Futures
<S> <C>
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Gain on Futures = $40,000
Value = $40 000
</TABLE>
If, however, the market moved in the opposite direction, that is, market
value decreased and the Fund had entered into an anticipatory purchase hedge, or
market value increased and the Fund had hedged its stock portfolio, the results
of the Fund's transactions in stock index futures would be as set forth below.
B-4
<PAGE>
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objection: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
<S> <C>
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Loss on Futures = $2,500
Price = $2,500 Contract
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1 0
<TABLE>
<CAPTION>
Portfolio Futures
<S> <C>
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
Value = $40 000
</TABLE>
III. Margin Payments
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's Custodian an amount of cash or cash equivalents, the value, of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent
B-5
<PAGE>
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying security or index fluctuates making
the long and short positions in the futures contract more or less valuable, a
process known as marking to the market. For example, when a Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where a Fund has purchased a
futures contract and the price of the futures contract has declined in response
to a decrease in the underlying instruments, the position would be less
valuable, the Fund would be required to make a variation margin payment to the
broker. At any time prior to expiration of the futures contract, the Adviser may
elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
IV. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by a Fund as
a hedging device. One risk arises because of the imperfect correlation between
movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of securities
being hedged has moved in an unfavorable direction, the Fund would be in a
better position than if it had not hedged at ail. If the price of the securities
being hedged has moved in a favorable direction, this advance will be partially
offset by the loss on the future. If the price of the future moves more than the
price of the hedged securities, the Fund involved will experience either a loss
or gain on the future which will not be completely offset by movements in the
price of the securities which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of securities being hedged if the volatility over a particular time
period of the prices of such securities has been greater than the volatility
over such time period of the future, or if otherwise deemed to be appropriate by
the Adviser. Conversely, a Fund may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the securities being
hedged is less than the volatility over such time period of the futures contract
being used, or if otherwise deemed to be appropriate by the Adviser. It also is
possible that, where a Fund has sold futures to hedge its portfolio against a
decline in the market, the market may advance, and the value of securities held
by the Fund may decline. If this occurred, the Fund would lose money on the
future and also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's Custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking
B-6
<PAGE>
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of Price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Adviser still may not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if a Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.
V. Options on Futures Contracts.
The Funds may purchase options on the futures contracts described above. A
futures option gives the holder, in return for the premium paid, the right to
buy (call) from or sell (put) to the writer of the option a futures contract at
a specified price at any time during the period of the option. Upon exercise,
the writer of the option is obligated to pay the difference between the cash
value of the futures contract and the exercise price. Like the buyer or seller
of a futures contract, the holder, or writer, of an option has the right to
terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of the securities being
hedged, an option may or may not be less risky than ownership of the futures
contract or such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to a Fund because the maximum amount at risk is the premium paid
for the
B-7
<PAGE>
options (plus transaction costs). Although permitted by their fundamental
investment policies, the Funds do not currently intend to write future options,
and will not do so in the future absent any necessary regulatory approvals.
Accounting and Tax Treatment.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
Generally, futures contracts and options on futures contracts held by a
Fund at the close of the Fund's taxable year will be treated for Federal income
tax purposes as sold for their fair market value on the last business day of
such year, a process known as "marking-to-market." Forty percent (40%) of any
gains or loss resulting from such constructive sale will be treated as
short-term capital gain or loss and sixty percent (60%) of such gain or loss
will be treated as long-term capital gain or loss without regard to the length
of time the Fund holds the futures contract or option (the "40%-60% rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those futures contracts will be adjusted to reflect
any capital gain or loss taken into account by the Fund in a prior year as a
result of the constructive sale of the contracts and options. With respect to
futures contracts to sell or options which will be regarded as parts of a "mixed
straddle" because their values fluctuate inversely to the values of specific
securities held by the Fund, losses as to such contracts to sell or options will
be subject to certain loss deferral rules which limit the amount of loss
currently deductible on either part of the straddle to the amount thereof which
exceeds the unrecognized gain (if any) with respect to the other part of the
straddle, and to certain wash sales regulations. Under short sales rules, which
also will be applicable, the holding period of the securities forming part of
the straddle will (if they have not been held for the long-term holding period)
be deemed not to begin prior to termination of the straddle. With respect to
certain futures contracts and options, deductions for interest and carrying
charges will not be allowed. Notwithstanding the rules described above, with
respect to futures contracts to sell which are properly identified as such and
certain options, a Fund may make an election which will except (in whole or in
part) those identified futures contracts or options from being treated for
Federal income tax purposes as sold on the last business day of the Fund's
taxable year, but gains and losses will be subject to such short sales, wash
sales, loss deferral rules and the requirement to capitalize interest and
carrying charges. Under temporary regulations, a Fund would be allowed (in lieu
of the foregoing) to elect to either (1) offset gains or losses from portions
which are part of a mixed straddle by separately identifying each mixed straddle
to which such treatment applies, or (2) establish a mixed straddle account for
which gains and losses would be recognized and offset on a periodic basis during
the taxable year. Under either election, the 40%-60% rule will apply to the net
gain or loss attributable to the futures contracts, but in the case of a mixed
straddle account election, not more than 50% of any net gain may be treated as
long-term and not more than 40% of any net loss may be treated as short-term.
Certain foreign currency contracts entered into by a Fund may be subject
to the "marking-to-market" process and the 40%-60% rule in a manner similar to
that described in the preceding paragraph for futures contracts and options on
futures contracts. To receive such Federal income tax treatment, a foreign
currency contract must meet the following conditions: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts.
Other foreign currency contracts entered into by a Fund may result in the
creation of one or more straddles for Federal income tax purposes, in which case
certain loss deferral, short sales, and wash sales rules and the requirement to
capitalize interest and carrying charges may apply.
As described more fully in the section of the SAI entitled
"Additional Information Concerning Taxes," in order to qualify as a
regulated investment company under the Code a Fund must derive less
than 30% of its gross income from investments held for less than three
months. With respect to futures contracts and other financial
instruments subject to the marking-to-market rules, the Internal
Revenue Service has ruled in private letter rulings that a gain
realized from such a futures contract or financial instrument will be
treated as being derived from a security held for three months or more
(regardless of the actual period for which the contract or instrument
is held) if the gain B-8 <PAGE>
arises as a result of a constructive sale under the marking-to-market rules, and
will be treated as being derived from a security held for less than three months
only if the contract or instrument is terminated (or transferred) during taxable
year (other than by reason of marking-to-market) and less than three months have
elapsed between the date the contract or instrument is acquired and the
termination date. In determining whether the 30% test is met for a taxable year,
increases and decreases in the value of each Fund's futures contracts and other
investments that qualify as part of a "designated hedge," as defined in the
Code, may be netted.
B-9
<PAGE>
C-1
dc14452
SCHEDULE C
ADDITIONAL INFORMATION CONCERNING
MORTGAGE-BACKED SECURITIES
Mortgage-Backed Securities
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.
Interests in pools of mortgage-backed securities differ from other forms
of debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their residential
mortgage loans, net of any fees paid. Additional payments are caused by
repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation (FHLMC). FHLMC is a corporate instrumentality of the U.S. Government
and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("PC's"), which represent interests in mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal.
The Federal National Mortgage Association (FNMA) is a Government sponsored
corporation owned entirely by private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved sellers/servicers which include
state and federally-chartered savings and loan associations, mutual savings
banks, commercial banks and credit unions and mortgage bankers. Pass-through
securities issued by FNMA are guaranteed as to timely payment of principal and
interest by FNMA.
The principal Government guarantor of mortgage-backed securities is the
Government National Mortgage Association (GNMA). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than Government and Government-related pools because there are no
direct or indirect Government guarantees of payments in the former
C-1
<PAGE>
pools. However, timely payment of interest and principal of these pools is
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance purchased by the issuer. The insurance
and guarantees are issued by Governmental entities, private insurers, and the
mortgage poolers. There can be no assurance that the private insurers or
mortgage poolers can meet their obligations under the policies.
The Fund expects that Governmental or private entities may create mortgage
loan pools offering pass-through investments in addition to those described
above. The mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payment
may vary or whose terms to maturity may be shorter than previously customary. As
new types of mortgage-backed securities are developed and offered to investors,
certain Funds will, consistent with their investment objective and policies,
consider making investments in such new types of securities.
Underlying Mortgages
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, a Fund may purchase pools of variable rate mortgages
(VRM), growing equity mortgages (GEM), graduated payment mortgages (GPM) and
other types where the principal and interest payment procedures vary. VRM's are
mortgages which reset the mortgage's interest rate periodically with changes in
open market interest rates. To the extent that the Fund is actually invested in
VRM's, the Fund's interest income will vary with changes in the applicable
interest rate on pools of VRM's. GPM and GEM pools maintain constant interest
rates, with varying levels of principal repayment over the life of the mortgage.
These different interest and principal payment procedures should not impact the
Fund's net asset value since the prices at which these securities are valued
will reflect the payment procedures.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance companies.
Average Life
The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, a pool's term may be shortened by
unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage, and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rated 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life.
Returns on Mortgage-Backed Securities
Yields on mortgage-backed pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. Actual prepayment experience may cause the yield to differ from
the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yields of the Fund. The
compounding effect from reinvestments of monthly payments received by the Fund
will increase its yield to shareholders, compared to bonds that pay interest
semi-annually.
C-2
<PAGE>
NATIONS
- -------
FUND
ANNUAL
NATIONS PRIME FUND
For the Year Ended May 31, 1995
NATIONS TREASURY FUND
REPORT
NATIONS EQUITY
INCOME FUND
NATIONS GOVERNMENT
SECURITIES FUND
NATIONS INTERNATIONAL
EQUITY FUND
<PAGE>
- -------------------------------------------------------------------------------
NATIONS FUND AND OTHER MUTUAL FUNDS ARE NOT FDIC INSURED AND ARE NOT OBLIGATIONS
OF, ENDORSED BY, DEPOSITS IN, OR GUARANTEED BY NATIONSBANK, N.A. (CAROLINAS)
("NATIONSBANK") OR ANY OF ITS AFFILIATES. INVESTMENTS IN MUTUAL FUNDS AND OTHER
INVESTMENT PRODUCTS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL INVESTED.
NATIONS FUND DISTRIBUTOR: STEPHENS INC. STEPHENS INC., WHICH IS NOT AFFILIATED
WITH NATIONSBANK, IS NOT A BANK AND SECURITIES OFFERED BY IT ARE NOT GUARANTEED
BY ANY BANK OR INSURED BY THE FDIC. STEPHENS INC., MEMBER NYSE-SIPC.
NATIONS FUND INVESTMENT ADVISER: NATIONSBANK
- -------------------------------------------------------------------------------
<PAGE>
NATIONS FUND, INC.
DEAR SHAREHOLDER:
We are pleased to present the annual fiscal results for Nations Fund, Inc. for
the year ended May 31, 1995. During this fiscal year, the assets in the Nations
Fund family of funds continued to grow, recently surpassing the $16 billion
level. We are pleased with this growth and feel it is only appropriate to thank
our shareholders for placing their confidence in our portfolios.
FINANCIAL MARKETS SUMMARY
The complexion of financial markets can change rapidly in today's investment
world. Through the second half of 1994, the stock and bond markets struggled
with a variety of tough financial issues. However, as the new year unfolded,
investors suddenly discovered a near-ideal world for the investment of financial
assets. As we look forward to the remainder of 1995 and begin to anticipate
1996, it is important to draw some lessons from the past twelve months. It is
interesting to note that most of the lessons derived from last year's activity
are not new. Past economic and credit cycles have presented investors with
similar opportunities and pitfalls as we discuss below.
As a result of the rise in interest rates in the summer and fall of 1994, many
investors learned painful lessons in financial speculation. Examples include the
significant losses in hedge funds, the Orange County, California bankruptcy
filing, and the demise of United Kingdom-based Barings Securities Plc. All three
situations produced serious losses for those who chose to reach for additional
return without paying proper attention to risk. Many of these losses could be
directly attributed to the speculative use of derivative securities.
The term "derivative" is used to describe a wide range and variety of financial
instruments. Derivatives include any security whose performance is linked to the
behavior of another security or market index. Traditional derivatives include
exchange-traded options and futures contracts. While derivative securities
inherently are neither good nor bad, they can be used in ways that lead to
greater losses, as seen in the case of Orange County and Barings Securities Plc.
Derivatives, however, can be effectively used.
Perhaps this lesson taught us something even more important -- that our
financial system is sound. While these episodes initially created great
discomfort, our capital markets proved they could absorb the blows.
Late in 1994, the devaluation of the Mexican peso introduced another element of
uncertainty into the financial markets. Although the decline in Mexican stock
prices was dramatic and the financial pain in Mexico continues to be real, our
financial markets and institutions were able to withstand the crisis. In
addition, the problem in Mexico helped to drive a great deal of excess out of
the emerging markets sector, which helped to adjust stock prices to more
realistic levels and create a more favorable environment for foreign investment.
The U.S. economy experienced strong growth in 1994 with little in the way of
inflationary pressure. Throughout 1994, and into early 1995, the Federal Reserve
Board repeatedly raised short-term interest rates in order to control inflation.
As we prepare to move into the second half of 1995, we can see that this policy
has clearly produced positive results for investors. Slow economic growth and
low inflation are ideal conditions for maximizing the potential of your
financial assets.
Those investors who had the courage to resist doing the wrong thing at the wrong
time earlier in the year are in the best position to reap the benefits of the
present environment. At various points in 1994, many investors were tempted to
sell financial assets because they believed that the economy might overheat or
that inflation might suddenly accelerate. However, a sound investment strategy
requires a steady hand and a long-term perspective. By early 1995, the benefits
of patience and conviction were already being reflected in the performance of
many stock and bond portfolios.
FINANCIAL OUTLOOK
We expect the investment environment to remain positive over the next twelve
months. The economy, in our view, will continue to slow. However, continued
corporate investment in productivity and technology, combined with modest
consumer spending, should produce a pattern of moderate economic growth. As we
speculate on events yet to take place in Washington, we see a major shift toward
downsizing in government, which should be received favorably by the financial
markets.
Unquestionably, we will experience setbacks in stock and bond prices.
Volatility, after all, is an essential component of any financial market.
However, investors who shun speculation, believe in the soundness of our
financial system, build diversified investment portfolios and act with
conviction on their long-term beliefs may be well positioned to reap potential
1
<PAGE>
market rewards. It is our belief that an investment philosophy built on these
principles should serve us well in the years to come. We remain committed to
meeting the investment challenges that lie ahead.
WHAT SHOULD STOCK MUTUAL FUND INVESTORS CONSIDER DOING?
While we are not in a position to recommend specific steps that an individual
investor should take, the following represent general information and investment
strategies that stock mutual fund investors may want to consider. Remember,
specific investment recommendations should always be based on an analysis of
your individual financial goals, tolerance for risk, and investment time frame.
Your investment representative can best help you develop a strategy reflecting
your needs and goals.
DIVERSIFY YOUR INVESTMENT PORTFOLIO. A well-diversified investment portfolio
can help establish a level of risk and potential reward in line with your
investment time frame and goals. To do so, you should allocate assets among
stock, bond and money market investments.
MAINTAIN A LONG-TERM PERSPECTIVE. While stock prices may rise and fall over the
short term, stocks historically have offered the greatest potential for
long-term gains among the traditional investment classes.
As the chart below shows, since 1926, a period which includes the Great
Depression, wars and recessions, stocks have historically outperformed all other
types of financial assets.
[CHART]
SMALL COMPANY STOCKS: Small company stocks are units of ownership of publicly
traded corporations, generally with a market capitalization of $50 million to
$1.5 billion as measured by the total value of outstanding stock.
COMMON STOCKS: Common stocks are units of ownership of a public corporation.
Prices fluctuate with market conditions and there is no guaranteed rate of
return. Performance of common stocks is measured by the S&P 500 Index, a
weighted index which measures the aggregate change in the market value of 400
industrial, 60 transportation and utility company stocks and 40 financial
issues. The S&P 500 Index is an unmanaged index.
LONG-TERM CORPORATE BONDS: Long-term corporate bonds are debt instruments
issued by public and private corporations. They are usually taxable and
typically have a par value of $1,000.
LONG-TERM GOVERNMENT BONDS: Long-term government bonds are debt securities
issued or guaranteed by the U.S. government, its agencies and instrumentalities
and backed by its full faith and credit. They offer stable principal value if
held to maturity. Long-term bonds have maturities of ten years or longer. While
long-term government bonds offer fixed rates of return, their prices will
fluctuate with market conditions.
TREASURY BILLS: U.S. Treasury bills are also debt securities issued by the U.S.
government and backed by its full faith and credit. U.S. Treasury bills offer
stable principal value if held to maturity which is one-year or less. While U.S.
Treasury bills offer fixed rates of return, their prices will fluctuate with
market conditions.
INFLATION: Inflation is the rise in the prices of goods and services that takes
place when spending increases relative to the supply of goods and services on
the market. Inflation is measured by the Consumer Price Index (CPI), which is
also known as the Cost of Living Index and is determined by the U.S. Bureau of
Labor Statistics.
*Source: STOCKS, BONDS, BILLS AND INFLATION 1995 YEARBOOK(TM), Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved.
This chart represents historical performance. It is intended for illustrative
purposes only and is not intended to be representative of the past or future
performance of any particular investment. Performance of investments in each of
these types of securities may differ for future periods and will vary with
market conditions.
2
<PAGE>
CONSIDER A SYSTEMATIC INVESTMENT STRATEGY. Investing regularly through a method
called "dollar cost averaging" involves investing a consistent dollar amount at
regular intervals. Using this method, you will buy fewer shares when prices are
high and more shares when prices are low. As a long-term investment strategy,
dollar cost averaging may help you average down the overall cost of your shares
over time. Please note that while a program of regular investing can help reduce
risk, it cannot assure a profit or protect against a loss in a declining market.
Since such a program involves continuous investment regardless of fluctuating
share values, investors should consider their financial ability to continue the
program through periods of low share prices.
CONSULT AN INVESTMENT REPRESENTATIVE. A professional investment representative
can help you to develop a long-term investment strategy that reflects your
goals, time frame and tolerance for risk. He or she is available to provide
information on allocating investment assets, or answer questions about specific
investments.
There are many factors that will affect a stock's share price -- from changes in
supply and demand for a particular company's products or services, to overall
economic and financial market conditions.
When held for long periods of time -- five years or more -- stock market
investments will generally experience a series of ups and downs. In determining
the level of investment risk you are comfortable with, there are several key
points to consider:
- - Stocks can be unpredictable. Stock market investments are generally not
suitable for pursuing your short-term investment goals. It is rare that an
investor would be in a position to buy and sell a particular stock in a short
period of time and make a substantial profit.
- - Invest for the long term. The longer your investment time frame, the better
your chances are of weathering stock market downturns.
- - Avoid placing all of your eggs in one basket. Spread your investment dollars
among several different stock market investments or among different types of
securities to seek to reduce the risk of principal loss should a particular
investment perform poorly.
WHAT SHOULD BOND MUTUAL FUND INVESTORS CONSIDER DOING?
Again, while we are not in a position to recommend specific steps that an
individual investor should take, the following represent general information and
investment strategies that bond mutual fund investors may want to consider.
Remember, specific investment recommendations should always be based on an
analysis of your individual financial goals, tolerance for risk, and investment
time frame. Your investment representative can best help you develop a strategy
reflecting your needs and goals.
Bond funds offer the potential to receive regular dividend income -- usually on
a monthly basis. Like stocks, bond prices may fluctuate as market conditions and
interest rates change. The highest yields are generally found in funds that
invest in long-term bonds or in lower quality bonds where share prices tend to
fluctuate more. High quality short-term bonds generally offer the least price
fluctuation.
HOW INTEREST RATES AFFECT BONDS. As market interest rates fall, bond prices
rise. As market interest rates rise, bond prices fall. One type of risk that
bond investors face is that the price of a bond will decline in a rising
interest rate environment. For instance, an investor holding a U.S. Treasury
bond earning 7% annually may have difficulty selling that bond in a rising
interest rate environment. A 7% bond becomes less attractive when newly issued
bonds offering 8% annually can be purchased.
Longer-term bonds are more sensitive to interest rate changes than short- or
intermediate-term bonds. The longer the time period until your investment
matures, the more price fluctuation the investment may incur. Many investors
choose to invest in short- or intermediate-term bonds to seek to reduce interest
rate risk.
HOW TAXES AFFECT BOND RETURNS. Municipal bonds provide investors the option to
earn a portion of their bond returns through tax-exempt coupon payments. Unlike
other bond coupons, which would be subject to federal, state and perhaps local
income taxes, the coupons paid by municipal bonds are exempt from some or all of
these taxes. While investors could earn taxable gains or losses on the price
change due to interest rate changes on their municipal bonds, the exempt feature
of the income stream is of considerable benefit to many investors. Investors
should consider the potential federal and state tax advantages of municipal bond
mutual funds when assessing their overall investment portfolio needs. Nations
Fund offers 19 different municipal bond funds to serve a variety of taxpayer
needs.
3
<PAGE>
INTEREST RATE PROTECTION THROUGH PORTFOLIO LADDERING.1 Portfolio laddering is
the process of investing in securities with different maturity dates to seek to
reduce a portfolio's overall price fluctuation and provide protection regardless
of the direction of interest rate movements. To build a portfolio ladder,
investments can be divided among bond mutual funds with short-, intermediate-
and long-term maturities. The exact mix will depend upon your investment
objectives and the current interest rate environment. Nations Fund offers a
comprehensive selection of fixed-income investment portfolios for this purpose.
UNDERSTANDING CREDIT RISK. One of the difficulties many investors face in
selecting individual bonds is judging credit quality. Bond ratings are based on
the bond issuer's ability to make interest payments and to repay the loan.
Ratings are typically determined by one or more highly-regarded rating services
such as Moody's Investor Service, Inc. or Standard & Poor's Corporation. While
bond ratings are based on in-depth research and analysis, and careful
examination of the issuer's financial situation, they are not a guarantee of
repayment of the loan at maturity.
MUTUAL FUNDS PROVIDE ACCESS TO IN-DEPTH CREDIT RESEARCH AND ANALYSIS. The
selection of quality bonds for your portfolio is dependent upon in-depth
research and credit analysis. For most investors, this can be difficult and time
consuming. Mutual funds offer the advantage of professional research, analysis
and portfolio management. Experienced investment managers are dedicated to
selecting appropriate investments and managing portfolios to pursue specific
investment goals.
THE NATIONS FUND ADVANTAGE
A family of mutual funds provides investors with a number of advantages,
including the ability to shift investment assets among funds as your financial
objectives or market conditions change.2 Nations Fund provides a broad array of
professionally managed stock, bond and money market mutual funds advised by
NationsBank, N.A. (Carolinas). The Nations Fund family of mutual funds was
designed to accommodate a wide variety of investment objectives across the
risk/reward spectrum.
For specific information on allocating assets to more closely target your
investment objectives, contact your investment representative. He or she can
provide additional information, including fund prospectuses. Prospectuses
contain more complete information on the funds, including charges and expenses.
Always read a fund's prospectus carefully before investing or sending money.
We hope this information proves valuable in the development of your investment
strategy. We look forward to helping you pursue your investment goals.
Sincerely,
/s/ A. Wax Walker
- ------------------
A. Max Walker
President and Chairman
of the Board
May 31, 1995
1Portfolio laddering does not reduce market risk and the principal and yield of
investment securities will fluctuate with changes in market conditions.
2Exchange privileges may be amended with 60-days written notice from the Fund.
4
<PAGE>
EFFECTIVE ASSET ALLOCATION THROUGH THE NATIONS FUND FAMILY
Nations Fund portfolios span the risk/reward spectrum providing investors with
the ability to pursue a wide range of objectives within a single fund family.
Stock, bond and money market portfolios allow investors to pursue short-,
intermediate-, and long-term investment goals ranging from preservation of
principal to capital accumulation*.
[CHART]
* Mutual fund investment returns will fluctuate with market conditions so that
shares, when redeemed, may be worth more or less than original cost. Money
market instruments are neither insured nor guaranteed by the U.S. government.
While money market funds strive to maintain a constant $1.00 per share, there
can be no assurance that the funds will be able to maintain a stable net
asset value.
** Trust classes only.
5
<PAGE>
NATIONS FUND
A PORTFOLIO FOR EVERY INVESTOR
Since 1874, NationsBank, investment adviser to the Nations Fund family of mutual
funds, has built its success upon a long-standing commitment of quality service
to customers. Conditions change rapidly in the financial world, but the
requirements for sustained success remain constant: quality products and
services; a responsible investment philosophy; and a wealth of knowledge and
resources.
These characteristics are the guiding principles behind a family of mutual funds
with you, the Nations Fund investor, in mind. All of the funds are advised by
and made available through NationsBank, which, with its affiliates, has more
than $171 billion in assets, over seven million clients, and one of the
country's largest branch systems.
As investment adviser, NationsBank provides professional management of your
money which parallels the approach that has established NationsBank and its
affiliates as leaders in trust and institutional investment services, currently
managing over $57 billion.
A responsible investment approach guides every decision within the Nations Fund
family, whether the goal is based on long-term growth or current income. These
decisions are backed by substantial professional resources consisting of
experienced equity and fixed income analysts, researchers and portfolio
managers.
There are currently 39 funds in the Nations Fund family, with assets totaling
over $16 billion, to help you with retirement planning, college savings or any
other long-range financial goal.
FOR GROWTH OF CAPITAL
(Investments primarily in stocks)
- -----------------------------------
NATIONS CAPITAL GROWTH FUND
Objective: To seek long-term capital appreciation.
Approach: Invests in stocks with superior growth characteristics, selling at
reasonable prices, that should outperform the market over time. The Fund
focuses on companies with assets over $500 million. Selection criteria include
above average growth potential, solid financials, and above average return on
equity and earnings growth relative to the S&P 500 Index.
NATIONS EMERGING GROWTH FUND
Objective: To seek capital appreciation.
Approach: Invests in common stocks and convertible securities that are
expected to demonstrate superior earnings growth relative to most publicly
traded companies. Companies selected will have revenues of $50 million to $1.5
billion, a debt ratio of less than 50% of total capital, and generally less
than $2 billion in capitalization.
NATIONS EQUITY INDEX FUND*
Objective: To seek investment results that correspond, before fees and
expenses, to the total return of common stocks publicly traded in the U.S., as
represented by the S&P 500 Index.
Approach: Portfolio holdings are structured according to the S&P 500 Index in
an effort to duplicate the performance of the Index.
NATIONS DISCIPLINED EQUITY FUND (formerly Nations Special Equity Fund)
Objective: To seek long-term capital appreciation.
Approach: Invests primarily in common stocks of companies exhibiting the
potential for significant increases in their earnings per share.
NATIONS INTERNATIONAL
EQUITY FUND
Objective: To seek long-term growth of capital.
Approach: Invests primarily in an internationally diversified portfolio of
marketable equity securities of non-U.S. issuers. The Fund may invest in
countries located in the Far East, Western Europe, Australia and other
countries.
FOR GROWTH AND INCOME
(Investments primarily in stocks)
- -----------------------------------
NATIONS EQUITY INCOME FUND
Objective: To seek 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 NationsBank believes have favorable
prospects for increasing dividend income and/or capital appreciation.
Approach: Invests in common stocks
and convertible securities that together exhibit above average current dividend
yields relative to that of the S&P 500 Index. Selects stocks of companies
exhibiting five years of stable or increasing dividends, established operating
histories, strong balance sheets and other favorable financial characteristics.
NATIONS VALUE FUND
Objective: To seek long-term capital growth with income a secondary
consideration.
Approach: Utilizes a fundamental approach focusing on individual company value
and projected earnings per share. The Fund seeks to invest in companies with
above market dividend yield, low price-to-earnings ratios and more than $300
million in assets. Investments are diversified across all major industries and
economic sectors.
FOR GROWTH OF INCOME, CURRENT
INCOME AND GROWTH OF CAPITAL
(Investments in stocks, bonds and money markets)
- ------------------------------------------------
NATIONS BALANCED ASSETS FUND
Objective: Total investment return through a combination of growth of capital
and current income consistent with the preservation of capital.
Approach: Allocates assets among common stocks, bonds and money market
instruments. Seeks stocks of high quality companies with above average earnings
potential and return on equity. Potential volatility is reduced through
inclusion of investment grade bonds.
6
<PAGE>
FOR CURRENT INCOME
(Investments in fixed income obligations)
- -----------------------------------------
NATIONS
SHORT-INTERMEDIATE
GOVERNMENT FUND
Objective: To seek as high a level of current income as is consistent with
prudent investment risk.
Approach: Invests in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities, and repurchase agreements relating to such
obligations. Under normal market conditions, the Fund is expected to have an
average dollar weighted maturity of between two and seven years.#
NATIONS MANAGED BOND FUND [pyramid]
Objective: To seek a high level of current income consistent with relative
stability of principal.
Approach: Invests primarily in investment grade corporate and government fixed
income and related securities. Under normal market conditions, the Fund is
expected to have an average weighted maturity of between five and fifteen
years.
NATIONS SHORT-TERM
INCOME FUND
Objective: To seek as high a level of current income as is consistent with
prudent investment risk.
Approach: Invests primarily in investment grade corporate and mortgage-backed
bonds. Under normal market conditions, the Fund is expected to have an average
dollar weighted maturity of three years or less.
NATIONS DIVERSIFIED
INCOME FUND
Objective: To seek as high a level of current income as is consistent with
prudent investment risk.
Approach: Invests in a broad range of corporate, government and agency fixed
income securities, and may include no more than 35% below investment grade.
NATIONS STRATEGIC
FIXED INCOME FUND
Objective: To seek to maximize total investment return through the active
management of fixed income securities.
Approach: Invests primarily in a mix of investment grade corporate, government
and mortgage-backed securities.
NATIONS GOVERNMENT
SECURITIES FUND
Objective: To seek to provide current
income and preservation of capital.
Approach: Invests in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities.#
FOR CURRENT INCOME
(Investments in fixed income obligations)
- -----------------------------------------
NATIONS ADJUSTABLE RATE
GOVERNMENT FUND
Objective: To seek a high level of current income consistent with minimum
fluctuation of share price.
Approach: Invests primarily in adjustable rate mortgage-backed securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.#
NATIONS MORTGAGE-BACKED
SECURITIES FUND*
Objective: To seek as high a level of total investment return as is consistent
with prudent investment risk.
Approach: Invests primarily in mortgage-backed securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities.#
FOR TAX-EXEMPT INCOME
(Investments in municipal securities)
- -------------------------------------
NATIONS MUNICIPAL INCOME FUND+
Objective: To seek a high level of current interest income that is exempt from
federal income taxes.
Approach: Invests primarily in investment grade tax-exempt obligations across
a wide range of municipalities and geographic regions to add diversity to the
Fund.
NATIONS INTERMEDIATE
MUNICIPAL BOND FUND+
Objective: To seek higher than money market yields.
Approach: Invests primarily in intermediate-term, investment grade municipal
securities which make interest payments that are exempt from federal income
taxes.
NATIONS SHORT-TERM
MUNICIPAL INCOME FUND+
Objective: To seek a high level of current interest income that is exempt from
federal income taxes.
Approach: Invests primarily in short-term (average weighted maturity 1 - 3
years) investment grade tax-exempt obligations across a wide range of
municipalities and geographic regions to add diversity to the Fund.
NATIONS FLORIDA
INTERMEDIATE MUNICIPAL
BOND FUND+
Objective: To seek a high level of current interest income exempt from federal
income and the Florida state intangibles tax, consistent with relative
stability of principal.
Approach: Invests substantially all of its assets in Florida intermediate
municipal bonds, including those used to support projects that benefit the
public, such as roads, bridges, hospitals and schools.
FOR TAX-EXEMPT INCOME
(Investments in municipal securities)
- -----------------------------------
NATIONS FLORIDA
MUNICIPAL BOND FUND+
Objective: To seek a high level of current interest income exempt from federal
income and the Florida state intangibles tax, consistent with relative
stability of principal.
Approach: Invests substantially all of its assets in Florida municipal bonds,
including those used to support projects that benefit the public, such as
roads, bridges, hospitals and schools.
NATIONS GEORGIA
INTERMEDIATE
MUNICIPAL BOND FUND+
Objective: To seek a high level of current interest income exempt from federal
and Georgia state income taxes and state intangibles taxes, consistent with
relative stability of principal.
Approach: Invests substantially all of its assets in Georgia intermediate
municipal bonds, including those used to support projects that benefit the
public, such as roads, bridges, hospitals and schools.
NATIONS GEORGIA
MUNICIPAL BOND FUND+
Objective: To seek a high level of current interest income exempt from federal
and Georgia state income taxes and state intangibles taxes, consistent with
relative stability of principal.
Approach: Invests substantially all of its assets in Georgia municipal bonds,
including those used to support projects that benefit the public, such as
roads, bridges, hospitals and schools.
NATIONS MARYLAND
INTERMEDIATE MUNICIPAL
BOND FUND+
Objective: To seek a high level of current interest income exempt from both
federal and Maryland state income taxes, consistent with relative stability of
principal.
Approach: Invests substantially all of its assets in Maryland intermediate
municipal bonds, including those used to support projects that benefit the
public, such as roads, bridges, hospitals and schools.
NATIONS MARYLAND
MUNICIPAL BOND FUND+
Objective: To seek a high level of current interest income exempt from both
federal and Maryland state income taxes, consistent with relative stability of
principal.
Approach: Invests substantially all of its assets in Maryland municipal bonds,
including those used to support projects that benefit the public, such as
roads, bridges, hospitals and schools.
7
<PAGE>
FOR TAX-EXEMPT INCOME
(Investments in municipal securities)
- -------------------------------------
NATIONS NORTH CAROLINA
INTERMEDIATE MUNICIPAL
BOND FUND+
Objective: To seek a high level of current interest income exempt from federal
and North Carolina state income taxes and state intangibles taxes, consistent
with the relative stability of principal.
Approach: Invests substantially all of its assets in North Carolina
intermediate municipal bonds, including those used to support projects that
benefit the public, such as roads, bridges, hospitals and schools.
NATIONS NORTH CAROLINA
MUNICIPAL BOND FUND+
Objective: To seek a high level of current interest income exempt from federal
and North Carolina state income taxes and state intangibles taxes, consistent
with the relative stability of principal.
Approach: Invests substantially all of its assets in North Carolina municipal
bonds, including those used to support projects that benefit the public, such
as roads, bridges, hospitals and schools.
NATIONS SOUTH CAROLINA
INTERMEDIATE MUNICIPAL
BOND FUND+
Objective: To seek a high level of current interest income exempt from both
federal and South Carolina state income taxes, consistent with relative
stability of principal.
Approach: Invests substantially all of its assets in South Carolina
intermediate municipal bonds, including those used to support projects that
benefit the public, such as roads, bridges, hospitals and schools.
NATIONS SOUTH CAROLINA
MUNICIPAL BOND FUND+
Objective: To seek a high level of current interest income exempt from both
federal and South Carolina state income taxes, consistent with relative
stability of principal.
Approach: Invests substantially all of its assets in South Carolina municipal
bonds, including those used to support projects that benefit the public, such
as roads, bridges, hospitals and schools.
NATIONS TENNESSEE
INTERMEDIATE MUNICIPAL
BOND FUND+
Objective: To seek a high level of current interest income exempt from both
federal and Tennessee state income taxes, consistent with relative stability of
principal.
Approach: Invests substantially all of its assets in Tennessee intermediate
municipal bonds, including those used to support projects that benefit the
public, such as roads, bridges, hospitals and schools.
NATIONS TENNESSEE
MUNICIPAL BOND FUND+
Objective: To seek a high level of current interest income exempt from both
federal and Tennessee state income taxes, consistent with relative stability of
principal.
Approach: Invests substantially all of its assets in Tennessee municipal
bonds, including those used to support projects that benefit the public,
such as roads, bridges, hospitals and schools.
NATIONS TEXAS
INTERMEDIATE
MUNICIPAL BOND FUND+
Objective: To seek a high level of current interest income exempt from federal
income tax, consistent with the relative
stability of principal.
Approach: Invests substantially all of its assets in Texas intermediate
municipal bonds, including those used to support projects that benefit the
public, such as roads, bridges, hospitals and schools.
NATIONS TEXAS
MUNICIPAL BOND FUND+
Objective: To seek a high level of current interest income exempt from federal
income tax, consistent with the relative
stability of principal.
Approach: Invests substantially all of its assets in Texas municipal bonds,
including those used to support projects that benefit the public, such as
roads, bridges, hospitals and schools.
NATIONS VIRGINIA
INTERMEDIATE
MUNICIPAL BOND FUND+
Objective: To seek a high level of current interest income exempt from both
federal and Virginia state income taxes, consistent with relative stability of
principal.
Approach: Invests substantially all of its assets in Virginia intermediate
municipal bonds, including those used to support projects that benefit the
public, such as roads, bridges, hospitals and schools.
NATIONS VIRGINIA
MUNICIPAL BOND FUND+
Objective: To seek a high level of current interest income exempt from both
federal and Virginia state income taxes, consistent with relative stability of
principal.
Approach: Invests substantially all of its assets in Virginia municipal bonds,
including those used to support projects that benefit the public, such as
roads, bridges, hospitals and schools.
MONEY MARKET FUNDS
FOR CURRENT INCOME AND PRESERVATION
OF CAPITAL
(Investments in money market securities)
- ----------------------------------------
NATIONS PRIME FUND
Objective: To seek the maximization of current income to the extent consistent
with the preservation of capital and the maintenance of liquidity.
Approach: Invests in high quality money market instruments including bank
certificates of deposit, banker's acceptances and commercial paper.
NATIONS TREASURY FUND
Objective: The maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
Approach: Invests in U.S. Treasury obligations and repurchase agreements
secured by such obligations.#
NATIONS GOVERNMENT
MONEY MARKET FUND
Objective: To seek as high a level of current income as is consistent with
liquidity and stability of principal.
Approach: Invests in U.S. government obligations and repurchase agreements
relating to such obligations.#
NATIONS TAX EXEMPT FUND+
Objective: To seek as high a level of current interest income exempt from
federal income taxes as is consistent with liquidity and stability of
principal.
Approach: Invests in municipal securities, the interest on which is exempt
from regular federal income tax.
# The portfolio securities held by these funds are guaranteed as to the timely
payment of principal and interest only. This is not a guarantee of market
value of the shares of the funds themselves.
* Offers Trust A Shares only.
[pyramid] Offers Trust A Shares, Investor A Shares and Investor C Shares only.
+ A portion of income, from municipal bonds, received by shareholders may be
subject to some federal income, state and/or local tax and/or the federal
alternative minimum tax.
8
<PAGE>
NATIONS EQUITY INCOME FUND
PERFORMANCE AND COMMENTARY
INVESTMENT MANAGEMENT PROFILE
The Fund is managed by Eric Williams. Mr. Williams joined NationsBank in
1986. He is a Senior Vice President and Senior Portfolio Manager with over 14
years of investment experience. Mr. Williams received a B.S. from East Carolina
University, Summa Cum Laude, and an M.B.A. from Indiana University. He is on the
Advisory Board of Indiana University's Reese Investment Fund. He is a Chartered
Financial Analyst and a member of the Association for Investment Management and
Research.
INVESTMENT OBJECTIVE
The objective of the fund is to seek 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 NationsBank believes have favorable prospects
for increasing dividend income and/or capital appreciation. The Fund invests in
common stocks and convertible securities that together exhibit above average
current dividend yields relative to that of the S&P 500 Index. The Fund selects
stocks of companies exhibiting five years of stable or increasing dividends,
established operating histories, strong balance sheets and other favorable
financial characteristics.
PERFORMANCE SUMMARY AND OVERVIEW*
For the first half of the fiscal year, the stock market posted only a
modest advance. From the end of May 1994 until December 31, 1994, the S&P 500
Index returned only 2.30%**. Thereafter, the S&P 500 Index progressed at a rapid
pace, producing a 17.5% total return from January 1, 1995, through the Fund's
fiscal year end on May 31, 1995. Declining interest rates and improvement in
corporate profits were the sources of the stock market surge. The Fund profited
as well, returning 14.79% for the 12-month period ending May 31, 1995***. This
compares favorably to the 12.3% average annual total return among all equity
income funds during the same period****.
The Fund's performance was primarily the consequence of exceptional
individual stock selection, as opposed to gains from emphasizing individual
market sectors. In this regard, the best performing sector in the stock market
during the year was technology, a very volatile sector offering little income
yield. Because of this volatility, NationsBank generally devotes a smaller
percentage of Fund assets to the technology sector than is represented in the
S&P 500 Index. Nevertheless, the Fund's rather limited holdings in technology
stocks returned more than 51% during the year, while those represented in the
S&P 500 Index produced a return of 44%.
Other noteworthy sectors contributing to the Fund's performance include
investments in transportation and consumer durable stocks such as Ford, Echlin,
and Whirlpool. On balance, the Fund's positions in the transportation sector
increased 35% versus an overall 2.1% gain by transportation stocks in the S&P
500 Index. In addition, the Fund's holdings in consumer durable stocks
registered an increase of 20.5%, while those in the S&P 500 Index rose a
moderate 4.8%.
Utility stocks and investments in the capital goods sector were the only
equity sectors producing returns below the Fund's 14.79% return for the fiscal
year. Careful stock selection, however, allowed the Fund to outgain the S&P 500
Index in the utilities sector during the year, as the Fund's positions in
utilities issues gained 13%, while utilities stocks included in the S&P 500
Index gained only 8.25%. By contrast, the Fund's investments in capital goods
stocks were disappointing, with holdings advancing, on average, 10.7%, while
capital goods stocks in the S&P 500 Index rose 18.5%.
Looking ahead, current yields on long-term U.S. Treasury bonds provide
support for the stock market. These lower rates, now 6.5%, down from 8% in early
January, stem from data related to the economy suggesting a slowdown in business
activity. However, the stock market is susceptible to disappointing earnings as
we enter the Fund's fiscal year 1996. Many other factors, such as wage pressures
or failure to make further progress on the budget deficit, could cause interest
rates to rise again, leaving stocks vulnerable to a decline. As a result, the
Fund provides a greater than normal conservative posturing. As equity securities
offering good upside potential versus their downside risk are identified, the
Fund will position itself less defensively.
- ---------------
* The performance shown reflects the effect of fee waivers and/or expense
reimbursements by the investment adviser and administrator(s). Such fee waivers
and/or expense reimbursements have the effect of increasing total return.
** Source: Standard & Poor's Corporation. The S&P 500 Index is a weighted
index that measures the market value of 400 industrial stocks, 60 transportation
and utility company stocks and 40 financial issues.
*** Trust A Shares total return. The average annual total return from inception
on April 11, 1991, through May 31, 1995, was 12.25%.
**** Source: 1995 Lipper Analytical Services, Inc., an independent mutual fund
performance monitor. Fund averages have been used for illustrative purposes. It
is not possible for an investor to invest in fund averages.
9
<PAGE>
NATIONS FUND, INC.
Nations Equity Income Fund
- ---------------------------------------------
PORTFOLIO BREAKDOWN AS OF 5/31/95
- ---------------------------------------------
[CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------
TOP TEN EQUITY HOLDINGS AS A
% OF NET ASSETS AS OF 5/31/95
-------------------------------------------------------
<C> <S> <C>
1. American Telephone & Telegraph Company 1.57%
2. BCE Inc. 1.51
3. Sprint Corporation 1.32
4. Rhone-Poulenc Rorer 1.30
5. Consolidated Natural Gas Company 1.29
6. Equitable Resources Inc. 1.29
7. Texaco Inc. 1.28
8. Comsat Corporation, Series 1 1.27
9. GTE Corporation 1.26
10. PECO Energy Company 1.25
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR A SHARES AS OF 5/31/95
- -------------------------------------------------------------------------------
---------------------------------------
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------
<S> <C> <C>
YEAR ENDED 7.95% 14.53%
05/31/95
----------------------
INCEPTION
(04/16/91) 10.26% 11.86%
THROUGH
05/31/95
----------------------
Not
Adjusted for adjusted
maximum for
sales charge sales
of 5.75% charge
---------------------------------------
The chart to the right shows
the growth in value of a
hypothetical $10,000
investment in Investor A
Shares of Nations Equity
Income Fund on April 16,
1991 (inception). Figures
for the S&P 500 Index, an
unmanaged index of common
stock prices, include
reinvestment of dividends.
</TABLE>
[PIE CHART]
Assumes the deduction of the maximum sales charge of 5.75% and the
reinvestment of all distributions.
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
Portfolio holdings are subject to change periodically and may not be
representative of the Fund's current holdings.
10
<PAGE>
NATIONS FUND, INC.
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR C SHARES AS OF 5/31/95
- --------------------------------------------------------------------------------
-----------------------------------------
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------------
<S> <C> <C>
YEAR ENDED 12.49%* 13.49%
05/31/95
-----------------------
INCEPTION
(06/17/92) 10.99% 10.99%
THROUGH
05/31/95
-----------------------
*Adjusted Not
for adjusted
maximum for
contingent contingent
deferred deferred
sales charge sales
of 1.00% charge
-----------------------------------------
The chart to the right shows the growth in
value of a hypothetical $10,000 investment
in Investor C Shares of Nations Equity
Income Fund on June 17, 1992 (inception).
Investor C Shares that are redeemed within
one year of purchase are subject to a 1.00%
contingent deferred sales charge. Figures
for the S&P 500 Index, an unmanaged index of
common stock prices, include reinvestment of
dividends.
</TABLE>
[PIE CHART]
Assumes the reinvestment of all distributions.
<TABLE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR N SHARES AS OF 5/31/95
- --------------------------------------------------------------------------------
-----------------------------------------
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------------
<S> <C> <C>
YEAR ENDED 9.03% 14.03%
05/31/95
-----------------------
INCEPTION
(06/07/93) 7.60% 9.43%
THROUGH
05/31/95
-----------------------
Not
Adjusted for adjusted
maximum for
contingent contingent
deferred deferred
sales charge sales
of 5.00% charge
-----------------------------------------
The chart to the right shows the growth in
value of a hypothetical $10,000 investment
in investor N Shares of Nations Equity Income
Fund on June 7, 1993 (inception). Figures for
the S&P 500 Index, an unmanaged index of
common stock prices, include reinvestment of
dividends.
</TABLE>
[PIE CHART]
Assumes the deduction of the maximum contingent deferred sales
charge of 5.00% and the reinvestment of all distributions.
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
- --------------------------------------------------------------------------------
11
<PAGE>
NATIONS FUND, INC.
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - TRUST A SHARES AS OF 5/31/95
- --------------------------------------------------------------------------------
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
------------------------------------
<S> <C>
YEAR ENDED 14.79%
05/31/95
---------------------
INCEPTION
(04/11/91) 12.25%
THROUGH
05/31/95
------------------------------------
The chart to the right shows the growth
in value of a hypothetical $10,000
investment in Trust A Shares of Nations
Equity Income Fund on April 11, 1991
(inception). Figures for the S&P 500
Index, an unmanaged index of common
stock prices, include reinvestment
of dividends.
</TABLE>
[PIE CHART]
Assumes the reinvestment of all distributions.
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY
WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
- --------------------------------------------------------------------------------
12
<PAGE>
NATIONS GOVERNMENT SECURITIES FUND
PERFORMANCE AND COMMENTARY
INVESTMENT MANAGEMENT PROFILE
The Fund is managed by Kathy E. Bowman. She is a Senior Vice President and
Fixed Income Portfolio Manager at NationsBank. Prior to joining NationsBank in
March 1995, Ms. Bowman was a Fixed Income Portfolio Manager for Providian
Capital Management, an insurance holding company. Ms. Bowman has 15 years of
investment experience. She received a B.B.A. from Memphis State University, is a
Chartered Financial Analyst, and is a member of the Association for Investment
Management and Research.
INVESTMENT OBJECTIVE
The objective of the Fund is to seek to provide current income and
preservation of capital. The Fund invests in obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities.*
PERFORMANCE SUMMARY AND OVERVIEW**
Interest rate activity played a predominant role in the Fund's performance
over the Fund's fiscal year ended May 31, 1995. Between February 1994 and
February 1995, the Federal Reserve Board (the "Fed") raised its discount rate
seven times -- 300 basis points, to 6% -- in an effort to slow economic growth
and contain inflation. As a result, the Fund was able to benefit from the marked
increase in U.S. Treasury yields early in its fiscal year. From June through
December 1994, ten-year U.S. Treasury yields rose from 7.15% to 7.82%.
After February 1995, investor confidence improved as no further Fed
interest rate tightening took place, inflation proved benign, and U.S. economic
trends slowed. During the first five months of 1995, the market experienced a
powerful price rally. Since bond prices move inversely with yields, this rally
caused ten-year Treasury yields to decline 1.54% by the end of May.
The Fund reported a total return of 7.55% for the one-year period ended May
31, 1995***. Nations Government Securities Fund invests a large percentage of
its assets in mortgage-backed securities issued by U.S. government agencies.
While the Fund produced positive results for the fiscal year, its total return
for the one-year period trailed the Salomon Brothers Mortgage Index which
returned 11.32%****.
As the fiscal year began, the Fund had significant holdings in agency
Collateralized Mortgage Obligations (CMOs). CMOs are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Mortgage
pass-through securities represent participation interests in pools of
residential mortgage loans originated by the U.S. government or private lenders.
They provide a means to earn income as a result of monthly interest and
principal payments (including any prepayments) made by individual borrowers on
pooled mortgage loans. Certain mortgage pass-through securities are guaranteed
by the U.S. government, its agencies or instrumentalities, including those
issued or guaranteed by Government National Mortgage Association (GNMA), Federal
National Mortgage Association (FNMA), or Federal Home Loan Mortgage Corporation
(FHLMC).
Early in the fiscal year, CMOs underperformed as investors in this sector
of the government securities market proved to be heavy sellers. By mid-year, the
Fund's CMO holdings were greatly reduced in an effort to limit negative
exposure. However, the Fund's conservative stance reduced total return potential
for the Fund in view of 1995's subsequent rally.
The Fund is currently positioned to take advantage of relative value
opportunities in mortgage pass-through securities, while still employing U.S.
Treasuries and other government agency obligations for liquidity and stability.
- ---------------
* Any guarantee by the U.S. government, its agencies or instrumentalities
relates only to the payment of principal and interest on the guaranteed
security. An investment in the Fund is neither insured nor guaranteed by the
U.S. government.
** The performance shown reflects the effect of fee waivers and/or expense
reimbursements by the investment adviser and administrator(s). Such fee waivers
and/or expense reimbursements have the effect of increasing total return.
*** Trust A Shares total return. The average annual total return from inception
of April 11, 1991, through May 31, 1995, was 6.85%.
**** The Salomon Brothers Mortgage Index is an unmanaged index composed of all
U.S. government agency pass-through mortgages, which makes it an appropriate
benchmark for measuring the performance of Nations Government Securities Fund.
13
<PAGE>
NATIONS FUND, INC.
NATIONS GOVERNMENT SECURITIES FUND
- ---------------------------------------------
PORTFOLIO BREAKDOWN AS OF 5/31/95
- ---------------------------------------------
[PIE CHART]
<TABLE>
<CAPTION>
-----------------------------------------------------
TOP TEN HOLDINGS AS A % OF NET ASSETS
AS OF 5/31/95
-----------------------------------------------------
<C> <S> <C>
1. U.S. Treasury Note, 7.50% due 02/15/05 9.86%
2. Federal National Mortgage Association,
8.50% due 11/01/09 9.20
3. Government National Mortgage Association,
TBA, 8.00% due 01/15/25 8.39
4. Federal National Mortgage Association, TBA,
7.50% due 02/01/24 6.40
5. Federal National Mortgage Association, TBA,
7.00% due 06/15/24 6.26
6. U.S. Treasury Note, 6.50% due 05/15/05 5.08
7. Government National Mortgage Association,
8.00% due 05/15/22 4.80
8. Government National Mortgage Association,
9.00% due 05/15/25 4.77
9. U.S. Treasury Bill, Discount Note due
09/21/95 4.49
10. Government National Mortgage Association,
TBA, 6.50% due 05/15/25 3.49
</TABLE>
- -------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR A SHARES AS OF 5/31/95
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
-------------------------------------------
<S> <C> <C>
YEAR ENDED 2.19% 7.29%
05/31/95
----------------------
INCEPTION
(04/17/91) 5.38% 6.63%
THROUGH
05/31/95
----------------------
Adjusted for Not
maximum adjusted
sales charge for sales
of 4.75% charge
-------------------------------------------
The chart to the right shows the growth in
value of a hypothetical $10,000 investment
in Investor A Shares of Nations Government
Securities Fund on April 17, 1991
(inception). Figures for the Lehman
Intermediate Treasury Index track the market
value of U.S. Treasury securities with
maturities of 3 to 10 years. The Salomon
Brothers Mortgage Index is comprised of 30
year and 15 year GNMA, FNMA and FHLMC
securities, and FNMA and FHLMC balloon
mortgages. Both indices are unmanaged. Assumes
the deduction of the maximum sales charge
of 4.75% and the reinvestment of all
distributions.
</TABLE>
[PIE CHART]
Assumes the deduction of the maximum sales charge of 4.75%
and the reinvestment of all distributions.
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
Portfolio holdings are subject to change periodically and may not be
representative of the Fund's current holdings.
<PAGE>
NATIONS FUND, INC.
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR C SHARES AS OF 5/31/95
-------------------------------------
AVERAGE ANNUAL TOTAL RETURN
------------------------------------
<S> <C> <C>
YEAR ENDED 5.76%* 6.76%
05/31/95
---------------------
INCEPTION
(07/06/92) 3.91% 3.91%
THROUGH
05/31/95
---------------------
Not
*Adjusted adjusted
for maximum for
contingent contingent
deferred deferred
sales charge sales
of 1.00% charge
<FN>
- ----------------------------
The chart to the right shows the growth in value of a hypothetical
$10,000 investment in Investor C Shares of Nations Government Securities Fund
on July 6, 1992 (inception). Investor C Shares that are redeemed within one
year of purchase are subject to a 1.00% contingent deferred sales charge.
Figures for the Lehman Intermediate Treasury Index track the market value of
U.S. Treasury securities with maturities of 3 to 10 years. The Salomon Brothers
Mortgage Index is comprised of 30 year and 15 year GNMA, FNMA and FHLMC
securities, and FNMA and FHLMC balloon mortgages. Both indices are unmanaged.
Assumes the reinvestment of all distributions.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
PERFORMANCE COMPARISON - INVESTOR N SHARES AS OF 5/31/95
-------------------------------------
AVERAGE ANNUAL TOTAL RETURN
------------------------------------
<S> <C> <C>
YEAR ENDED 1.86% 6.86%
05/31/95
---------------------
INCEPTION
(06/07/93) 0.97% 2.83%
THROUGH
05/31/95
---------------------
Not
Adjusted for adjusted
maximum for
contingent contingent
deferred deferred
sales charge sales
of 5.00% charge
- ----------------------------
<FN>
The chart to the right shows the growth in value of a hypothetical
$10,000 investment in Investor N Shares of Nations Government Securities Fund
on June 7, 1993 (inception). Figures for the Lehman Intermediate Treasury Index
track the market value of U.S. Treasury securities with maturities of 3 to 10
years. The Salomon Brothers Mortgage Index is comprised of 30 year and 15 year
GNMA, FNMA and FHLMC securities, and FNMA and FHLMC balloon mortgages. Both
indices are unmanaged. Assumes the deduction of the maximum contingent
deferred sales charge of 5.00% and the reinvestment of all distributions.
</TABLE>
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
===============================================================================
[LOGO]
===============================================================================
Assumes the reinvestment of all distributions
===============================================================================
[LOGO]
==============================================================================
Assumes the deduction of the maximum contingent deferred sales charge of 5.00%
and the reinvestment of all distributions.
15
<PAGE>
NATIONS FUND, INC.
NATIONS GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE COMPARISON - TRUST A SHARES AS OF 5/31/95
-----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
------------------------------------
<S> <C>
YEAR ENDED 7.55%
05/31/95
---------------------
INCEPTION
(04/11/91) 6.85%
THROUGH
05/31/95
- ----------------------------
<FN>
The chart to the right shows the growth in value of a hypothetical
$10,000 investment in Trust A Shares of Nations Government Securities Fund on
April 11, 1991 (inception). Figures for the Lehman Intermediate Treasury Index
track the market value of U.S. Treasury securities with maturities of 3 to 10
years. The Salomon Brothers Mortgage Index is comprised of 30 year and 15 year
GNMA, FNMA and FHLMC securities, and FNMA and FHLMC balloon mortgages. Both
indices are unmanaged. Assumes the reinvestment of all distributions.
</TABLE>
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY
WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
================================================================================
LOGO
================================================================================
16
<PAGE>
NATIONS INTERNATIONAL EQUITY FUND
PERFORMANCE AND COMMENTARY
INVESTMENT MANAGEMENT PROFILE
NationsBank, N.A. (Carolinas), through its investment management division,
serves as investment adviser to Nations International Equity Fund. On February
1, 1995, Gartmore Capital Management Limited was retained to act as interim
sub-adviser to the Fund. Gartmore Capital Management is a subsidiary of Gartmore
plc, a U.K. company. It is anticipated that on or about July 1, 1995 Nations
Gartmore Investment Management will replace Gartmore Capital Management as
sub-adviser to the Fund. Nations Gartmore is a joint venture between
subsidiaries of NationsBank and Gartmore plc. The Fund's portfolio manager, and
the head of the global portfolio team at Nations Gartmore, is Stephen Watson.
Mr. Watson has over 18 years of investment experience and is a member of the
Securities Institute.
INVESTMENT OBJECTIVE
The objective of the Fund is to seek long-term growth of capital. The Fund
invests primarily in an internationally diversified portfolio of marketable
equity securities of non-U.S. issuers. The Fund may invest in countries located
in the Far East, Western Europe, Australia and other countries.
PERFORMANCE SUMMARY AND OVERVIEW*
Nations International Equity Fund returned -0.46%** for the fiscal year
ended May 31, 1995.
Three principal factors affected the Fund's performance during the fiscal
year: 1) dramatic depreciation of the dollar against European currencies and the
Japanese yen; 2) turmoil in emerging markets; and 3) a renewed bout of weakness
in the Japanese stock market. The following paragraphs address each of these
factors and provide an outlook for the Fund's next fiscal year.
First, the dramatic depreciation of the dollar against the European hard
currencies and the yen had a positive impact on the performance of the Fund.
Currency hedges from the yen and European hard currencies into the U.S. dollar,
which were introduced following a period of dollar weakness, were maintained.
These protective hedges were a drag on performance in the first quarter of 1995.
However, they positioned the Fund to benefit from the dollar's appreciation in
early May 1995.
Second, the Fund's performance was adversely affected by the collapse of
the Mexican peso and the subsequent financial crisis toward the end of 1994
which sent shock waves through the emerging markets of Latin America and the Far
East. Only toward the end of May 1995 did these markets stabilize; those
countries with stronger economic fundamentals outperformed the weaker countries.
The Fund was impacted through its exposure to emerging markets although
weightings were greater in the stronger economies of Asia than those in Latin
America and elsewhere. We remain optimistic over the medium-term outlook for the
markets of the Pacific Basin, excluding Japan. The region enjoys above average
growth prospects, along with valuations that are, in a number of cases, below
longer-term averages. On balance, savings rates are higher and most of these
economies are significantly less vulnerable to the type of adverse short-term
capital flows that proved calamitous for Mexico.
Third, in Japan, prospects for an impending economic recovery were damaged
by the rapid appreciation of the yen and, to a lesser extent, by the effects of
the Kobe earthquake. These developments weakened the Japanese stock market and
the Fund's performance, as the Fund's portfolio was weighted approximately 25%
in Japan.
Looking forward, we expect to maintain a broadly diversified, largely fully
invested portfolio with an emphasis on the fast growing Asia-Pacific region. The
Japanese stock market, after performing poorly, stands to benefit eventually
from historically low interest rates, a rebound in corporate profitability and a
weaker yen. Thus, sector and stock selection remain the keys to success in the
Japanese market. We are also optimistic about the future direction of the U.S.
dollar, particularly against the yen, and will continue to hedge a portion of
the hard currency exposure defensively back into the U.S. dollar. In Europe,
corporate profit growth is expected to decelerate as the economic recovery
matures. However, while inflation remains muted, interest rates are unlikely to
rise, leading to improved valuations for select European equities. The United
Kingdom and France remain our favored European markets.
- ---------------
* The performance shown includes the effect of fee waivers and/or expense
reimbursements by the investment adviser and administrator(s). Such fee waivers
and/or reimbursements have the effect of increasing total return.
** Trust A Shares total return. Average annual total return for Trust A Shares
since inception on 12/2/91 was 6.01%.
17
<PAGE>
NATIONS FUND, INC.
NATIONS INTERNATIONAL EQUITY FUND
- ---------------------------------------------
PORTFOLIO BREAKDOWN AS OF 5/31/95
[LOGO]
- --------------------------------------------------------------------------------
COUNTRY BREAKDOWN AS A % OF COMMON STOCK AS OF 5/31/95
[LOGO]
- --------------------------------------------------------------------------------
Portfolio holdings are subject to change periodically and may not be
representative of the Fund's current holdings.
<TABLE>
<CAPTION>
---------------------------------------
TOP TEN HOLDINGS AS A % OF NET ASSETS
AS OF 5/31/95
<S> <C> <C>
1. Polygram (Entertainment) 1.82%
2. Bayer AG (Pharmaceuticals) 1.47
3. Veba AG (Utility with large chemical division) 1.47
4. Banque Nationale de Paris (Financial services) 1.35
5. Credit Local de France (Financial services) 1.31
6. Roche Holdings AG (Pharmaceuticals) 1.27
7. Zurich Versicherungs (Insurance) 1.26
8. Sumitomo Trust & Bank (Financial services) 1.26
9. Tele Danmark, Series B (Telecommunications) 1.26
10. Tokyo Broadcasting Systems Inc. (Media) 1.24
</TABLE>
18
<PAGE>
NATIONS FUND, INC.
NATIONS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE COMPARISON - INVESTOR A SHARES AS OF 5/31/95
-------------------------------------
AVERAGE ANNUAL TOTAL RETURN
------------------------------------
<S> <C> <C>
YEAR ENDED (6.40)% (0.69)%
05/31/95
---------------------
INCEPTION
(06/03/92) 3.18% 5.24%
THROUGH
05/31/95
---------------------
Adjusted for Not
maximum adjusted
sales charge for sales
of 5.75% charge
<FN>
- ----------------------------
The chart to the right shows the growth in value of a hypothetical
$10,000 investment in Investor A Shares of Nations International Equity Fund on
June 3, 1992 (inception). Figures for the Morgan Stanley Capital International
EAFE Index ("MSCI EAFE Index"), an unmanaged index used to portray the pattern
of common stock price movement in Europe, Australia and the Far East, include
reinvestment of dividends.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR C SHARES AS OF 5/31/95
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
------------------------------------
<S> <C> <C>
YEAR ENDED (2.52)%* (1.56)%
05/31/95
---------------------
INCEPTION
(06/17/92) 5.46% 5.46%
THROUGH
05/31/95
---------------------
Not
*Adjusted adjusted
for maximum for
contingent contingent
deferred deferred
sales charge sales
of 1.00% charge
<FN>
- ----------------------------
The chart to the right shows the growth in value of a hypothetical
$10,000 investment in Investor C Shares of Nations International Equity Fund on
June 17, 1992 (inception). Investor C Shares that are redeemed within one year
of purchase are subject to a 1.00% contingent deferred sales charge. Figures
for the Morgan Stanley Capital International EAFE Index ("MSCI EAFE Index"), an
unmanaged index used to portray the pattern of common stock price movement in
Europe, Australia and the Far East, include reinvestment of dividends.
</TABLE>
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY
WITH MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
===============================================================================
[LOGO]
==============================================================================
Assumes the deduction of the maximum sales charge of 5.75% and the reinvestment
of all distributions.
==============================================================================
[LOGO]
==============================================================================
Assumes the reinvestment of all distributions.
19
<PAGE>
NATIONS FUND, INC.
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON - INVESTOR N SHARES AS OF 5/31/95
-------------------------------------
AVERAGE ANNUAL TOTAL RETURN
------------------------------------
<S> <C> <C>
YEAR ENDED (6.14)% (1.30)%
05/31/95
---------------------
INCEPTION
(06/07/93) 4.37% 6.29%
THROUGH
05/31/95
---------------------
Not
Adjusted for adjusted
maximum for
contingent contingent
deferred deferred
sales charge sales
of 5.00% charge
<FN>
- ----------------------------
The chart to the right shows the growth in value of a hypothetical
$10,000 investment in Investor N Shares of Nations International Equity Fund on
June 7, 1993 (inception). Figures for the Morgan Stanley Capital International
EAFE Index ("MSCI EAFE Index"), an unmanaged index used to portray the pattern
of common stock price movement in Europe, Australia and the Far East, include
reinvestment of dividends.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
PERFORMANCE COMPARISON - TRUST A SHARES AS OF 5/31/95
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
------------------------------------
<S> <C>
YEAR ENDED (0.46)%
05/31/95
---------------------
INCEPTION
(12/02/91) 6.01%
THROUGH
05/31/95
<FN>
- ----------------------------
The chart to the right shows the growth in value of a hypothetical
$10,000 investment in Trust A Shares of Nations International Equity Fund on
December 2, 1991 (inception). Figures for the Morgan Stanley Capital
International EAFE Index ("MSCI EAFE Index"), an unmanaged index used to
portray the pattern of common stock price movement in Europe, Australia and the
Far East, include reinvestment of dividends.
</TABLE>
- --------------------------------------------------------------------------------
THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT PREDICTIVE OF
FUTURE RESULTS. A MUTUAL FUND'S SHARE PRICE AND INVESTMENT RETURN WILL VARY WITH
MARKET CONDITIONS, AND THE PRINCIPAL VALUE OF SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends.
===============================================================================
[LOGO]
==============================================================================
Assumes the deduction of the maximum contingent deferred sales charge of 5.00%
and the reinvestment of all distributions.
==============================================================================
[LOGO]
==============================================================================
Assumes the reinvestment of all distributions.
20
<PAGE>
NATIONS FUND, INC.
NATIONS PRIME FUND
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF INVESTMENTS MAY 31, 1995
<CAPTION>
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- -----------------------------------------------------------------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- YANKEE -- 1.9%
Mitsubishi Bank, Ltd.:
$ 25,000,000 6.060%................. 08/10/95 $ 25,000,000
50,000,000 6.000%................. 08/30/95 50,000,000
--------------
TOTAL CERTIFICATES OF
DEPOSIT -- YANKEE
(Cost $75,000,000)... 75,000,000
==============
CORPORATE OBLIGATIONS -- 78.2%
COMMERCIAL PAPER -- 58.8%
A.H. Robbins Company:
16,000,000 Discount note (a)...... 06/05/95 15,989,316
16,500,000 Discount note (a)...... 08/28/95 16,223,717
10,300,000 Allianz of America
Financial
Corporation, Discount
note (a)............. 09/05/95 10,128,333
American Home Food
Products Corporation:
15,000,000 Discount note (a)...... 08/31/95 14,740,271
15,000,000 Discount note (a)...... 09/26/95 14,658,750
American Home Products
Corporation:
20,000,000 Discount note (a)...... 06/05/95 19,986,644
30,000,000 Discount note (a)...... 07/07/95 29,820,900
20,000,000 Discount note (a)...... 07/17/95 19,847,689
8,000,000 Discount note (a)...... 09/05/95 7,873,067
Bankers Trust N.Y.
Corporation:
15,000,000 Discount note.......... 06/23/95 14,948,667
25,000,000 Discount note.......... 07/11/95 24,834,444
50,000,000 Discount note.......... 08/09/95 49,427,875
Barnett Banks, Inc.:
7,095,000 Discount note.......... 06/02/95 7,093,812
25,000,000 Discount note.......... 06/02/95 24,995,820
25,000,000 Discount note.......... 06/02/95 24,995,813
30,000,000 Discount note.......... 06/09/95 29,960,133
20,000,000 Discount note.......... 06/13/95 19,960,133
10,000,000 Discount note.......... 06/14/95 9,978,405
35,000,000 Discount note.......... 06/15/95 34,918,606
10,000,000 Discount note.......... 06/19/95 9,969,950
BICC Cables
Corporation:
18,000,000 Discount note.......... 09/11/95 17,681,250
10,000,000 Discount note.......... 11/17/95 9,723,028
10,000,000 Discount note.......... 11/20/95 9,715,722
Caterpillar Financial
Services Corporation:
20,000,000 Discount note.......... 09/28/95 19,607,961
13,800,000 Discount note.......... 11/02/95 13,446,981
22,000,000 Discount note.......... 11/08/95 21,416,267
15,000,000 Discount note.......... 11/09/95 14,598,842
10,000,000 Discount note.......... 11/09/95 9,733,903
53,000,000 Discount note.......... 11/14/95 51,543,442
10,000,000 Discount note.......... 11/16/95 9,721,867
16,500,000 Discount note.......... 11/16/95 16,039,540
15,500,000 Discount note.......... 12/06/95 15,024,047
Chrysler Financial
Corporation:
23,000,000 Discount note.......... 06/06/95 22,980,450
15,000,000 Discount note.......... 06/09/95 14,979,833
15,000,000 Discount note.......... 06/21/95 14,949,500
20,000,000 Discount note.......... 06/29/95 19,904,644
25,000,000 Discount note.......... 07/06/95 24,851,979
29,000,000 Discount note.......... 07/10/95 28,807,730
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- -----------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
COMMERCIAL PAPER -- (CONTINUED)
Chrysler Financial
Corporation:
(continued)
$ 25,000,000 Discount note.......... 09/26/95 $ 24,518,187
20,000,000 Discount note.......... 11/21/95 19,437,750
53,705,000 Cogentrix of Richmond,
Inc., Banque Paribas,
LOC,
Discount note.......... 06/19/95 53,544,422
13,853,000 Copley Financing
Corporation, Discount
note (a)............. 07/06/95 13,772,191
12,200,000 Corporate Asset Funding
Company, Inc.,
Discount note........ 06/19/95 12,165,687
25,000,000 Countrywide Funding
Corporation, Discount
note (a)............. 06/16/95 24,937,292
15,000,000 Dean Witter Discover &
Company, Discount
note................. 12/15/95 14,491,083
Dynamic Funding
Corporation:
11,531,000 Discount note.......... 06/15/95 11,503,511
25,000,000 Discount note.......... 07/07/95 24,850,000
5,000,000 Discount note.......... 07/10/95 4,967,500
10,000,000 Discount note.......... 07/14/95 9,926,661
10,000,000 Discount note.......... 07/19/95 9,918,000
32,911,000 Discount note.......... 07/31/95 32,580,244
100,000,000 Discount note.......... 07/31/95 98,993,333
General Electric
Capital Corporation:
15,000,000 Discount note.......... 08/31/95 14,737,237
30,000,000 Discount note.......... 11/01/95 29,238,825
General Motors
Acceptance
Corporation:
40,000,000 Discount note.......... 06/06/95 39,966,667
10,000,000 Discount note.......... 07/03/95 9,940,444
8,000,000 Discount note.......... 09/05/95 7,864,533
20,000,000 Discount note.......... 09/05/95 19,661,334
30,000,000 Discount note.......... 09/18/95 29,432,291
15,000,000 Discount note.......... 09/25/95 14,695,500
30,000,000 Discount note.......... 10/02/95 29,354,250
Generale Bank:
15,000,000 Discount note.......... 06/23/95 14,948,208
20,000,000 Discount note.......... 06/29/95 19,910,244
25,000,000 Goldman Sachs Group
L.P.,
Discount note........ 09/01/95 24,555,333
29,000,000 Hertz Corporation
(The), Discount
note................. 06/30/95 28,857,264
25,000,000 Honeywell, Inc.,
Discount note........ 12/11/95 24,158,305
ITT Financial
Corporation:
42,000,000 Discount note.......... 06/08/95 41,949,204
25,500,000 Discount note.......... 06/12/95 25,452,081
20,000,000 Discount note.......... 06/23/95 19,926,544
20,000,000 Discount note.......... 06/23/95 19,926,300
15,845,000 Discount note.......... 06/27/95 15,775,194
30,000,000 Nationwide Building
Society,
Discount note........ 06/20/95 29,905,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
NATIONS FUND, INC.
NATIONS PRIME FUND
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED) MAY 31, 1995
<CAPTION>
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- -----------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
COMMERCIAL PAPER -- (CONTINUED)
$ 50,000,000 New Center Asset Trust,
Discount note........ 10/02/95 $ 48,976,708
NYNEX Corporation:
20,000,000 Discount note.......... 06/23/95 19,924,222
23,386,000 Discount note.......... 06/26/95 23,288,234
25,000,000 Discount note.......... 08/08/95 24,716,667
ODC Capital
Corporation:
15,000,000 Discount note (a)...... 06/01/95 15,000,000
30,000,000 Discount note (a)...... 06/05/95 29,980,000
27,080,000 Discount note (a)...... 06/20/95 26,994,390
25,000,000 Orix America Inc.,
Sanwa Bank, LOC,
Discount note (a).... 06/01/95 25,000,000
20,000,000 Panasonic Finance,
Inc., Discount note
(a).................. 11/09/95 19,471,383
Sears Roebuck
Acceptance
Corporation:
25,000,000 Discount note.......... 07/12/95 24,808,809
20,000,000 Discount note.......... 07/12/95 19,846,933
45,000,000 Discount note.......... 07/18/95 44,606,375
25,000,000 Discount note.......... 10/06/95 24,392,781
Sharp Electronics
Corporation:
10,000,000 Discount note.......... 06/16/95 9,976,792
10,000,000 Discount note.......... 07/07/95 9,934,300
8,500,000 Discount note.......... 08/11/95 8,396,902
10,000,000 Discount note.......... 09/08/95 9,827,575
20,000,000 Discount note.......... 11/09/95 19,463,333
SRD Finance Inc.:
10,000,000 Bank of Tokyo, LOC,
Discount note........ 06/15/95 9,976,667
32,000,000 Sumitomo Bank, LOC,
Discount note........ 06/15/95 31,925,582
Sumitomo Corporation of
America:
9,278,000 Discount note.......... 08/28/95 9,136,253
15,000,000 Discount note.......... 09/15/95 14,700,992
10,000,000 Discount note.......... 10/03/95 9,758,889
8,000,000 Discount note.......... 10/06/95 7,806,677
TI Group, Inc.:
25,000,000 Discount note (a)...... 06/26/95 24,885,417
13,000,000 Discount note (a)...... 07/07/95 12,913,290
Toshiba America, Inc.:
10,200,000 Discount note.......... 07/24/95 10,106,897
10,000,000 Discount note.......... 08/11/95 9,882,653
9,000,000 Toshiba International
Finance, Inc.,
Mitsubishi Bank Ltd.,
LOC,
Discount note.......... 09/26/95 8,825,963
19,098,000 Towson Town Center,
Inc.,
Discount note........ 07/18/95 18,948,648
Tri-Lateral Capital
(USA) Inc.:
12,000,000 Discount note (a)...... 06/01/95 12,000,000
20,000,000 Discount note (a)...... 06/05/95 19,986,400
50,000,000 Discount note (a)...... 06/09/95 49,932,778
20,283,000 Discount note (a)...... 06/13/95 20,241,623
20,104,000 Discount note (a)...... 06/15/95 20,057,091
10,000,000 Discount note (a)...... 07/17/95 9,922,439
10,400,000 Discount note (a)...... 07/28/95 10,300,541
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- -----------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS -- (CONTINUED)
COMMERCIAL PAPER -- (CONTINUED)
Tri-Lateral Capital
(USA) Inc.: (continued)
$ 20,000,000 Discount note (a)...... 08/14/95 $ 19,752,100
20,314,000 Discount note (a)...... 08/24/95 20,028,656
10,153,000 Discount note (a)...... 08/29/95 10,003,150
15,000,000 XEROX Credit
Corporation,
Discount note........ 06/12/95 14,974,792
--------------
2,331,612,852
--------------
CORPORATE NOTES -- 19.4%
Bear Stearns & Company,
Inc.:
25,000,000 6.270%+................ 06/01/95++ 25,000,000
25,000,000 5.920%+................ 06/07/95++ 25,000,000
20,000,000 6.563%+................ 06/15/95++ 20,004,212
25,000,000 6.350%+................ 07/17/95++ 25,000,000
25,000,000 6.288%+................ 08/09/95++ 25,000,000
50,000,000 6.250%+................ 08/22/95++ 50,008,877
25,000,000 6.450%................. 10/16/95 25,000,000
CS First Boston:
25,000,000 6.113%+................ 06/02/95++ 25,000,000
50,000,000 6.113%+................ 06/22/95++ 50,000,000
General Electric
Capital Corporation:
30,000,000 6.350%+................ 06/01/95++ 30,003,960
50,000,000 6.350%+................ 06/01/95++ 50,000,000
General Motors
Acceptance
Corporation:
24,000,000 6.345%+................ 06/01/95++ 24,000,000
20,000,000 6.450%+................ 07/18/95++ 20,003,948
4,626,801 IBM Credit Corporation,
5.330%............... 08/15/95 4,626,435
15,000,000 Lehman Brothers
Holdings Inc.,
6.130%+.............. 06/02/95++ 15,000,000
Merrill Lynch & Company
Inc.:
24,500,000 6.220%+................ 06/01/95++ 24,500,000
100,000,000 6.280%+................ 06/01/95++ 100,000,000
50,000,000 5.910%+................ 06/07/95++ 50,000,000
15,000,000 6.091%+................ 06/08/95++ 15,000,000
5,000,000 Mitsubishi Electric
Finance Company,
5.100% (a)........... 02/16/96 4,942,816
50,000,000 PNC Bank,
5.840%+.............. 06/07/95++ 50,000,000
13,000,000 Sears Roebuck
Acceptance
Corporation,
6.306%+.............. 06/21/95++ 13,004,443
100,000,000 Shawmut National Bank,
6.240%+.............. 06/01/95++ 100,000,000
--------------
771,094,691
--------------
TOTAL CORPORATE
OBLIGATIONS
(Cost $3,102,707,543)...... 3,102,707,543
==============
GUARANTEED INVESTMENT CONTRACTS -- 10.1%
Allstate Life Insurance
Company:#
25,000,000 6.325%**+.............. 08/29/95++ 25,000,000
25,000,000 6.325%**+.............. 08/29/95++ 25,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
<TABLE>
NATIONS FUND, INC.
NATIONS PRIME FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) MAY 31, 1995
<CAPTION>
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- -----------------------------------------------------------------
<S> <C> <C> <C>
GUARANTEED INVESTMENT CONTRACTS -- (CONTINUED)
$ 25,000,000 Anchor National Life
Insurance,#
6.183%**+.............. 08/29/95++ $ 25,000,000
Commonwealth Life
Insurance Company,
Inc.:#
10,000,000 6.330**+............... 11/27/95++ 10,000,000
62,000,000 6.330**+............... 11/27/95++ 62,000,000
60,000,000 Life Insurance Company
of Georgia,#
6.350%**+............ 11/27/95++ 60,000,000
Life Insurance Company
of Virginia:#
50,000,000 6.097%**+.............. 06/07/95++ 50,000,000
25,000,000 6.125%**+.............. 06/07/95++ 25,000,000
25,000,000 6.125%**+.............. 06/07/95++ 25,000,000
20,000,000 Peoples Security Life
Insurance Company,#
6.330%**+............ 11/27/95++ 20,000,000
50,000,000 Sun Life Insurance
Company,#
6.430%**+............ 11/27/95++ 50,000,000
25,000,000 Travelers Life
Insurance Company,#
6.163%**+............ 06/30/95++ 25,000,000
--------------
TOTAL GUARANTEED
INVESTMENT CONTRACTS
(Cost $402,000,000)........ 402,000,000
==============
PROMISSORY NOTE -- 1.2% (Cost $50,000,000)
50,000,000 Goldman Sachs Group,
L.P.,**
6.313%............... 10/02/95 50,000,000
==============
U.S. GOVERNMENT OBLIGATIONS -- 7.2%
Federal Home Loan Bank:
5,000,000 6.250%+................ 06/01/95++ 5,000,000
20,000,000 6.400%+................ 06/01/95++ 20,000,000
18,000,000 4.807%+................ 06/30/95++ 18,000,000
Student Loan Marketing
Association:
20,000,000 5.990%+................ 06/07/95++ 20,000,000
30,000,000 6.000%+................ 06/07/95++ 30,000,000
11,600,000 6.010%+................ 06/07/95++ 11,534,616
12,000,000 6.010%+................ 06/07/95++ 12,000,000
47,500,000 6.030%+................ 06/07/95++ 47,238,868
21,000,000 6.030%+................ 06/07/95++ 20,957,059
70,000,000 6.120%+................ 06/07/95++ 70,000,000
10,000,000 6.170%+................ 06/07/95++ 10,000,000
20,000,000 5.480%+................ 06/30/95++ 19,995,487
--------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS
(Cost $284,726,030)........ 284,726,030
==============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- -----------------------------------------------------------------
<S> <C> <C> <C>
TIME DEPOSIT -- EURO -- 1.2% (Cost $50,000,000)
$ 50,000,000 Mitsubishi Bank Ltd.,
6.219%............... 06/01/95 $ 50,000,000
==============
<CAPTION>
SHARES
- -----------
MONEY MARKET FUNDS -- 0.9%
34,485,000 Dreyfus Cash Manage-
ment Plus Fund....... 34,485,000
161,000 Fidelity Institutional
Cash Portfolio....... 161,000
--------------
TOTAL MONEY MARKET
FUNDS (Cost $34,646,000).. 34,646,000
==============
TOTAL INVESTMENTS
(Cost $3,999,079,573*).............. 100.7% 3,999,079,573
OTHER ASSETS AND
LIABILITIES (NET)................... (0.7) (31,078,965)
----- --------------
NET ASSETS............................ 100.0% $3,968,000,608
===== ==============
<FN>
- ---------------
* Aggregate cost for Federal tax purposes.
** Restricted Security (Note 6).
+ Floating/variable rate note. The interest rate shown reflects the rate in
effect at May 31, 1995.
++ Reset date. Interest rates reset either daily, weekly, monthly, quarterly or
semi-annually.
# Security subject to a demand feature which allows the Fund to put the
security back to the issuer with notice ranging from 7-180 calendar days.
(a) Securities are not registered under the Securities Act of 1933. These
securities may be resold in transactions exempt from registration to
qualified institutional buyers.
</TABLE>
<TABLE>
ABBREVIATION:
<S> <C>
LOC Letter of Credit
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
NATIONS FUND, INC.
NATIONS TREASURY FUND
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF INVESTMENTS MAY 31, 1995
<CAPTION>
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- -----------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES -- 27.3%
U.S. TREASURY BILLS -- 22.7%
$100,000,000 Discount note#......... 06/01/95 $ 100,000,000
5,000,000 Discount note.......... 06/01/95 5,000,000
25,000,000 Discount note#......... 06/15/95 24,944,097
25,000,000 Discount note#......... 07/20/95 24,795,663
25,000,000 Discount note#......... 07/27/95 24,766,278
80,000,000 Discount note#......... 08/10/95 79,062,583
50,000,000 Discount note#......... 08/17/95 49,363,146
50,000,000 Discount note#......... 08/24/95 49,308,167
60,000,000 Discount note#......... 08/31/95 59,096,067
30,000,000 Discount note#......... 09/07/95 29,516,533
145,000,000 Discount note#......... 10/19/95 141,728,667
25,000,000 Discount note#......... 10/26/95 24,410,469
50,000,000 Discount note#......... 11/16/95 48,548,667
25,000,000 Discount note.......... 02/08/96 23,985,000
25,000,000 Discount note.......... 05/02/96 23,705,000
--------------
708,230,337
--------------
U.S. TREASURY NOTES -- 4.6%
25,000,000 4.250%................. 11/30/95 24,778,430
25,000,000 4.250%................. 12/31/95 24,675,694
25,000,000 4.625%................. 02/15/96 24,778,567
25,000,000 4.625%................. 02/29/96 24,745,227
45,000,000 5.875%................. 05/31/96 44,951,981
--------------
143,929,899
--------------
TOTAL U.S. TREASURY
SECURITIES
(Cost $852,160,236)........ 852,160,236
==============
REPURCHASE AGREEMENTS -- FIXED RATE -- 81.1%
572,000,000 Agreement with Bankers Trust N.Y.
Corporation, 6.100% dated
05/31/95, to be repurchased at
$572,096,922 on 06/01/95,
collateralized by: $441,715,274 U.S.
Treasury Strips, Principal Only,
due 11/24/95 - 04/04/96;
$141,958,495 U.S. Treasury Bond,
8.750% due 11/15/08...... 572,000,000
655,945,000 Agreement with CS First Boston
Corporation. Interest is payable
monthly. The agreement is
terminable by the Fund within
seven calendar days. The final
maturity date is 07/03/95,
collateralized by: $360,138,706 U.S.
Treasury Bond, 6.250% due
08/15/23; $100,562,000 U.S.
Treasury Bond, 8.375% due
08/15/00; $208,366,467 U.S.
Treasury Bond, 11.750% due
02/15/10##... 655,945,000
156,000,000 Agreement with Deutsche Bank,
6.125% dated 05/31/95, to be
repurchased at $156,026,542 on
06/01/95, collateralized by:
$51,206,512 U.S. Treasury Bond,
10.750% due 05/15/03;
$67,863,146 U.S. Treasury Notes,
4.125% - 10.500% due 06/30/95 -
02/15/01; $40,051,093 U.S.
Treasury Strip, due 11/16/95..... 156,000,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- ----------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- FIXED RATE -- (CONTINUED)
$ 56,000,000 Agreement with Goldman, Sachs &
Company, 6.050% dated 05/31/95,
to be repurchased at $56,009,411
on 06/01/95, collateralized by:
$44,597,290 U.S. Treasury Strips,
Principal Only, due 08/15/98 -
05/15/21; $12,523,526 U.S.
Treasury Note, 6.500% due
05/15/05............ $ 56,000,000
156,000,000 Agreement with HSBC Securities,
6.150% dated 05/31/95, to be
repurchased at $156,026,650 on
06/01/95, collateralized by:
$159,122,073 U.S. Treasury Notes,
4.750% - 9.250% due 07/15/97 -
11/15/99............ 156,000,000
56,000,000 Agreement with Lehman Brothers
Inc., 6.100% dated 05/31/95, to be
repurchased at $56,009,489 on
06/01/95, collateralized by:
$57,107,484 U.S. Treasury Bonds,
10.375% - 13.875% due 11/15/10 -
08/15/13............ 56,000,000
81,000,000 Agreement with Merrill Lynch &
Company, 6.100% dated 05/31/95,
to be repurchased at $81,013,725
on 06/01/95, collateralized by:
$82,624,106 U.S. Treasury Bonds,
9.875% - 10.625% due 08/15/15 -
11/15/15....................... 81,000,000
156,000,000 Agreement with Morgan (J.P.)
Securities Inc., 6.100% dated
05/31/95, to be repurchased at
$156,026,433 on 06/01/95,
collateralized by: $159,120,007 U.S.
Treasury Notes, 6.375% - 6.875%
due 04/30/97 - 07/15/99............ 156,000,000
156,000,000 Agreement with Morgan Stanley
Group Inc., 5.980% dated
05/31/95, to be repurchased at
$156,025,913 on 06/01/95,
collateralized by: $30,315,109 U.S.
Treasury Bonds, 9.000% - 10.750%
due 02/15/03 - 11/15/18;
$128,965,189 U.S. Treasury Notes,
4.000% - 8.500% due 01/31/96 -
02/15/01............ 156,000,000
140,000,000 Agreement with Smith Barney &
Company, 5.950% dated 05/05/95,
to be repurchased at $140,717,306
on 06/05/95, collateralized by:
$8,393,207 U.S. Treasury Strips,
Principal Only, due 06/22/95 -
07/27/95; $37,972,353 U.S.
Treasury Bonds, 7.500% - 8.875%
due 11/15/16 - 08/15/17;
$96,435,329 U.S. Treasury Notes,
5.875% - 9.375% due 04/15/96 -
02/15/05............ 140,000,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
NATIONS FUND, INC.
NATIONS TREASURY FUND
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED) MAY 31, 1995
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- ----------------------------------------------------------------
REPURCHASE AGREEMENTS -- FIXED RATE -- (CONTINUED)
<S> <C> <C>
$ 15,000,000 Agreement with Smith Barney &
Company, 6.110% dated 05/31/95,
to be repurchased at $15,002,546
on 06/01/95, collateralized by:
$5,023,967 U.S. Treasury Bond,
8.500% due 02/15/20; $10,276,608
U.S. Treasury Notes, 5.125% -
6.375% due 06/30/97 - 12/31/98.. $ 15,000,000
330,000,000 Agreement with UBS Securities, Inc.,
6.180% dated 05/31/95, to be
repurchased at $330,056,650 on
06/01/95, collateralized by:
$336,601,125 U.S. Treasury Notes,
5.500% - 8.875% due 04/15/97 -
01/31/98............ 330,000,000
--------------
TOTAL REPURCHASE
AGREEMENTS -- FIXED RATE
(Cost $2,529,945,000)........ 2,529,945,000
==============
REPURCHASE AGREEMENTS - TERM - 8.8%
100,000,000 Agreement with Goldman, Sachs &
Company 6.200%+, terminable by
the Fund daily, with a final
maturity date of 08/29/95. Interest
receivable as of May 31, 1995 was
$34,444, collateralized by:
$10,499,337 U.S. Treasury Note,
6.500% due 05/15/05; $66,550,512
U.S. Treasury Strips, Interest Only,
due 11/15/04 - 05/15/23;
$24,950,314 U.S. Treasury Strips,
Principal Only, due 02/15/99 -
05/15/20............ 100,000,000
100,000,000 Agreement with Lehman Brothers
Inc. 6.1675%+, terminable by the
Fund within seven calendar days,
with a final maturity date of
11/02/95. Interest receivable as of
May 31, 1995 was $400,229,
collateralized by: $101,972,185 U.S.
Treasury Bonds, 6.250% - 8.750%
due 08/15/19 - 08/15/23......... 100,000,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- ----------------------------------------------------------------
REPURCHASE AGREEMENTS - TERM -- (CONTINUED)
<S> <C> <C>
$ 75,000,000 Agreement with Merrill Lynch &
Company**, 6.250%+ dated
04/12/95, to be repurchased on
04/11/96. Interest receivable as of
May 31, 1995 was $651,042,
collateralized by: $76,505,153 U.S.
Treasury Bonds, 9.250% - 9.875%
due 11/15/15 - 02/15/16........ $ 75,000,000
--------------
TOTAL REPURCHASE
AGREEMENTS -- TERM
(Cost $275,000,000).......... 275,000,000
==============
TOTAL REPURCHASE AGREEMENTS
(Cost $2,804,945,000).......... 2,804,945,000
==============
<CAPTION>
SHARES
- -----------
MONEY MARKET FUNDS -- 4.1%
<S> <C> <C>
42,375,000 AIM Treasury Fund................ 42,375,000
29,844,000 Dreyfus Treasury Cash Management. 29,844,000
55,971,000 Fidelity Institutional Cash Portfolio. 55,971,000
-------------
TOTAL MONEY
MARKET FUNDS
(Cost $128,190,000)............ 128,190,000
==============
TOTAL INVESTMENTS
(Cost $3,785,295,236*).............. 121.3% 3,785,295,236
OTHER ASSETS AND
LIABILITIES (NET)................... (21.3) (665,198,136)
----- ==============
NET ASSETS............................ 100.0% $3,120,097,100
===== ==============
<FN>
- ---------------
* Aggregate cost for Federal tax purposes.
** Restricted security (Note 6).
+ Rate resets daily. The interest rate shown reflects the rate currently in
effect.
# Denotes securities subject to repurchase under reverse repurchase agreements
as of May 31, 1995 (Note 1).
## Securities segregated as collateral for reverse repurchase agreement.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
NATIONS FUND, INC.
Nations Equity Income Fund
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF INVESTMENTS MAY 31, 1995
<CAPTION>
VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 67.1%
AEROSPACE AND DEFENSE -- 0.5%
29,600 Raytheon Company................... $ 2,294,000
------------
APPAREL AND TEXTILES -- 1.3%
114,800 Liz Claiborne, Inc. ............... 2,037,700
58,600 V.F. Corporation................... 3,120,450
------------
5,158,150
------------
AUTOMOTIVE ACCESSORIES -- 1.9%
256,600 Federal-Mogul Corporation.......... 4,618,800
67,300 Goodyear Tire & Rubber Company..... 2,843,425
------------
7,462,225
------------
BUSINESS EQUIPMENT AND PERIPHERALS -- 0.8%
85,200 Pitney Bowes Inc. ................. 3,152,400
------------
CHEMICALS -- BASIC -- 2.5%
34,100 du Pont (E.I.) de Nemours
& Company........................ 2,314,538
62,100 Olin Corporation................... 3,353,400
100,900 PPG Industries Inc. ............... 4,199,961
------------
9,867,899
------------
CHEMICALS -- SPECIALTY -- 2.1%
107,200 Lubrizol Corporation............... 3,738,600
170,100 Witco Corporation.................. 4,677,750
------------
8,416,350
------------
DIVERSIFIED HEALTHCARE -- 0.9%
101,100 Mallinckrodt Group Inc. ........... 3,677,513
------------
DRUGS -- MEDICAL SUPPLIES -- 4.4%
103,100 Bausch & Lomb Inc. ................ 4,188,437
74,655 Bristol-Myers Squibb Company....... 4,955,226
125,700 Rhone-Poulenc Rorer................ 5,185,125
97,900 Upjohn Company..................... 3,561,113
------------
17,889,901
------------
ELECTRIC UTILITIES -- NON-NUCLEAR -- 2.0%
177,400 Baltimore Gas & Electric Company... 4,612,400
124,300 CINergy Corporation................ 3,309,487
------------
7,921,887
------------
ELECTRIC UTILITIES -- NUCLEAR -- 2.1%
117,900 Detroit Edison Company............. 3,551,737
177,700 PECO Energy Company................ 4,997,812
------------
8,549,549
------------
ELECTRICAL EQUIPMENT -- 1.6%
45,000 General Electric Company........... 2,610,000
60,300 Minnesota Mining & Manufacturing
Company.......................... 3,610,463
------------
6,220,463
------------
ELECTRONIC COMPONENTS -- 1.5%
65,700 Avnet, Inc. ....................... 2,989,350
51,900 Motorola, Inc. .................... 3,107,513
------------
6,096,863
------------
FINANCE -- MISCELLANEOUS -- 0.4%
79,700 Avalon Properties Inc., REIT....... 1,574,075
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
FOOD -- PACKAGED -- 2.3%
164,400 Dean Foods Company................. $ 4,603,200
85,200 Hershey Foods Corporation.......... 4,398,450
------------
9,001,650
------------
GAS UTILITIES -- 2.1%
157,700 Brooklyn Union Gas Company......... 3,981,925
157,700 NICOR Inc. ........................ 4,198,762
------------
8,180,687
------------
HOUSEHOLD PRODUCTS -- 2.0%
78,900 Clorox Company..................... 4,724,137
188,000 Sunbeam-Oster Company, Inc. ....... 3,407,500
------------
8,131,637
------------
INSURANCE -- LIFE AND SPECIALTY -- 1.0%
87,400 Lincoln National Corporation....... 3,954,850
------------
INSURANCE -- OTHER -- 1.1%
54,000 Marsh & McLennan Companies Inc. ... 4,299,750
------------
LONG DISTANCE -- 2.9%
122,900 American Telephone & Telegraph
Company.......................... 6,237,175
157,200 Sprint Corporation................. 5,266,200
------------
11,503,375
------------
MEDIA -- 1.0%
76,600 Dun & Bradstreet Corporation....... 4,059,800
------------
MONEY CENTER BANKS -- 2.2%
57,000 BankAmerica Corporation............ 2,978,250
42,500 Bankers Trust NY Corporation....... 2,666,875
68,100 Chemical Banking Corporation....... 3,141,112
------------
8,786,237
------------
OIL SERVICES AND EQUIPMENT -- 1.2%
210,700 Dresser Industries, Inc. .......... 4,819,763
------------
PAPER AND FOREST PRODUCTS -- 2.7%
67,200 Kimberly-Clark Corporation......... 4,032,000
30,000 Mead Corporation................... 1,616,250
65,880 Potlatch Corporation............... 2,824,605
48,300 Weyerhaeuser Company............... 2,119,163
------------
10,592,018
------------
PETROLEUM -- DOMESTIC -- 4.4%
122,700 Ashland Inc. ...................... 4,555,237
128,800 Consolidated Natural Gas Company... 5,135,900
171,900 Equitable Resources Inc. .......... 5,135,513
48,100 Sun Company, Inc. ................. 1,515,150
42,500 Ultramar Corporation............... 1,131,563
------------
17,473,363
------------
PETROLEUM -- INTERNATIONAL -- 3.6%
63,880 Exxon Corporation.................. 4,559,435
24,200 Mobil Corporation.................. 2,429,075
49,900 Murphy Oil Corporation............. 2,183,125
74,600 Texaco Inc......................... 5,110,100
------------
14,281,735
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
<TABLE>
NATIONS FUND, INC.
NATIONS EQUITY INCOME FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) MAY 31, 1995
<CAPTION>
VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
PRODUCER GOODS -- MACHINERY -- 2.3%
135,400 Briggs & Stratton Corporation...... $ 4,806,700
201,000 Keystone International Inc. ....... 4,346,625
------------
9,153,325
------------
REGIONAL BANKS -- 2.1%
97,400 First of America Bank
Corporation...................... 3,518,575
157,490 KeyCorp Inc. ...................... 4,823,131
------------
8,341,706
------------
RETAIL -- FOOD AND DRUG -- 1.1%
159,000 Supervalu Inc. .................... 4,511,625
------------
RETAIL -- MAJOR -- 3.2%
109,600 May Department Stores Company...... 4,301,800
93,600 Penney (J.C) Inc. ................. 4,410,900
70,900 Sears, Roebuck & Company........... 3,996,987
------------
12,709,687
------------
RETAIL -- SPECIALTY -- 2.6%
136,400 Lowe's Companies Inc. ............. 3,716,900
110,000 Melville Corporation............... 4,372,500
161,500 TJX Companies Inc. ................ 2,160,063
------------
10,249,463
------------
TELECOMMUNICATIONS -- 1.3%
259,900 Comsat Corporation, Series 1....... 5,068,050
------------
TELEPHONE -- BELL REGIONAL -- 4.5%
97,200 Ameritech Corporation.............. 4,313,250
67,800 BellSouth Corporation.............. 4,161,225
47,200 Pacific Telesis Group.............. 1,262,600
101,400 SBC Communications, Inc............ 4,563,000
89,600 US West Inc........................ 3,696,000
------------
17,996,075
------------
TELEPHONE -- NON-BELL REGIONAL -- 1.3%
150,900 GTE Corporation.................... 5,036,287
------------
TRANSPORTATION -- 0.2%
20,900 Roadway Services Inc. ............. 977,075
------------
TOTAL COMMON STOCKS
(Cost $251,115,294).............. 267,409,433
============
<CAPTION>
PRINCIPAL
AMOUNT
- ----------
<S> <C> <C>
CONVERTIBLE BONDS & NOTES -- 6.0%
DOMESTIC OIL -- 3.8%
$ 5,900,000 Noble Affiliates, Conv. Note,
4.250% 11/01/03.................. 5,553,375
10,275,000 USX-Marathon Group, Sub. Deb.
Conv.,
7.000% 06/15/17.................. 9,427,313
------------
14,980,688
------------
ELECTRICAL EQUIPMENT -- 0.7%
2,575,000 General Signal Corporation, Sub.
Note Conv., 5.750% 06/01/02...... 2,703,750
------------
ELECTRONIC COMPONENTS -- 0.6%
2,404,000 Avnet, Inc., Sub. Deb. Conv.,
6.000% 04/15/12.................. 2,671,445
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
- ------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS & NOTES -- (CONTINUED)
TECHNOLOGY -- 0.9%
$ 2,900,000 EMC Corporation, Sub. Note Conv.,
4.250% 01/01/01.................. $ 3,762,750
------------
TOTAL CONVERTIBLE BONDS
& NOTES
(Cost $22,757,476)............... 24,118,633
============
<CAPTION>
SHARES
- ----------
<S> <C> <C>
FOREIGN STOCKS -- 4.3%
CHEMICALS -- BASIC -- 1.1%
88,800 Imperial Chemical Industry Plc,
ADR.............................. 4,506,600
------------
INDUSTRIAL CONGLOMERATES -- 1.2%
237,700 Hanson Plc, ADR.................... 4,516,300
------------
LONG DISTANCE -- 2.0%
191,600 BCE Inc., ADR...................... 6,011,450
30,900 British Telecommunications, ADR.... 1,950,563
------------
7,962,013
------------
TOTAL FOREIGN STOCKS
(Cost $16,877,436)............... 16,984,913
============
CONVERTIBLE PREFERRED STOCK -- 0.9%
(Cost $3,357,449)
AUTOMOBILES -- 0.9%
36,500 Ford Motor Company, Series A,
$4.20, Dep. Conv. Pfd. .......... 3,485,750
============
TOTAL SECURITIES
(Cost $294,107,655).............. 311,998,729
============
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
REPURCHASE AGREEMENT -- 24.7% (Cost $98,397,000)
$98,397,000 Agreement with CS First Boston
Corporation, 6.050% dated 05/31/95,
to be repurchased at $98,413,536 on
06/01/95, collaterized by:
$100,857,731 U.S. Treasury Bonds,
7.625% - 11.750% due 02/15/25 -
02/15/10......................... 98,397,000
============
TOTAL INVESTMENTS
(Cost $392,504,655*).................. 103.0% 410,395,729
OTHER ASSETS AND
LIABILITIES (NET)..................... (3.0) (12,127,596)
----- ============
NET ASSETS.............................. 100.0% $398,268,133
===== ============
<FN>
- ---------------
* Aggregate cost for Federal tax purposes was $394,809,283.
</TABLE>
<TABLE>
ABBREVIATIONS:
<S> <C>
ADR American Depositary Receipt
Conv. Convertible
Deb. Debenture
Dep. Depositary Share
Pfd. Preferred
REIT Real Estate Investment Trust
Sub. Subordinated
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
NATIONS FUND, INC.
NATIONS GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF INVESTMENTS MAY 31, 1995
<CAPTION>
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- -----------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES -- 77.8%
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) CERTIFICATES -- 5.0%
$ 150,695 10.000%................... 07/01/01 $ 157,051
1,470,788 9.000%................... 05/01/09 1,530,766
1,103,672 8.000%................... 07/01/16 1,128,052
183,311 9.000%................... 12/01/16 190,696
232,907 8.500%................... 03/01/17 241,028
1,809,195 8.500%+.................. 05/01/17 1,865,154
50,832 8.500%................... 06/01/17 52,404
REMIC,
356,933 6.000%................... 01/15/19 352,918
------------
5,518,069
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) CERTIFICATES -- 29.7%
370,152 8.000%................... 04/01/06 380,908
3,204,324 8.000%................... 06/01/08 3,294,270
9,752,160 8.500%................... 11/01/09 10,114,745
1,328,800 9.000%................... 12/01/09 1,391,546
2,925,555 9.000%................... 04/01/16 3,063,700
439,214 8.000%................... 06/01/20 451,424
83,767 8.500%................... 07/01/21 86,595
7,000,000 7.500%, TBA++............ 02/01/24 7,030,590
7,000,000 7.000%, TBA++............ 06/15/24 6,886,250
------------
32,700,028
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) CERTIFICATES -- 40.8%
224,858 8.500%................... 09/15/04 235,662
146,710 8.500%................... 02/15/05 154,000
59,055 8.500%................... 12/15/05 62,000
9,164 8.500%................... 01/15/06 9,627
219,572 8.500%................... 03/15/06 230,656
285,189 8.500%................... 06/15/08 300,319
1,179,581 8.500%................... 07/15/08 1,240,955
1,262,044 8.500%................... 08/15/08 1,327,708
24,744 8.500%................... 09/15/09 26,073
3,000,000 7.000%, TBA++............ 11/20/09 3,020,610
180,674 8.500%................... 06/15/16 190,226
54,723 9.500%................... 06/15/16 58,108
11,759 9.000%................... 08/15/16 12,406
245,181 8.000%................... 02/15/17 253,052
88,185 8.000%................... 06/15/17 90,802
166,659 8.000%................... 07/15/17 172,393
35,798 9.500%................... 12/15/18 37,837
191,576 9.000%................... 10/15/19 201,485
278,602 9.000%................... 04/15/20 293,011
174,115 8.500%................... 05/15/20 181,732
125,769 9.000%................... 08/15/20 132,274
219,393 10.500%................... 12/15/20 240,166
35,447 8.500%................... 03/15/21 36,798
277,564 8.000%................... 04/15/21 284,414
40,755 8.500%................... 07/15/21 42,309
241,959 9.500%................... 08/15/21 255,266
15,540 8.500%................... 09/15/21 16,132
181,327 8.000%................... 11/15/21 185,802
506,300 8.500%................... 11/15/21 525,600
691,410 8.500%................... 12/15/21 717,767
301,187 8.000%................... 03/15/22 308,621
5,153,039 8.000%+.................. 05/15/22 5,280,216
324,861 8.500%................... 05/15/22 337,244
297,222 8.000%................... 06/15/22 304,557
92,037 8.000%................... 07/15/22 94,308
3,337,031 8.500%+.................. 07/15/22 3,464,239
3,111,302 8.500%+.................. 08/15/22 3,229,905
3,000,000 7.500%, TBA++............ 10/01/24 3,018,750
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MATURITY VALUE
AMOUNT DATE (NOTE 1)
- -----------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES -- (CONTINUED)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) CERTIFICATES -- (CONTINUED)
$ 9,000,000 8.000%, TBA++............ 01/15/25 $ 9,222,120
5,000,000 9.000%................... 05/15/25 5,242,969
4,000,000 6.500%, TBA++............ 05/15/25 3,838,720
------------
44,876,839
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II (GNMA
II) CERTIFICATES -- 2.3%
188,742 11.000%.................. 10/20/20 204,077
293,012 10.000%.................. 04/20/21 311,692
307,916 10.000%.................. 06/20/21 327,546
547,147 10.000%.................. 10/20/21 582,028
647,044 10.000%.................. 11/20/21 688,294
381,862 10.000%.................. 12/20/21 406,205
------------
2,519,842
------------
TOTAL MORTGAGE-BACKED
SECURITIES
(Cost $84,913,121)..... 85,614,778
============
U.S. GOVERNMENT AGENCY -- 1.5% (Cost $1,740,634)
1,500,000 Federal Farm Credit
Systems, 9.450%........ 11/21/03 1,633,125
============
U.S. TREASURY SECURITIES -- 19.4%
5,000,000 U.S. Treasury Bill, Discount
Note.......... 09/21/95 4,931,276
U.S. Treasury Notes:
10,000,000 7.500%+.................. 02/15/05 10,840,600
5,500,000 6.500%+.................. 05/15/05 5,584,205
------------
TOTAL U.S. TREASURY
SECURITIES
(Cost $21,073,756)..... 21,356,081
============
TOTAL SECURITIES
(Cost $107,727,511).... 108,603,984
============
REPURCHASE AGREEMENT -- 30.6% (Cost $33,595,000)
33,595,000 Agreement with CS First
Boston Corporation,
6.050% dated 05/31/95,
to be repurchased at
$33,600,646 on 06/01/95,
collateralized by:
$34,435,150
U.S. Treasury Bonds,
7.625% - 11.750% due
02/15/10 - 02/15/25.... 33,595,000
============
TOTAL INVESTMENTS
(Cost $141,322,511*)................. 129.3% 142,198,984
OTHER ASSETS AND
LIABILITIES (NET).................... (29.3) (32,261,828)
----- ------------
NET ASSETS............................. 100.0% $109,937,156
===== ============
<FN>
- ---------------
* Aggregate cost for Federal tax purposes.
+ Securities segregated as collateral for dollar roll transactions.
++ Security purchased on a when-issued or delayed delivery basis (Note 1).
</TABLE>
<TABLE>
ABBREVIATIONS:
<S> <C>
REMIC Real Estate Mortgage Investment Conduit
TBA To Be Announced
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
NATIONS FUND, INC.
NATIONS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF INVESTMENTS MAY 31, 1995
<CAPTION>
VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 93.6%
ARGENTINA -- 0.8%
170,000 Banco de Galicia, ADS.............. $ 2,762,500
247,800 Compania Naviera Perez, ADR........ 2,106,300
------------
4,868,800
------------
AUSTRALIA -- 1.5%
1,250,000 Australia & New Zealand Bank
Group............................ 4,489,062
340,000 CRA Ltd............................ 4,532,444
------------
9,021,506
------------
BRAZIL -- 2.4%
384,000 Aracruz Celulose S.A., ADS......... 4,368,000
156,585 Compania Energetiva de Minas, ADR.. 3,601,455
90,000 Compania Vale Do Rio Doce, ADR..... 3,404,453
99,000 Telebras, ADR...................... 3,415,500
------------
14,789,408
------------
DENMARK -- 1.2%
135,000 Tele Danmark, Series B............. 7,657,666
------------
FRANCE -- 5.7%
167,000 Banque Nationale de Paris.......... 8,243,132
42,321 Compagnie de Saint-Gobain.......... 5,297,056
91,000 Credit Local de France............. 7,994,941
31,850 Louis Vuitton Moet Hennessey....... 6,053,522
111,350 TOTAL, "B" Shares Ord.............. 6,903,408
------------
34,492,059
------------
GERMANY -- 4.6%
37,000 Bayer AG........................... 8,936,768
2,500 S.A.P AG........................... 3,131,524
10,000 Schering AG........................ 6,953,045
23,500 Veba AG............................ 8,935,671
------------
27,957,008
------------
HONG KONG -- 6.0%
910,000 Cheung Kong Holdings............... 4,482,179
1,600,000 Dao Heng Bank Group................ 4,757,411
450,000 Hong Kong Electric Holdings........ 1,599,809
1,400,000 Hong Kong Land Holdings............ 2,898,000
2,100,000 Hong Kong Telecommunications....... 4,438,742
308,323 HSBC Holdings Plc.................. 4,005,851
610,000 Jardine Strategic Holdings......... 2,135,000
590,000 Sun Hung Kai Properties............ 4,271,328
625,000 Swire Pacific...................... 4,827,705
900,000 Wharf Holdings..................... 2,955,283
------------
36,371,308
------------
INDIA -- 0.3%
95,000 Reliance Industries, GDS+.......... 1,781,250
------------
INDONESIA -- 0.8%
835,500 Indofoods Sukses+.................. 3,077,072
630,000 Semen Cibinong, Alien Shares....... 1,924,096
------------
5,001,168
------------
ITALY -- 1.4%
440,000 Rinascente......................... 2,486,141
2,421,000 Telecom Italia..................... 6,341,943
------------
8,828,084
------------
JAPAN -- 29.3%
126,000 Acom Company....................... 3,723,404
500,000 Asahi Bank Limited................. 6,205,674
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
JAPAN -- (CONTINUED)
260,000 Canon Sales Company................ $ 6,791,962
880 DDI Corporation.................... 5,845,863
1,100,000 Itochu Corporation................. 6,748,227
110,000 Mabuchi Motor Company.............. 7,164,303
990,000 Mitsubishi Heavy Industries........ 6,798,936
600,000 Mitsui Fudosan Company............. 6,730,496
700,000 NEC Corporation.................... 7,446,809
448,000 New Japan Securities Company+...... 2,330,024
418,000 Nippon Electric Glass.............. 6,176,123
715,000 Nippon Express Company Ltd. ....... 6,051,300
1,300,000 Nippon Sanso....................... 6,100,473
2,000,000 Nippon Steel....................... 7,186,761
750 Nippon Telephone & Telegraph
Corporation...................... 6,205,674
1,200,000 NTN Corporation.................... 7,078,014
550,000 Onward Kashiyama Company........... 7,541,371
675,000 Shimizu Construction Company....... 6,861,702
320,000 Sumitomo Bank...................... 6,657,210
560,000 Sumitomo Trust & Bank.............. 7,678,487
140,000 TDK Corporation.................... 6,321,513
475,000 Tokyo Broadcasting Systems Inc. ... 7,579,787
200,000 Tokyo Electric Power Company....... 6,335,697
1,100,000 Toshiba Corporation................ 6,930,260
215,000 Tostem Corporation................. 7,268,322
1,850,000 UBE Industries Ltd.+............... 6,997,636
500,000 Yamaichi Securities................ 3,020,095
1,010,000 Yasuda Fire & Marine Industries.... 6,840,780
------------
178,616,903
------------
KOREA -- 1.0%
70,000 Korea Electric Power Corporation... 2,623,210
192,000 Korea First Bank+.................. 1,900,112
34,000 Yukong Ltd. ....................... 1,431,154
------------
5,954,476
------------
MALAYSIA -- 4.4%
412,500 Genting Berhad..................... 4,351,795
1,275,000 Land & General Berhad.............. 4,009,434
166,666 Leader Universal Holdings.......... 581,590
625,000 Malaysian Banking Berhad........... 5,148,103
960,000 Perusahaan Otomobil Nasional....... 3,447,352
500,000 Tenaga Nasional Berhad............. 2,069,385
1,070,000 United Engineers (Malaysia) Berhad. 7,076,892
------------
26,684,551
------------
MEXICO -- 0.3%
165,000 Desc SA de CV, ADR+................ 2,083,125
------------
NETHERLANDS -- 3.8%
39,900 Akzo Group N.V. ................... 4,855,702
631,000 Elsevier N.V. ..................... 7,300,101
190,000 Polygram........................... 11,086,737
------------
23,242,540
------------
SINGAPORE -- 2.8%
300,000 Development Bank of Singapore...... 3,510,409
330,000 Overseas Chinese Banking Corporation,
Alien Shares..................... 4,050,969
300,000 Singapore International Airlines,
Alien Shares..................... 2,864,322
210,000 Singapore Press Holdings........... 3,919,598
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
NATIONS FUND, INC.
NATIONS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED) MAY 31, 1995
<CAPTION>
VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- (CONTINUED)
SINGAPORE -- (CONTINUED)
1,250,000 United Overseas Land............... $ 2,665,111
------------
17,010,409
------------
SPAIN -- 1.8%
35,000 Banco Popular de Espanol........... 5,246,069
171,000 Repsol SA.......................... 5,531,223
------------
10,777,292
------------
SWEDEN -- 1.9%
500,000 Atlas Copco AB "B"................. 7,282,578
232,500 Volvo AB "B"....................... 4,082,667
------------
11,365,245
------------
SWITZERLAND -- 3.8%
7,280 Brown Boveri & Cie AG.............. 7,426,535
1,260 Roche Holdings AG.................. 7,754,261
6,600 Zurich Versicherungs............... 7,710,835
------------
22,891,631
------------
THAILAND -- 1.6%
85,000 Advanced Information Services Public 1,291,532
225,000 Bangkok Bank Public Company Ltd.... 2,461,507
44,000 Siam Cement Company................ 2,820,421
365,000 Thai Farmers Bank Public Company... 3,460,697
------------
10,034,157
------------
TURKEY -- 0.1%
224,850 Turkiye Garanti Bankasi, GDR....... 505,913
139,149 Turkiye Garanti Bankasi, ADR....... 313,085
------------
818,998
------------
UNITED KINGDOM -- 17.9%
1,650,000 Allied Colloids.................... 3,455,399
775,000 Allied Irish Banks................. 3,657,876
250,000 Amersham International Plc......... 3,565,661
900,000 Argos.............................. 6,068,366
800,000 B.A.T. Industries.................. 6,219,083
550,000 Barclays Plc....................... 5,889,884
1,100,000 BPB Industries..................... 5,427,419
765,000 British Airport Authority.......... 5,886,315
850,000 British Petroleum.................. 5,987,454
1,125,000 British Telecommunications......... 7,050,013
1,125,000 BTR................................ 5,996,973
830,000 Cadbury Schweppes.................. 6,215,276
470,000 Guiness Plc........................ 3,571,689
1,475,000 Hanson Plc......................... 5,604,512
500,000 Inchcape........................... 2,538,401
350,000 Powergen Plc, Ord.................. 2,776,376
100,000 Powergen Plc+...................... 333,165
750,000 Reuters Holdings................... 5,604,314
1,805,074 Rolls Royce Plc.................... 5,340,896
1,000,000 Royal Insurance Holdings........... 5,314,778
1,275,000 Sedgwick Group..................... 3,074,639
600,000 Smithkline Beecham, "A"............ 4,807,097
400,000 South Wales Electric............... 4,480,279
------------
108,865,865
------------
VENEZUELA -- 0.2%
1,100,000 Sivensa, ADR....................... 1,650,000
------------
TOTAL COMMON STOCKS
(Cost $526,270,789).............. 570,763,449
============
<CAPTION>
VALUE
SHARES (NOTE 1)
- ---------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK -- 0.2% (Cost $1,380,026)
KOREA -- 0.2%
15,000 Samsung Electronics................ $ 1,195,487
============
COMMON STOCK WARRANTS -- 0.1%
MALAYSIA -- 0.1%
67,500 YTL Corporation, expires
08/26/97+........................ 235,545
------------
UNITED STATES -- 0.0%#
680,000 Central European Growth Fund,
expires 01/01/2100+.............. 86,387
------------
TOTAL COMMON STOCK WARRANTS
(Cost $4,412).................... 321,932
============
MUTUAL FUNDS -- 1.3%
3,400,000 Central European Growth Fund....... 2,240,668
80,000 Chile Growth Fund.................. 2,940,000
1,000,000 Five Arrows Chile Investment Trust
Ltd. ............................ 2,940,000
------------
TOTAL MUTUAL FUNDS
(Cost $8,245,035)................ 8,120,668
============
TOTAL SECURITIES
(Cost $535,900,262).............. 580,401,536
============
<CAPTION>
PRINCIPAL
AMOUNT
- ----------
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 4.8%
(Cost $29,057,000)
$29,057,000 Agreement with Salomon
Brothers, Inc., 6.125%
dated 05/31/95, to be
repurchased at $29,061,944
on 06/01/95, collateralized
by: $29,669,633 U.S.
Treasury Notes, 4.375%
due 08/15/96............ 29,057,000
============
TOTAL INVESTMENTS
(Cost $564,957,262*).................. 100.0% 609,458,536
OTHER ASSETS AND
LIABILITIES (NET)..................... 0.0 225,097
----- ------------
NET ASSETS.............................. 100.0% $609,683,633
----- ============
<FN>
- ---------------
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
# Amount represents less than 0.01%.
</TABLE>
<TABLE>
ABBREVIATIONS:
<S> <C>
ADR American Depositary Receipt
ADS American Depositary Share
GDR Global Depositary Receipt
GDS Global Depositary Share
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
NATIONS FUND, INC.
NATIONS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF INVESTMENTS (CONTINUED) MAY 31, 1995
AT MAY 31, 1995 SECTOR DIVERSIFICATION WAS AS FOLLOWS (UNAUDITED):
<CAPTION>
% OF NET VALUE
SECTOR DIVERSIFICATION ASSETS (NOTE 1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS:
Financial Services........................................................... 11.6% $ 70,591,263
Gas and Electric Utilities................................................... 9.9 60,107,871
Banking...................................................................... 7.1 43,051,163
Telecommunications........................................................... 6.7 40,680,946
Chemical..................................................................... 5.5 33,244,537
Construction................................................................. 5.4 32,912,745
Consumer Durables............................................................ 4.2 25,840,256
Basic Industry............................................................... 4.0 24,100,642
Consumer Services............................................................ 3.9 23,855,051
Insurance.................................................................... 3.3 19,866,393
Consumer Goods............................................................... 3.0 18,502,723
Utility...................................................................... 2.8 16,831,449
Real Estate.................................................................. 2.7 16,564,935
Leisure and Entertainment.................................................... 2.5 15,438,532
Pharmaceuticals and Healthcare............................................... 2.5 15,325,803
Transportation............................................................... 2.4 14,801,937
Technology................................................................... 2.4 14,543,305
Metal and Mining............................................................. 2.3 14,264,775
Automobiles.................................................................. 2.1 12,870,915
Food and Beverage............................................................ 1.6 9,625,211
Textiles..................................................................... 1.2 7,541,371
Diversified.................................................................. 0.8 4,827,705
Publishing................................................................... 0.6 3,919,598
Industrial................................................................... 0.3 1,781,250
Miscellaneous................................................................ 4.8 29,673,073
------- ------------
TOTAL COMMON STOCKS.......................................................... 93.6 570,763,449
PREFERRED STOCK.............................................................. 0.2 1,195,487
COMMON STOCK WARRANTS........................................................ 0.1 321,932
MUTUAL FUNDS................................................................. 1.3 8,120,668
REPURCHASE AGREEMENT......................................................... 4.8 29,057,000
------- ------------
TOTAL INVESTMENTS............................................................ 100.0 609,458,536
OTHER ASSETS AND LIABILITIES (NET)........................................... 0.0 225,097
------- ------------
NET ASSETS................................................................... 100.0% $609,683,633
======= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
NATIONS FUND, INC.
NATIONS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS MAY 31, 1995
<CAPTION>
CONTRACT TO BUY NET UNREALIZED
-------------------------------------------------- APPRECIATION/
LOCAL VALUE IN IN EXCHANGE (DEPRECIATION)
MATURITY DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
06/01/95 378,301 GBP............... $ 600,175 $ 597,715 $ 2,460
06/09/95 1,943,501 GBP............... 3,083,331 3,132,535 (49,204)
-------------
$ (46,744)
-------------
</TABLE>
<TABLE>
<CAPTION>
CONTRACT TO SELL
-------------------------------------------------- NET UNREALIZED
LOCAL VALUE IN IN EXCHANGE DEPRECIATION
MATURITY DATE CURRENCY U.S. $ FOR U.S. $ OF CONTRACT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
06/01/95 378,885 GBP............... $ 601,101 $ 598,828 $ (2,273)
06/01/95 732,719 IDR............... 329 327 (2)
08/31/95 12,500,000 CHF............... 10,783,448 10,504,643 (278,805)
08/31/95 16,000,000 DEM............... 11,370,056 11,173,965 (196,091)
08/31/95 85,000,000 FRF............... 17,068,050 16,573,400 (494,650)
08/31/95 3,650,000,000 JPY............... 43,711,533 42,427,060 (1,284,473)
08/31/95 3,700,000,000 JPY............... 44,310,320 43,023,256 (1,287,064)
08/31/95 3,650,000,000 JPY............... 43,711,533 42,380,261 (1,331,272)
08/31/95 15,000,000 NLG............... 9,524,021 9,353,516 (170,505)
------------
$ (5,045,135)
------------
Net Unrealized Depreciation of Forward Foreign Exchange Contracts........ $ (5,091,879)
============
</TABLE>
- ---------------------------------------------------
KEY TO CURRENCY ABBREVIATIONS
CHF Swiss Franc
DEM German Deutsche Mark
FRF French Franc
GBP Great Britain Pound
IDR Indonesian Rupiah
JPY Japanese Yen
NLG Netherlands Guilder
- ---------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES MAY 31, 1995
<CAPTION>
NATIONS NATIONS NATIONS
NATIONS NATIONS EQUITY GOVERNMENT INTERNATIONAL
PRIME TREASURY INCOME SECURITIES EQUITY
FUND FUND FUND FUND FUND
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value
See accompanying schedules:
Securities............................................ $3,999,079,573 $ 980,350,236 $311,998,729 $108,603,984 $580,401,536
Repurchase agreements................................. -- 2,804,945,000 98,397,000 33,595,000 29,057,000
-------------- -------------- ------------ ------------ ------------
Total investments....................................... 3,999,079,573 3,785,295,236 410,395,729 142,198,984 609,458,536
Cash.................................................... 460 1,853,836 163 600 11,252
Foreign currency, at value (Cost $4,808,429)............ -- -- -- -- 4,910,865
Receivable for dollar roll fee income (Notes 1 and 4)... -- -- -- 18,541 --
Dividends receivable.................................... 384,246 628,157 1,181,370 116 2,153,565
Interest receivable..................................... 10,698,668 3,149,293 511,021 645,566 4,944
Receivable for Fund shares sold......................... 5,117,524 1,042,889 1,733,117 85,648 2,840,781
Receivable for investment securities sold............... -- -- 9,090,611 -- 5,859,252
Receivable for withholding tax on dividends............. -- -- -- -- 850,585
Receivable from investment adviser (Note 2)............. 191,636 -- -- 32,244 --
Unamortized organization costs (Note 7)................. -- -- 14,304 1,010 35,431
Prepaid expenses and other assets....................... 219,986 150,066 15,199 18,719 30,686
-------------- -------------- ------------ ------------ ------------
Total Assets.......................................... 4,015,692,093 3,792,119,477 422,941,514 143,001,428 626,155,897
============== ============== ============ ============ ============
LIABILITIES:
Net unrealized depreciation of forward foreign exchange
contracts (Note 1)
See accompanying schedule............................. -- -- -- -- 5,091,879
Payable for reverse repurchase agreements (Note 1)...... -- 655,945,000 -- -- --
Payable for Fund shares redeemed........................ 6,314,560 994,661 12,484,468 61,834 1,196,948
Payable for investment securities purchased (Notes 1 and
4).................................................... 25,000,000 -- 11,781,882 32,569,531 9,334,165
Investment advisory fee payable (Note 2)................ -- 161,688 231,026 -- 207,133
Sub-investment advisory fee payable (Note 2)............ -- -- -- -- 196,776
Administration fee payable (Note 2)..................... 335,256 247,583 34,258 9,222 51,783
Shareholder servicing and distribution fees payable
(Note 3).............................................. 284,872 57,810 50,100 33,704 20,314
Custodian fees payable (Note 2)......................... 42,727 38,654 7,070 2,007 94,640
Dividends payable....................................... 15,403,341 14,384,435 -- 364,809 --
Accrued Directors' fees and expenses (Note 2)........... 4,390 3,446 449 121 678
Accrued expenses and other payables..................... 306,339 189,100 84,128 23,044 277,948
-------------- -------------- ------------ ------------ ------------
Total Liabilities..................................... 47,691,485 672,022,377 24,673,381 33,064,272 16,472,264
-------------- -------------- ------------ ------------ ------------
NET ASSETS.............................................. $3,968,000,608 $3,120,097,100 $398,268,133 $109,937,156 $609,683,633
============== ============== ============ ============ ============
NET ASSETS CONSIST OF:
Undistributed net investment income/(distributions in
excess of net investment income)...................... $ -- $ 1,109 $ 2,542,525 $ (364,809) $(17,575,809)
Accumulated net realized gain/(loss) on investments
sold, forward foreign exchange contracts, futures
contracts, foreign currency and net other assets and
liabilities........................................... (427,552) (1,041) 2,529,328 (7,089,149) (3,296,635)
Net unrealized appreciation/(depreciation) of
investments, forward foreign exchange contracts,
foreign currency and net other assets................. -- -- 17,891,074 876,473 39,511,831
Par value............................................... 3,968,416 3,120,053 33,762 11,153 51,921
Paid-in capital in excess of par value.................. 3,964,459,744 3,116,976,979 375,271,444 116,503,488 590,992,325
-------------- -------------- ------------ ------------ ------------
NET ASSETS.............................................. $3,968,000,608 $3,120,097,100 $398,268,133 $109,937,156 $609,683,633
============== ============== ============ ============ ============
Investments, at cost (Note 1)........................... $3,999,079,573 $3,785,295,236 $392,504,655 $141,322,511 $564,957,262
============== ============== ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) MAY 31, 1995
<CAPTION>
NATIONS NATIONS NATIONS
NATIONS NATIONS EQUITY GOVERNMENT INTERNATIONAL
PRIME TREASURY INCOME SECURITIES EQUITY
FUND FUND FUND FUND FUND
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS:
Trust A Shares........................................... $2,873,096,086 $2,896,867,712 $283,081,912 $39,908,569 $572,939,993
-------------- -------------- ------------ ----------- ------------
Trust B Shares........................................... $ 126,120,198 $ 56,815,142 N/A N/A N/A
-------------- -------------- ------------ ----------- ------------
Investor A Shares........................................ $ 698,357,605 $ 107,475,283 $ 35,537,745 $10,927,717 $ 4,876,746
-------------- -------------- ------------ ----------- ------------
Investor B Shares........................................ $ 216,973,394 $ 52,563,765 N/A N/A N/A
-------------- -------------- ------------ ----------- ------------
Investor C Shares........................................ $ 53,451,294 $ 6,373,167 $ 4,277,550 $ 2,945,401 $ 494,964
-------------- -------------- ------------ ----------- ------------
Investor D Shares........................................ $ 2,031 $ 2,031 N/A N/A N/A
-------------- -------------- ------------ ----------- ------------
Investor N Shares........................................ N/A N/A $ 75,370,926 $56,155,469 $ 31,371,930
-------------- -------------- ------------ ----------- ------------
SHARES OUTSTANDING:
Trust A Shares........................................... 2,873,396,651 2,896,826,781 23,977,304 4,048,547 48,747,325
-------------- -------------- ------------ ----------- ------------
Trust B Shares........................................... 126,133,392 56,814,340 N/A N/A N/A
-------------- -------------- ------------ ----------- ------------
Investor A Shares........................................ 698,430,663 107,473,764 3,017,091 1,108,576 418,029
-------------- -------------- ------------ ----------- ------------
Investor B Shares........................................ 216,996,093 52,563,022 N/A N/A N/A
-------------- -------------- ------------ ----------- ------------
Investor C Shares........................................ 53,456,886 6,373,077 361,464 298,805 43,238
-------------- -------------- ------------ ----------- ------------
Investor D Shares........................................ 2,032 2,031 N/A N/A N/A
-------------- -------------- ------------ ----------- ------------
Investor N Shares........................................ N/A N/A 6,405,823 5,696,766 2,712,820
-------------- -------------- ------------ ----------- ------------
TRUST A SHARES:
Net asset value, offering price and redemption price per
share.................................................. $1.00 $1.00 $11.81 $9.86 $11.75
----- ----- ------ ----- ------
TRUST B SHARES:
Net asset value, offering price and redemption price per
share.................................................. $1.00 $1.00 N/A N/A N/A
----- -----
INVESTOR A SHARES:
Net asset value and redemption price per share........... $1.00 $1.00 $11.78 $9.86 $11.67
----- ----- ------ ----- ------
Maximum sales charge..................................... N/A N/A 5.75% 4.75% 5.75%
Maximum offering price per share......................... N/A N/A $12.50 $10.35 $12.38
------ ------ ------
INVESTOR B SHARES:
Net asset value, offering price and redemption price per
share.................................................. $1.00 $1.00 N/A N/A N/A
----- -----
INVESTOR C SHARES:
Net asset value, offering price and redemption price per
share.................................................. $1.00 $1.00 $11.83* $9.86* $11.45*
----- ----- ------ ----- ------
INVESTOR D SHARES:
Net asset value, offering price and redemption price per
share.................................................. $1.00 $1.00 N/A N/A N/A
----- -----
INVESTOR N SHARES*:
Net asset value and offering price per share............. N/A N/A $11.77 $9.86 $11.56
------ ----- ------
<FN>
- ---------------
* Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1995
<CAPTION>
NATIONS NATIONS NATIONS
NATIONS NATIONS EQUITY GOVERNMENT INTERNATIONAL
PRIME TREASURY INCOME SECURITIES EQUITY
FUND FUND FUND FUND FUND
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest................................................ $201,668,467 $145,144,057 $ 4,952,878 $7,942,384 $ 3,090,056
Dividends (Net of foreign withholding taxes of $177,535
for the Nations Equity Income Fund and $1,339,331 for
the Nations International Equity Fund)................ 2,953,192 12,147,630 12,056,364 116 8,828,596
Fee Income (Note 4)..................................... -- -- -- 411,515 --
------------ ------------ ----------- ---------- ------------
Total investment income............................. 204,621,659 157,291,687 17,009,242 8,354,015 11,918,652
------------ ------------ ----------- ---------- ------------
EXPENSES:
Investment advisory fee (Note 2)........................ 7,449,877 5,994,727 2,482,606 716,365 2,158,263
Sub-investment advisory fee (Note 2).................... -- -- -- -- 2,065,748
Administration fee (Note 2)............................. 3,701,931 2,978,762 363,594 112,169 539,566
Custodian fees (Note 2)................................. 500,522 435,768 88,303 24,985 431,656
Transfer agent fees (Note 2)............................ 1,555,284 620,670 212,541 86,511 212,882
Directors' fees and expenses (Note 2)................... 28,611 22,439 2,837 881 8,077
Amortization of organization costs (Note 7)............. -- -- 15,268 2,574 20,633
Other................................................... 1,522,238 353,447 210,378 114,775 172,344
------------ ------------ ----------- ---------- ------------
Subtotal............................................ 14,758,463 10,405,813 3,375,527 1,058,260 5,609,169
Shareholder servicing and distribution fees (Note 3):
Trust B Shares........................................ 252,570 132,840 -- -- --
Investor A Shares..................................... 2,157,273 336,735 83,892 28,881 10,492
Investor D Shares..................................... 1 1 -- -- --
Investor B/C Shares................................... 232,857 50,757 41,515 29,739 4,116
Investor C/N Shares................................... 67,557 5,647 434,960 365,153 197,156
Fees waived and/or expenses reimbursed by investment
adviser and/or administrator(s) (Note 2).............. (3,032,142) (1,593,106) (18,677) (203,042) (27,683)
------------ ------------ ----------- ---------- ------------
Total expenses...................................... 14,436,579 9,338,687 3,917,217 1,278,991 5,793,250
------------ ------------ ----------- ---------- ------------
NET INVESTMENT INCOME................................... 190,185,080 147,953,000 13,092,025 7,075,024 6,125,402
------------ ------------ ----------- ---------- ------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(NOTES 1 AND 4):
Realized gain/(loss) from:
Security transactions (Net of foreign capital gains
tax of $173,014 for the Nations International Equity
Fund)............................................... 1,780 32 14,003,911 (5,805,227) 1,306,553
Forward foreign exchange contracts.................... -- -- -- -- (19,860,168)
Futures contracts..................................... -- -- -- 270,345 --
Foreign currency transactions......................... -- -- -- -- (420,283)
------------ ------------ ----------- ---------- ------------
Net realized gain/(loss) on investments during the
year.................................................. 1,780 32 14,003,911 (5,534,882) (18,973,898)
Change in unrealized appreciation/(depreciation) of:
Securities............................................ -- -- 23,887,774 5,523,988 11,293,516
Forward foreign exchange contracts.................... -- -- -- -- (5,091,879)
Futures contracts..................................... -- -- -- (55,500) --
Foreign currency...................................... -- -- -- -- 100,009
------------ ------------ ----------- ---------- ------------
Net unrealized appreciation of investments during the
year.................................................. -- -- 23,887,774 5,468,488 6,301,646
------------ ------------ ----------- ---------- ------------
Net realized and unrealized gain/(loss) on
investments........................................... 1,780 32 37,891,685 (66,394) (12,672,252)
------------ ------------ ----------- ---------- ------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................ $190,186,860 $147,953,032 $50,983,710 $7,008,630 $ (6,546,850)
============ ============ =========== ========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
NATIONS FUND, INC.
<TABLE>
NATIONS TREASURY FUND
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
<S> <C> <C>
Cash flows from operating and investing activities:
Investment income received........................................ $ 107,352,949
Payment of operating expenses..................................... (9,608,656)
Net purchases of short-term investments........................... (975,378,245)
----------------
Cash used by operating and investing activities..................... $(877,633,952)
Cash flows from financing activities:
Proceeds from shares sold......................................... 11,404,629,686
Payments on shares redeemed....................................... (11,044,679,424)
Cash provided from reverse repurchase agreements.................. 655,945,000
Distributions paid*............................................... (136,407,474)
----------------
Cash provided by financing activities............................... 879,487,788
-------------
Increase in cash.................................................... 1,853,836
Cash at beginning of year........................................... --
-------------
Cash at end of year................................................. $ 1,853,836
=============
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH
PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations................ $ 147,953,032
Increase in investments........................................... $ (1,024,798,063)
Increase in interest and dividends receivable..................... (518,952)
Increase in other assets.......................................... (150,066)
Decrease in accrued expenses...................................... (119,903)
----------------
Cash used by operating activities................................... $(877,633,952)
=============
<FN>
- ---------------
* Non cash activities include reinvestment of dividends of $5,084,086.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
NATIONS FUND, INC.
NATIONS GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
STATEMENT OF CASH FLOWS
<S> <C> <C>
Cash flows from operating and investing activities:
Investment income received............................................ $ 8,713,152
Dollar roll fee income received....................................... 403,774
Payment of operating expenses......................................... (1,340,955)
Proceeds from sales of long-term securities and purchased options..... 499,943,364
Net proceeds from futures transactions................................ 266,876
Purchases of long-term securities and purchased options............... (458,371,982)
Net purchases from short-term investments............................. (33,022,919)
-------------
Cash provided by operating and investing activities..................... $ 16,591,310
Cash flows from financing activities:
Proceeds from shares sold............................................. 31,309,018
Payments on shares redeemed........................................... (43,418,190)
Distributions paid*................................................... (4,482,406)
-------------
Cash used by financing activities....................................... (16,591,578)
------------
Decrease in cash........................................................ (268)
Cash at beginning of year............................................... 868
------------
Cash at end of year..................................................... $ 600
============
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH
PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations.................... $ 7,008,630
Increase in investments**............................................. $ (18,778,969)
Decrease in interest and dividends receivable......................... 501,542
Increase in deferred fee income from dollar roll transactions......... (7,741)
Decrease in variation margin for futures transactions................. 52,031
Increase in other assets.............................................. (7,750)
Increase in payable for investments purchased......................... 10,655,937
Increase in payable for dollar roll transactions...................... 17,221,844
Decrease in accrued expenses.......................................... (54,214)
-------------
Cash provided by operating activities................................... $ 16,591,310
============
<FN>
- ---------------
* Non cash activities include reinvestment of dividends of $2,615,933.
** Includes unrealized appreciation of $876,473.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED MAY 31, 1995
<CAPTION>
NATIONS NATIONS NATIONS
NATIONS NATIONS EQUITY GOVERNMENT INTERNATIONAL
PRIME TREASURY INCOME SECURITIES EQUITY
FUND FUND FUND FUND FUND
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income.......................... $ 190,185,080 $ 147,953,000 $ 13,092,025 $ 7,075,024 $ 6,125,402
Net realized gain/(loss) on investments........ 1,780 32 14,003,911 (5,534,882) (18,973,898)
Change in unrealized appreciation of
investments.................................. -- -- 23,887,774 5,468,488 6,301,646
-------------- -------------- ------------ ------------ ------------
Net increase/(decrease) in net assets resulting
from operations.............................. 190,186,860 147,953,032 50,983,710 7,008,630 (6,546,850)
Distributions to shareholders from net
investment income:
Trust A Shares............................... (148,958,819) (139,757,883) (9,856,745) (2,523,573) (931,481)
Trust B Shares............................... (5,136,504) (2,557,073) -- -- --
Investor A Shares............................ (29,631,302) (4,431,540) (1,156,262) (695,474) (5,028)
Investor B Shares............................ (5,028,843) (1,089,257) -- -- --
Investor C Shares............................ (1,429,580) (116,108) (112,439) (221,446) --
Investor D Shares............................ (32) (30) -- -- --
Investor N Shares............................ -- -- (1,729,944) (3,167,986) (12,349)
Distributions to shareholders from net realized
gain on investments:
Trust A Shares............................... -- (1,048) (17,409,491) -- (5,495,934)
Trust B Shares............................... -- (19) -- -- --
Investor A Shares............................ -- (33) (2,096,836) -- (49,133)
Investor B Shares............................ -- (8) -- -- --
Investor C Shares............................ -- (1) (258,136) -- (4,022)
Investor D Shares............................ -- -- -- -- --
Investor N Shares............................ -- -- (3,677,792) -- (291,841)
Distributions in excess of net realized gain on
investments:
Trust A Shares............................... -- -- -- -- (4,311,458)
Trust B Shares............................... -- -- -- -- --
Investor A Shares............................ -- -- -- -- (38,735)
Investor B Shares............................ -- -- -- -- --
Investor C Shares............................ -- -- -- -- (3,171)
Investor D Shares............................ -- -- -- -- --
Investor N Shares............................ -- -- -- -- (229,798)
Distributions to shareholders from capital:
Trust A Shares............................... -- -- -- (167,558) --
Trust B Shares............................... -- -- -- -- --
Investor A Shares............................ -- -- -- (47,777) --
Investor B Shares............................ -- -- -- -- --
Investor C Shares............................ -- -- -- (16,490) --
Investor D Shares............................ -- -- -- -- --
Investor N Shares............................ -- -- -- (234,720) --
Net increase/(decrease) in net assets from Fund
share transactions:
Trust A transactions......................... (10,718,867) 216,878,016 46,987,917 (4,498,777) 187,819,405
Trust B transactions......................... 126,133,392 56,814,340 -- -- --
Investor A transactions...................... 186,535,070 33,280,029 504,212 (3,076,060) 1,874,077
Investor B transactions...................... 216,994,080 52,561,009 -- -- --
Investor C transactions...................... 51,975,852 6,181,912 (82,344) (2,265,980) 169,852
Investor D transactions...................... 2,032 2,031 -- --
Investor N transactions...................... -- -- 26,477,537 (313,210) 15,273,894
-------------- -------------- ------------ ------------ ------------
Net increase/(decrease) in net assets.......... 570,923,339 365,717,369 88,573,387 (10,220,421) 187,217,428
NET ASSETS:
Beginning of year.............................. 3,397,077,269 2,754,379,731 309,694,746 120,157,577 422,466,205
-------------- -------------- ------------ ------------ ------------
End of year.................................... $3,968,000,608 $3,120,097,100 $398,268,133 $109,937,156 $609,683,633
============== ============== ============ ============ ============
Undistributed net investment
income/(distributions in excess of net
investment income) at end of year............ $ -- $ 1,109 $ 2,542,525 $ (364,809) $(17,575,809)
============== ============== ============ ============= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED MAY 31, 1994
<CAPTION>
NATIONS NATIONS NATIONS
NATIONS NATIONS EQUITY GOVERNMENT INTERNATIONAL
PRIME TREASURY INCOME SECURITIES EQUITY
FUND FUND FUND FUND FUND
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income....................... $ 93,490,332 $ 81,731,417 $ 8,841,458 $ 5,948,087 $ 1,883,701
Net realized gain/(loss) on investments..... 6,838 (1,073) 23,900,306 (2,389,891) 6,255,138
Change in unrealized
appreciation/depreciation of
investments............................... -- -- (21,182,203) (5,429,659) 22,216,885
-------------- -------------- ------------ ------------ ------------
Net increase/(decrease) in net assets
resulting from operations................. 93,497,170 81,730,344 11,559,561 (1,871,463) 30,355,724
Distributions to shareholders from net
investment income:
Trust A Shares............................ (79,493,276) (79,533,963) (7,020,670) (2,642,291) (727,725)
Investor A Shares......................... (13,990,224) (2,197,181) (1,085,906) (830,000) (3,225)
Investor B Shares......................... (3) (3) -- -- --
Investor C Shares......................... (6,829) (270) (93,045) (303,742) (304)
Investor N Shares......................... -- -- (628,790) (1,584,624) (261)
Distributions in excess of net investment
income:
Trust A Shares............................ -- -- -- (72,832) --
Investor A Shares......................... -- -- -- (22,878) --
Investor C Shares......................... -- -- -- (8,372) --
Investor N Shares......................... -- -- -- (43,679) --
Distributions from net realized gain on
investments:
Trust A Shares............................ -- -- (13,604,950) -- (319,576)
Investor A Shares......................... -- -- (2,307,220) -- (1,966)
Investor C Shares......................... -- -- (300,240) -- (341)
Investor N Shares......................... -- -- (1,906,959) -- (1,753)
Distributions in excess of net realized gain
on investments:
Trust A Shares............................ -- -- -- (220,821) --
Investor A Shares......................... -- -- -- (73,587) --
Investor C Shares......................... -- -- -- (28,551) --
Investor N Shares......................... -- -- -- (180,463) --
Distributions from capital:
Trust A Shares............................ -- -- -- (209,279) --
Investor A Shares......................... -- -- -- (67,980) --
Investor C Shares......................... -- -- -- (27,678) --
Investor N Shares......................... -- -- -- (141,441) --
Net increase/(decrease) in net assets from
Fund share transactions:
Trust A transactions...................... 1,727,514,783 (276,803,675) 61,032,644 7,306,192 254,070,396
Investor A transactions................... 205,430,506 (31,632,933) 2,733,441 (305,364) 2,206,818
Investor B transactions................... 2,013 2,013 -- -- --
Investor C transactions................... 1,481,034 191,165 54,078 (342,406) 111,318
Investor N transactions................... -- -- 48,176,917 60,005,011 16,864,513
-------------- -------------- ------------ ------------ ------------
Net increase/(decrease) in net assets....... 1,934,435,174 (308,244,503) 96,608,861 58,333,752 302,553,618
NET ASSETS:
Beginning of year........................... 1,462,642,095 3,062,624,234 213,085,885 61,823,825 119,912,587
-------------- -------------- ------------ ------------ ------------
End of year................................. $3,397,077,269 $2,754,379,731 $309,694,746 $120,157,577 $422,466,205
============== ============== ============ ============ ============
Undistributed net investment
income/(distributions in excess of net
investment income) at end of year......... $ -- $ -- $ 2,305,890 $ (568,682) $ (2,341,222)
============== ============== ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
40
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF CAPITAL STOCK ACTIVITY
Since Nations Prime Fund and Nations Treasury Fund have sold and redeemed shares
only at a constant net asset value of $1.00 per share, the number of shares
represented by such sales, reinvestments and redemptions is the same as the
amounts shown below for such transactions.
<CAPTION>
NATIONS PRIME FUND NATIONS TREASURY FUND
------------------------------------ ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1995 MAY 31, 1994 MAY 31, 1995 MAY 31, 1994
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRUST A SHARES:
Sold........................................... $4,179,031,181 $6,191,619,615 $8,214,697,040 $9,701,918,459
Issued as reinvestment of dividends............ -- -- 15,712 1,439
Redeemed....................................... (4,189,750,048) (4,464,104,832) (7,997,834,736) (9,978,723,573)
-------------- -------------- -------------- ---------------
Net increase/(decrease)........................ $ (10,718,867) $1,727,514,783 $ 216,878,016 $ (276,803,675)
============== ============== ============== ===============
<CAPTION>
PERIOD ENDED PERIOD ENDED
MAY 31, 1995*+ MAY 31, 1995*+
-------------- --------------
<S> <C> <C>
TRUST B SHARES:
Sold........................................... $ 472,671,842 $ 274,967,675
Issued as reinvestment of dividends............ -- --
Redeemed....................................... (346,538,450) (218,153,335)
-------------- --------------
Net increase................................... $ 126,133,392 $ 56,814,340
============== ==============
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 31, 1995 MAY 31, 1995
------------ ------------
<S> <C> <C> <C> <C>
INVESTOR A SHARES:
Sold........................................... $4,055,956,632 $3,561,222,633 $1,790,095,545 $1,381,149,716
Issued as reinvestment of dividends............ 27,595,453 12,516,285 4,030,399 1,977,909
Redeemed....................................... (3,897,017,015) (3,368,308,412) (1,760,845,915) (1,414,760,558)
-------------- -------------- -------------- --------------
Net increase/(decrease)........................ $ 186,535,070 $ 205,430,506 $ 33,280,029 $ (31,632,933)
============== ============== ============== ==============
<CAPTION>
PERIOD ENDED PERIOD ENDED
MAY 31, 1994*+ MAY 31, 1994*+
-------------- --------------
<S> <C> <C> <C> <C>
INVESTOR B SHARES:
Sold........................................... $1,233,942,079 $ 2,010 $1,115,379,304 $ 2,010
Issued as reinvestment of dividends............ 4,499,801 3 923,681 3
Redeemed....................................... (1,021,447,800) -- (1,063,741,976) --
-------------- -------------- -------------- --------------
Net increase................................... $ 216,994,080 $ 2,013 $ 52,561,009 $ 2,013
============== ============== ============== ==============
INVESTOR C SHARES:
Sold........................................... $ 145,963,264 $ 1,962,426 $ 10,389,850 $ 190,934
Issued as reinvestment of dividends............ 1,371,960 3,781 114,263 251
Redeemed....................................... (95,359,372) (485,173) (4,322,201) (20)
-------------- -------------- -------------- --------------
Net increase................................... $ 51,975,852 $ 1,481,034 $ 6,181,912 $ 191,165
============== ============== ============== ==============
<CAPTION>
PERIOD ENDED PERIOD ENDED
MAY 31, 1995*+ MAY 31, 1995*+
-------------- --------------
<S> <C> <C> <C> <C>
INVESTOR D SHARES:
Sold........................................... $ 2,000 $ 2,000
Issued as reinvestment of dividends............ 32 31
-------------- --------------
Net increase................................... $ 2,032 $ 2,031
============== ==============
<FN>
- ---------------
* The Nations Prime Fund's Trust B, Investor B, Investor C and Investor D Shares
commenced operations on June 16, 1994, May 11, 1994, November 26, 1993 and
February 9, 1995, respectively.
The Nations Treasury Fund's Trust B, Investor B, Investor C and Investor D
Shares commenced operations on June 16, 1994, May 16, 1994, May 11, 1994 and
February 9, 1995, respectively.
+ As of May 31, 1995, the Nations Prime Fund and Nations Treasury Fund had each
issued 10 Trust B Shares, 2,010 Investor B Shares and 2,000 Investor D Shares
to Stephens Inc.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF CAPITAL STOCK ACTIVITY (CONTINUED)
<CAPTION>
NATIONS EQUITY INCOME FUND
--------------------------------------------------------------------
YEAR ENDED YEAR ENDED
MAY 31, 1995 MAY 31, 1994
------------------------------ ------------------------------
SHARES DOLLARS SHARES DOLLARS
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRUST A SHARES:
Sold.................................................... 10,384,693 $117,673,123 10,846,224 $129,366,961
Issued as reinvestment of dividends..................... 1,562,311 16,446,517 820,027 9,488,110
Redeemed................................................ (7,712,497) (87,131,723) (6,516,536) (77,822,427)
---------- ------------ ---------- ------------
Net increase/(decrease)................................. 4,234,507 $ 46,987,917 5,149,715 $ 61,032,644
========== ============ ========== ============
INVESTOR A SHARES:
Sold.................................................... 518,086 $ 5,797,756 573,347 $ 6,873,895
Issued as reinvestment of dividends..................... 294,458 3,116,118 278,148 3,253,036
Redeemed................................................ (748,735) (8,409,662) (623,494) (7,393,490)
---------- ------------ ---------- ------------
Net increase/(decrease)................................. 63,809 $ 504,212 228,001 $ 2,733,441
========== ============ ========== ============
INVESTOR C SHARES:
Sold.................................................... 35,127 $ 407,413 37,878 $ 448,472
Issued as reinvestment of dividends..................... 32,384 343,436 30,943 363,303
Redeemed................................................ (74,185) (833,193) (64,248) (757,697)
---------- ------------ ---------- ------------
Net increase/(decrease)................................. (6,674) $ (82,344) 4,573 $ 54,078
========== ============ ========== ============
<CAPTION>
PERIOD ENDED
MAY 31, 1994*
---------------------------
<S> <C> <C> <C> <C>
INVESTOR N SHARES:
Sold.................................................... 2,674,147 $ 30,201,050 4,039,467 $ 48,191,532
Issued as reinvestment of dividends..................... 480,155 5,062,261 208,761 2,436,455
Redeemed................................................ (786,116) (8,785,774) (210,591) (2,451,070)
---------- ------------ ---------- ------------
Net increase/(decrease)................................. 2,368,186 $ 26,477,537 4,037,637 $ 48,176,917
========== ============ ========== ============
<FN>
- ---------------
* The Nations Equity Income Fund's Investor N Shares commenced operations on
June 7, 1993.
The Nations Government Securities Fund's Investor N Shares commenced
operations on June 7, 1993.
The Nations International Equity Fund's Investor N Shares commenced operations
on June 7, 1993.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE OF CAPITAL STOCK ACTIVITY (CONTINUED)
<CAPTION>
NATIONS GOVERNMENT SECURITIES FUND NATIONS INTERNATIONAL EQUITY FUND
----------------------------------------------------------- -----------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1995 MAY 31, 1994 MAY 31, 1995 MAY 31, 1994
--------------------------- --------------------------- --------------------------- ---------------------------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
---------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
1,463,730 $ 14,002,608 3,762,940 $ 39,295,700 22,828,690 $275,581,668 24,038,750 $276,988,600
3,352 32,232 13,989 145,643 23,815 275,921 1,143 12,387
(1,964,709) (18,533,617) (3,100,040) (32,135,151) (7,414,635) (88,038,184) (1,947,608) (22,930,591)
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
(497,627) $ (4,498,777) 676,889 $ 7,306,192 15,437,870 $187,819,405 22,092,285 $254,070,396
========== ============ ========== ============ ========== ============ ========== ============
204,950 $ 1,955,744 528,684 $ 5,561,850 338,220 $ 4,096,060 204,169 $ 2,388,409
38,414 366,488 56,906 585,297 7,391 84,829 476 4,912
(568,335) (5,398,292) (620,068) (6,452,511) (195,903) (2,306,812) (15,849) (186,503)
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
(324,971) $ (3,076,060) (34,478) $ (305,364) 149,708 $ 1,874,077 188,796 $ 2,206,818
========== ============ ========== ============ ========== ============ ========== ============
26,987 $ 260,866 120,953 $ 1,251,660 16,915 $ 196,692 10,144 $ 118,300
14,602 139,252 22,931 256,014 621 7,000 63 636
(280,270) (2,666,098) (179,851) (1,850,080) (2,910) (33,840) (645) (7,618)
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
(238,681) $ (2,265,980) (35,967) $ (342,406) 14,626 $ 169,852 9,562 $ 111,318
========== ============ ========== ============ ========== ============ ========== ============
<CAPTION>
PERIOD ENDED PERIOD ENDED
MAY 31, 1994* MAY 31, 1994*
-------------------------- --------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
1,490,959 $ 14,332,577 6,242,847 $ 65,038,599 1,600,158 $ 19,214,591 1,501,811 $ 17,456,872
217,970 2,077,961 126,146 1,292,241 45,762 521,446 191 1,980
(1,760,483) (16,723,748) (620,673) (6,325,829) (384,329) (4,462,143) (50,773) (594,339)
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
(51,554) $ (313,210) 5,748,320 $ 60,005,011 1,261,591 $ 15,273,894 1,451,229 $ 16,864,513
========== ============ ========== ============ ========== ============ ========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
NATIONS FUND, INC.
NATIONS PRIME FUND
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
TRUST A SHARES
----------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
05/31/95 05/31/94 05/31/93 05/31/92 05/31/91 05/31/90 05/31/89 05/31/88 05/31/87*
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating
performance:
Net asset
value,
beginning
of
period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- -------- ------- ------- ------- ------- --------
Net
investment
income... 0.0519 0.0318 0.0328 0.0506 0.0749 0.0855 0.0839 0.0675 0.0277
Dividends
from net
investment
income... (0.0519) (0.0318) (0.0328) (0.0506) (0.0749) (0.0855) (0.0839) (0.0675) (0.0277)
---------- ---------- ---------- -------- ------- ------- ------- ------- --------
Net asset
value,
end of
period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ======== ======= ======= ======= ======= ========
Total
return++... 5.32% 3.22% 3.33% 5.19%+++ 7.75%+++ 8.88%+++ 8.71%+++ 6.94%+++ 2.79%+++
========== ========= ========= ======= ======= ======= ======= ======= ========
Ratios to
average
net
assets/supplemental
data:
Net
assets,
end of
period
(000's)... $2,873,096 $2,883,762 $1,156,266 $500,476 $574,993 $433,298 $115,295 $264,063 $252,562
Ratio of
operating
expenses
to
average
net
assets... 0.30% 0.30% 0.30% 0.30% 0.30% 0.32% 0.35% 0.36% 0.35%+
Ratio of
net
investment
income to
average
net
assets... 5.23% 3.20% 3.25% 5.03% 7.47% 8.43% 8.11% 6.73% 5.99%+
Ratio of
operating
expenses
to
average
net
assets
without
waivers
and
reimbursements... 0.38% 0.37% 0.36% 0.42% 0.44% 0.50%+++ 0.55%+++ 0.56%+++ 0.65%+++
Net
investment
income
per share
without
waivers
and
reimbursements... $0.0511 $0.0311 $0.0322 $0.0494 $0.0735 $0.0731+++ $0.0819+++ $0.0655+++ $ 0.0247+++
<FN>
- ---------------
* The Nations Prime Fund Trust A, Trust B, Investor A, Investor B, Investor C
and Investor D Shares commenced operations on December 15, 1986, June 16,
1994, July 16, 1990, May 11, 1994, November 26, 1993 and February 9, 1995,
respectively.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<CAPTION>
TRUST B
SHARES INVESTOR A SHARES INVESTOR B SHARES
- -------- ------------------------------------------------------------ ---------------------
PERIOD YEAR YEAR YEAR YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
05/31/95* 05/31/95 05/31/94 05/31/93 05/31/92 05/31/91* 05/31/95 05/31/94*
- ------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------- -------- -------- -------- -------- -------- -------- --------
0.0474 0.0475 0.0283 0.0293 0.0470 0.0617 0.0493 0.0015
(0.0474) (0.0475) (0.0283) (0.0293) (0.0470) (0.0617) (0.0493) (0.0015)
- -------- -------- -------- -------- -------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ========
4.84% 4.85% 2.86% 2.97% 4.81%+++ 7.31%+++ 5.03% 0.15%
======== ======== ======== ======== ======== ======== ======== ========
$126,120 $698,358 $511,833 $306,376 $281,101 $144,202 $216,973 $ 2
0.55%+ 0.75% 0.65% 0.65% 0.65% 0.65%+ 0.56% 0.55%+
4.98%+ 4.78% 2.85% 2.90% 4.67% 6.69%+ 4.97% 2.95%+
0.63%+ 0.83% 0.72% 0.71% 0.77% 0.79%+ 0.64% 0.62%+
$ 0.0466 $ 0.0467 $ 0.0276 $ 0.0287 $ 0.0458 $ 0.0603 $ 0.0485 $ 0.0015
</TABLE>
<TABLE>
<CAPTION>
INVESTOR C INVESTOR D
SHARES SHARES
- --------------------------- ----------
Year PERIOD PERIOD
Ended ENDED ENDED
05/31/95 05/31/94* 05/31/95*
- ------------------------------------------
<S> <C> <C>
$ 1.00 $ 1.00 $ 1.00
-------- -------- --------
0.0493 0.0155 0.0173
(0.0493) (0.0155) (0.0173)
-------- -------- --------
1.00 $ 1.00 $ 1.00
======== ======== ========
5.03% 1.58% 1.74%
======== ======== ========
53,451 $ 1,481 $ 2
0.56% 0.55%+ 0.55%+
4.97% 2.95%+ 4.98%+
0.64% 0.62%+ 0.63%+
$0.0485 $ 0.0151 $ 0.0165
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
NATIONS FUND, INC.
NATIONS TREASURY FUND
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
TRUST A SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
05/31/95 05/31/94 05/31/93 05/31/92 05/31/91 05/31/90 05/31/89 05/31/88 05/31/87*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating
performance:
Net
asset
value,
beginning
of
period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ------- ------- ------- ------- -------
Net
investment
income... 0.0494 0.0297 0.0307 0.0483 0.0721 0.0829 0.0802 0.0630 0.0262
Dividends
from net
investment
income... (0.0494) (0.0297) (0.0307) (0.0483) (0.0721) (0.0829) (0.0802) (0.0630) (0.0262)
Distributions
from net
realized
capital
gains... (0.0000)** -- -- -- -- -- -- -- --
---------- ---------- ---------- --------- -------- -------- -------- -------- ---------
Net
asset
value,
end
of
period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ======== ======== ======= ======== =======
Total
return++... 5.05% 2.99% 3.12% 4.95%+++ 7.46%+++ 8.61%+++ 8.33%+++ 6.49%+++ 2.64%+++
========== ========== ========== ========== ======== ======== ======= ======== =======
Ratios
to
average
net
assets/supplemental
data:
Net
assets,
end of
period
(000's)... $2,896,868 $2,679,992 $2,956,796 $1,094,741 $955,186 $392,843 $90,946 $111,414 $66,221
Ratio
of
operating
expenses
to
average
net
assets... 0.30% 0.30% 0.30% 0.29% 0.25% 0.25% 0.39% 0.38% 0.35%+
Ratio
of
net
investment
income to
average
net
assets... 4.99% 2.97% 3.02% 4.82% 7.04% 8.18% 7.93% 6.31% 5.68%+
Ratio
of
operating
expenses
to
average
net
assets
without
waivers
and
reimbursements... 0.35% 0.36% 0.36% 0.42% 0.43% 0.59%+++ 0.58%+++ 0.65%+++ 0.75%+++
Net
investment
income
per share
without
waivers
and
reimbursements... $ 0.0489 $ 0.0292 $ 0.0302 $ 0.0470 $0.0703 $0.0693+++ $0.0783+++ $0.0603+++ $0.0222+++
<FN>
- ---------------
* The Nations Treasury Fund Trust A, Trust B, Investor A, Investor B, Investor
C and Investor D Shares commenced operations on December 15, 1986, June 16,
1994, July 16, 1990, May 16, 1994, May 11, 1994 and February 9, 1995,
respectively.
** Amount represents less than $0.0001.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<CAPTION>
TRUST B INVESTOR
SHARES INVESTOR A SHARES INVESTOR B SHARES C SHARES
--------- ----------------------------------------------------------------- ---------------------- --------
PERIOD YEAR YEAR YEAR YEAR PERIOD YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
05/31/95* 05/31/95 05/31/94 05/31/93 05/31/92 05/31/91* 05/31/95 05/31/94 05/31/95
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- -------- ------- -------- ------- ------- -------
0.0449 0.0457 0.0262 0.0272 0.0448 0.0592 0.0468 0.0015 0.0468
(0.0449) (0.0457) (0.0262) (0.0272) (0.0448) (0.0592) (0.0468) (0.0015) (0.0468)
(0.0000)** (0.0000)** -- -- -- -- (0.0000)** -- (0.0000)**
-------- -------- -------- -------- -------- --------- -------- ------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========= ======== ======= =======
4.56% 4.65% 2.67% 2.77% 4.57%+++ 6.98%+++ 4.76% 0.14% 4.76%
======== ======== ======== ======== ======== ========= ======== ======= =======
$ 56,815 $107,475 $74,195 $105,828 $90,917 $ 37,265 $52,564 $ 2 $ 6,373
0.55%+ 0.67% 0.65% 0.65% 0.64% 0.61%+ 0.56% 0.55%+ 0.56%
4.74%+ 4.62% 2.62% 2.67% 4.47% 6.53%+ 4.73% 2.72%+ 4.73%
0.60%+ 0.72% 0.71% 0.71% 0.76% 0.83%+ 0.61% 0.61%+ 0.61%
$ 0.0444 $0.0452 $0.0257 $0.0266 $0.0435 $ 0.0570 $0.0463 $0.0014 $0.0463
</TABLE>
<TABLE>
<CAPTION>
INVESTOR C INVESTOR D
SHARES SHARES
---------- ----------
PERIOD PERIOD
ENDED ENDED
05/31/94* 05/31/95*
<S> <C>
----------------------------------------------------------------------------
$ 1.00 $ 1.00
-------- --------
0.0019 0.0167
(0.0019) (0.0167)
-- --
-------- --------
$ 1.00 $ 1.00
======== ========
0.19% 1.67%
$ 191 $ 2
======== ========
0.55%+ 0.55%+
2.72%+ 4.74%+
0.61%+ 0.60%+
$ 0.0019 $ 0.0162
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
NATIONS FUND, INC.
NATIONS EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
TRUST A SHARES
-----------------------------------------------------------------
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
05/31/95 05/31/94 05/31/93 05/31/92 05/31/91*
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period........................ $ 11.43 $ 12.06 $ 11.41 $ 10.19 $ 10.00
-------- -------- -------- ------- -------
Net investment income....................................... 0.42 0.38 0.37 0.34 0.05
Net realized and unrealized gain on investments............. 1.11 0.22 1.08 1.25 0.14
-------- -------- -------- ------- -------
Net increase in net assets resulting from investment
operations................................................. 1.53 0.60 1.45 1.59 0.19
Distributions:
Dividends from net investment income........................ (0.42) (0.42) (0.35) (0.30) --
Distributions from net realized capital gains............... (0.73) (0.81) (0.45) (0.07) --
-------- -------- -------- ------- -------
Total distributions......................................... (1.15) (1.23) (0.80) (0.37) 0.00
-------- -------- -------- ------- -------
Net asset value, end of period.............................. $ 11.81 $ 11.43 $ 12.06 $ 11.41 $ 10.19
======== ======== ======== ======= =======
Total return++.............................................. 14.79% 5.00% 13.30% 15.91%+++ 1.90%+++
======== ======== ======== ======= =======
Ratios to average net assets/supplemental data:
Net assets, end of period (000's)........................... $283,082 $225,740 $175,949 $18,104 $10,194
Ratio of operating expenses to average net assets........... 0.92% 0.94% 0.92% 1.10% 1.12%+
Ratio of net investment income to average net assets........ 3.75% 3.41% 3.37% 3.15% 3.66%+
Portfolio turnover rate..................................... 158% 116% 55% 84% 9%
Ratio of operating expenses to average net assets without
waivers and reimbursements................................. 0.93% 0.95% 1.04% 2.21% 1.80%+
Net investment income per share without waivers and
reimbursements............................................. $ 0.42 $ 0.38 $ 0.36 $ 0.22 $ (0.06)
<FN>
- ---------------
* The Nations Equity Income Fund Trust A, Investor A, Investor C and Investor N Shares commenced operations on April 11, 1991,
April 16, 1991, June 17, 1992 and June 7, 1993, respectively.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and does not reflect the deduction of any applicable
sales charge.
+++ Unaudited.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
INVESTOR
INVESTOR A SHARES INVESTOR C SHARES N SHARES
------------------------------------------------------------- ------------------------------------- ---------
YEAR YEAR YEAR YEAR PERIOD YEAR YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
05/31/95 05/31/94 05/31/93 05/31/92 05/31/91* 05/31/95 05/31/94 05/31/93* 05/31/95
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 11.41 $ 12.02 $ 11.40 $10.19 $ 10.04 $ 11.47 $ 12.04 $ 11.13 $ 11.40
------- ------- ------- ------ ------- ------- ------- ------- -------
0.40 0.37 0.34 0.29 0.05 0.32 0.28 0.32 0.34
1.10 0.21 1.05 1.27 0.10 1.08 0.21 1.32 1.11
------- -------- -------- -------- ------- ------- ------- ------- -------
1.50 0.58 1.39 1.56 0.15 1.40 0.49 1.64 1.45
(0.40) (0.38) (0.32) (0.28) -- (0.31) (0.25) (0.28) (0.35)
(0.73) (0.81) (0.45) (0.07) -- (0.73) (0.81) (0.45) (0.73)
------- -------- -------- -------- ------- ------- ------- ------- -------
(1.13) (1.19) (0.77) (0.35) 0.00 (1.04) (1.06) (0.73) (1.08)
------- -------- -------- -------- ------- ------- ------- ------- -------
$ 11.78 $ 11.41 $ 12.02 $11.40 $ 10.19 $ 11.83 $ 11.47 $ 12.04 $ 11.77
======= ======= ======= ====== ======= ======= ======= ======= =======
14.53% 4.74% 12.78% 15.59%+++ 1.49%+++ 13.49% 3.96% 15.31% 14.03%
======= ======= ======= ====== ======= ======= ======= ======= =======
$35,538 $33,691 $32,760 $3,418 $ 497 $ 4,278 $ 4,221 $ 4,377 $75,371
1.17% 1.19% 1.17% 1.35% 1.37%+ 1.92% 1.94% 1.92%+ 1.67%
3.50% 3.16% 3.12% 2.90% 3.40%+ 2.75% 2.41% 2.37%+ 3.00%
158% 116% 55% 84% 9% 158% 116% 55% 158%
1.18% 1.20% 1.29% 2.46% 15.09%+ 1.93% 1.95% 2.04%+ 1.68%
$ 0.40 $ 0.37 $ 0.33 $ 0.18 $ (1.30) $ 0.32 $ 0.28 $ 0.31 $ 0.34
</TABLE>
<TABLE>
<CAPTION>
INVESTOR N SHARES
----------------
PERIOD
ENDED
05/31/94*
---------
<S> <C>
$ 11.98
-------
0.37
0.22
-------
0.59
(0.36)
(0.81)
-------
(1.17)
-------
$ 11.40
=======
4.84%
=======
$46,043
1.69%+
2.66%+
116%
1.70%+
$ 0.37
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
NATIONS FUND, INC.
NATIONS GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
TRUST A SHARES
----------------------------------------------------------------
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
05/31/95# 05/31/94 05/31/93 05/31/92 05/31/91*
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period......................... $ 9.80 $ 10.46 $ 10.36 $ 10.05 $ 10.00
------- -------- -------- -------- -------
Net investment income........................................ 0.64 0.64 0.71 0.74 0.10
Net realized and unrealized gain/(loss) on investments....... 0.06 (0.61) 0.13 0.37 0.02
------- -------- -------- -------- -------
Net increase/(decrease) in net assets resulting from
investment operations...................................... 0.70 0.03 0.84 1.11 0.12
Distributions:
Dividends from net investment income......................... (0.60) (0.58) (0.70) (0.77) (0.07)
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.......................................... (0.64) (0.69) (0.74) (0.80) (0.07)
------- -------- -------- -------- -------
Net asset value, end of period............................... $ 9.86 $ 9.80 $ 10.46 $ 10.36 $ 10.05
======= ======== ======== ======== =======
Total return++............................................... 7.55% 0.06% 8.37% 11.43%+++ 1.19%+++
======= ======== ======== ======== =======
Ratios to average net assets/supplemental data:
Net assets, end of period (000's)............................ $39,909 $ 44,536 $ 40,472 $ 42,256 $10,047
Ratio of operating expenses to average net assets............ 0.76% 0.73% 0.85% 1.06% 1.10%+
Ratio of net investment income to average net assets......... 6.69% 6.08% 6.67% 7.15% 7.18%+
Portfolio turnover rate...................................... 413% 56% 103% 130% 5%
Ratio of operating expenses to average net assets without
waivers and reimbursements................................. 0.94% 0.94% 1.00% 1.72% 1.69%+++
Net investment income per share without waivers and
reimbursements............................................. $ 0.62 $ 0.61 $ 0.60 $ 0.07 $ 0.09+++
<FN>
- ---------------
* The Nations Government Securities Fund Trust A, Investor A, Investor C and
Investor N Shares commenced operations on April 11, 1991, April 17, 1991 ,
July 6, 1992 and June 7, 1993, respectively.
+ 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 accord with the results of
operations.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<CAPTION>
INVESTOR A SHARES INVESTOR C SHARES INVESTOR N SHARES
- ---------------------------------------------------------- ---------------------------------- ---------------------
YEAR YEAR YEAR YEAR PERIOD YEAR YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
05/31/95# 05/31/94 05/31/93# 05/31/92 05/31/91* 05/31/95# 05/31/94 05/31/93*# 05/31/95# 05/31/94*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9.80 $ 10.46 $ 10.36 $10.05 $10.01 $ 9.80 $10.46 $10.52 $ 9.80 $ 10.49
- ------- ------- ------- ------ ------ ------ ------ ------ ------- -------
0.61 0.62 0.66 0.71 0.09 0.57 0.55 0.59 0.58 0.54
0.06 (0.61) 0.16 0.38 0.02 0.06 (0.61) 0.02 0.06 (0.64)
- ------- ------- ------- ------ ------ ------ ------ ------ ------- -------
0.67 0.01 0.82 1.09 0.11 0.63 (0.06) 0.61 0.64 (0.10)
(0.57) (0.56) (0.68) (0.75) (0.07) (0.53) (0.50) (0.63) (0.54) (0.49)
-- (0.02) -- -- -- -- (0.01) -- -- (0.01)
-- (0.05) (0.04) (0.03) -- -- (0.05) (0.04) -- (0.05)
(0.04) (0.04) -- -- -- (0.04) (0.04) -- (0.04) (0.04)
- ------- ------- ------- ------ ------ ------ ------ ------ ------- -------
(0.61) (0.67) (0.72) (0.78) (0.07) (0.57) (0.60) (0.67) (0.58) (0.59)
- ------- ------- ------- ------ ------ ------ ------ ------ ------- -------
$ 9.86 $ 9.80 $ 10.46 $10.36 $10.05 $ 9.86 $ 9.80 $10.46 $ 9.86 $ 9.80
======= ======= ======= ====== ====== ====== ====== ====== ======= =======
7.29% (0.11)% 8.18% 11.18%+++ 1.07%+++ 6.76% (0.69)% 5.37% 6.86% (1.09)%
======= ======= ======= ====== ====== ====== ====== ====== ======= =======
$10,928 $14,044 $15,354 $3,326 $ 661 $2,945 $5,265 $5,998 $56,155 $56,313
1.01% 0.90% 1.00% 1.31% 1.35%+ 1.51% 1.48% 1.60%+ 1.41% 1.38%+
6.44% 5.91% 6.52% 6.90% 7.22%+ 5.94% 5.33% 5.92%+ 6.04% 5.43%+
413% 56% 103% 130% 5% 413% 56% 103% 413% 56%
1.19% 1.11% 1.15% 1.97% 1.94%+++ 1.69% 1.69% 1.75%+ 1.59% 1.59%+
$ 0.59 $ 0.59 $ 0.55 $ 0.07 $ 0.08+++ $ 0.55 $ 0.53 $ 0.42 $ 0.56 $ 0.52
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
NATIONS FUND, INC.
NATIONS INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
TRUST A SHARES INVESTOR A SHARES
--------------------------------------------- ----------------------------------
YEAR YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
05/31/95# 05/31/94# 05/31/93# 05/31/92* 05/31/95# 05/31/94# 05/31/93*#
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period........ $ 12.06 $ 10.60 $ 10.40 $ 10.00 $ 12.00 $ 10.56 $ 10.38
--------- -------- -------- -------- ------- ------- -------
Net investment income/(loss)................ 0.14 0.09 0.09 0.08 0.11 0.06 0.07
Net realized and unrealized gain/(loss) on
investments............................... (0.20) 1.44 0.21 0.36 (0.20) 1.44 0.21
--------- -------- -------- -------- ------- ------- -------
Net increase/(decrease) in net assets
resulting from
investment operations..................... (0.06) 1.53 0.30 0.44 (0.09) 1.50 0.28
Distributions:
Dividends from net investment income........ (0.03) (0.05) (0.08) (0.04) (0.02) (0.04) (0.08)
Distributions from net realized capital
gains..................................... (0.12) (0.02) (0.02) -- (0.12) (0.02) (0.02)
Distributions in excess of net realized
capital gains............................. (0.10) -- -- -- (0.10) -- --
--------- -------- -------- -------- ------- ------- -------
Total distributions......................... (0.25) (0.07) (0.10) (0.04) (0.24) (0.06) (0.10)
--------- -------- -------- -------- ------- ------- -------
Net asset value, end of period.............. $ 11.75 $ 12.06 $ 10.60 $ 10.40 $ 11.67 $ 12.00 $ 10.56
======== ======== ======== ======= ======= ======= =======
Total return++.............................. (0.46)% 14.37% 3.14% 4.43%+++ (0.69)% 14.00% 2.91%
======== ======== ======== ======= ======= ======= =======
Ratios to average net assets/supplemental
data:
Net assets, end of period (000's)........... $572,940 $401,559 $118,873 $83,970 $ 4,877 $ 3,219 $ 839
Ratio of operating expenses to average net
assets.................................... 1.03% 1.17% 1.30% 1.33%+ 1.28% 1.42% 1.55%+
Ratio of net investment income/(loss) to
average net assets........................ 1.17% 0.75% 1.03% 1.81%+ 0.92% 0.50% 0.78%+
Portfolio turnover rate..................... 92% 39% 41% 11% 92% 39% 41%
Ratio of operating expenses to average net
assets without waivers and
reimbursements............................ 1.04% 1.18% 1.32% 1.43%+ 1.29% 1.43% 1.62%+
Net investment income/(loss) per share
without waivers and reimbursements........ $ 0.14 $ 0.08 $ 0.10 $ 0.03 $ 0.11 $ 0.05 $ 0.07
<FN>
- ---------------
* The Nations International Equity Fund Trust A, Investor A, Investor C and
Investor N Shares commenced operations on December 2, 1991, June 3, 1992,
June 17, 1992 and June 7, 1993, respectively.
** Amount represents less than $0.01.
+ 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 accord with the results of
operations.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<CAPTION>
INVESTOR C SHARES INVESTOR N SHARES
--------------------------------------- ------------------------
YEAR YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
05/31/95# 05/31/94# 05/31/93*# 05/31/95# 05/31/94*#
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 11.86 $ 10.49 $ 10.10 $ 11.96 $ 10.51
------- ------- ------- ------- -------
0.02 (0.03) 0.00** 0.05 (0.00)**
(0.21) 1.43 0.48 (0.22) 1.51
------- ------- ------- ------- -------
(0.19) 1.40 0.48 (0.17) 1.51
-- (0.01) (0.07) (0.01) (0.04)
(0.12) (0.02) (0.02) (0.12) (0.02)
(0.10) -- -- (0.10) --
------- ------- ------- ------- -------
(0.22) (0.03) (0.09) (0.23) (0.06)
------- ------- ------- ------- -------
$ 11.45 $ 11.86 $ 10.49 $ 11.56 $ 11.96
======= ======= ======= ======= =======
(1.56)% 13.21% 4.97% (1.30)% 14.32%
======= ======= ======= ======= =======
$ 495 $ 339 $ 200 $31,372 $17,349
2.03% 2.17% 2.30%+ 1.78% 1.92%+
0.17% (0.25)% 0.03%+ 0.42% (0.00)%+
92% 39% 41% 92% 39%
2.04% 2.18% 2.32%+ 1.79% 1.93%+
$ 0.02 $ (0.03) $ 0.00** $ 0.05 $ (0.00)**
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES.
Nations Fund, Inc. (the "Company") is a Maryland corporation registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as a
diversified, open-end management investment company and consists of five
separate portfolios: Nations Prime Fund ("Prime Fund"), Nations Treasury Fund
("Treasury Fund"), Nations Equity Income Fund ("Equity Income Fund"), Nations
Government Securities Fund ("Government Securities Fund") and Nations
International Equity Fund ("International Equity Fund") (the "Funds"). The
Equity Income Fund, the Government Securities Fund and the International Equity
Fund currently offer four classes of shares: Trust A Shares, Investor A Shares,
Investor C Shares (formerly Investor B Shares) and Investor N Shares (formerly
Investor C Shares). The Prime Fund and the Treasury Fund currently offer six
classes of shares: Trust A Shares, Trust B Shares, Investor A Shares, Investor B
Shares, Investor C Shares and Investor D Shares. The Board of Directors has
authorized the issuance of Trust B Shares of all Funds. As of May 31, 1995, no
Trust B Shares of the Equity Income Fund, Government Securities Fund and
International Equity Fund have been issued. Shareholders of a Fund have equal
voting rights on matters affecting all shareholders of the Fund equally. In
addition, each class of shares of a Fund has exclusive voting rights on matters
that relate solely to the class, and separate voting rights on matters in which
the interests of one class of shares differ from the interests of any other
class. The following is a summary of the significant accounting policies
followed by the Funds in the preparation of their financial statements.
Securities Valuations: A security listed or traded on an exchange is valued at
its last sales price on the exchange where the security is principally traded
or, lacking any sales on a particular day, the security is valued at the mean
between the closing bid and asked prices on that day. Each security traded in
the over-the-counter market (but not including securities reported on the NASDAQ
National Market System) is valued at the mean between the last available bid and
asked prices based upon quotes furnished by market makers for such securities.
Each security reported on the NASDAQ National Market System is valued at the
last sales price on the valuation date. Debt obligations that are issued or
guaranteed by the U.S. government, its agencies, authorities and
instrumentalities are valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing service may be determined
without exclusive reliance on quoted prices, and may reflect appropriate factors
such as yield, type of issue, coupon rate, maturity and general market
conditions. Securities for which market quotations are not readily available are
valued at fair value under the supervision of the Board of Directors. The
portfolio securities of the Prime Fund and the Treasury Fund are valued at
amortized cost. Amortized cost valuation involves valuing an instrument at its
cost initially and, thereafter, assuming a constant amortization to maturity of
any discount or premium, regardless of the effect of fluctuating interest rates
on the market value of the instrument. Short-term obligations having 60 days or
less to maturity are valued at cost plus interest earned, which approximates
market value.
Repurchase Agreements: Each Fund may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding period.
This arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is at
least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the right
to use the collateral to offset losses incurred. There is potential loss to the
Fund in the event the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities, including the risk of a possible decline
in the value of the underlying securities during the period while the Fund seeks
to assert its rights. The Funds' investment adviser, acting under the
supervision of the Board of Directors, monitors the value of collateral received
as well as the creditworthiness of those banks and dealers with which the Funds
enter into repurchase agreements to evaluate potential risks.
Certain Funds may enter into floating rate repurchase agreements ("FRRA").
FRAA's are defined as repurchase agreements whose interest rate resets
periodically based upon a defined index, the maturity of which can be extended
or renewed. The terms of the FRRA's entered into by a Fund may include a demand
feature which allows the Fund to put the security back to the issuer at par
value after giving specified notice.
Reverse Repurchase Agreement: The Prime Fund, Treasury Fund and Government
Securities Fund each may enter into reverse repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Under a reverse repurchase agreement, a Fund sells securities and agrees to
repurchase them at a mutually agreed upon
54
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
date and price. At the time a Fund enters into a reverse repurchase agreement,
it establishes 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 arising under the reverse
repurchase agreement. Reverse repurchase agreements involve the risk that the
market value of the securities purchased with the proceeds from the sale of
securities received by the Fund may decline below the price of the securities
the Fund is obligated to repurchase. Securities subject to repurchase under
reverse repurchase agreements are designated in the Schedule of Investments.
At May 31, 1995, the Treasury Fund had reverse repurchase agreements outstanding
as follows:
<TABLE>
<S> <C>
Maturity Amount........................................................... $ 655,945,000
Maturity Date............................................................. 07/03/95
Market Value of Assets Sold Under Agreements.............................. $ 655,540,337
</TABLE>
The average weekly balance of reverse repurchase agreements outstanding during
the year ended May 31, 1995 was $627,635,547. The Prime Fund and Government
Securities Fund did not enter into any reverse repurchase agreements during the
year ended May 31, 1995.
The proceeds received by the Treasury Fund under the reverse repurchase
agreements were reinvested in a tri-party repurchase agreement. Net fees earned
during the year, representing the difference between interest rates on the
reverse repurchase and repurchase agreements, amounted to $692,438 and have been
included in interest income in the Statement of Operations.
Futures contracts: The Equity Income Fund, the Government Securities Fund and
the International Equity Fund may enter into futures contracts for the purpose
of hedging against changes in values of a Fund's securities, in prevailing
interest rates or in currency exchange rates. Upon entering into a futures
contract, the Fund is required to deposit with the broker an amount of cash or
cash equivalents equal to a certain percentage of the contract amount. This is
known as the "initial margin." Subsequent payments ("variation margin") are made
or received by the Fund each day, depending on the daily fluctuation of the
value of the contract.
During the period the futures contract is open, changes in the value of the
contract are recognized as unrealized gains or losses by "marking-to-market" on
a daily basis to reflect the market value of the contract at the end of each
day. The Fund recognizes a realized gain or loss when the contract is closed
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contract.
Risks arise in the possible movement of the securities or indices underlying
those investments. Risks also include the possibility that there may not be a
liquid secondary market for these contracts, that a change in the value of the
contract may not correlate with changes in the value of the underlying
securities or that the counterparty to a contract may default on its obligation
to perform.
Forward Foreign Currency Contracts: The International Equity Fund may invest in
forward foreign currency contracts to hedge against anticipated future changes
in interest rates which otherwise might either adversely affect the value of the
portfolio securities of a Fund or adversely affect the prices of securities
which a Fund intends to purchase at a later date. Forward foreign currency
contracts are valued at the forward rate and are marked-to-market daily. The
change in market value is recorded by the Fund as an unrealized gain or loss.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the Fund's investment securities, but it does establish
a rate of exchange that can be achieved in the future. Although forward foreign
currency contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result should the
value of the currency increase. In addition, the Fund could be exposed to risks
if the counterparties to the contracts are unable to meet the terms of their
contracts.
Foreign Currency: The books and records of the Funds are maintained in United
States (U.S.) dollars. Foreign currencies, investments and other assets and
liabilities are translated into U.S. dollars at the exchange rates prevailing at
the end of the period, and purchases and sales of investment securities, income
and expenses are translated on the respective dates of such transactions. Net
realized foreign currency gains and losses resulting from changes in exchange
55
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
rates include foreign currency gains and losses between trade date and
settlement date of investment securities transactions, foreign currency
transactions and the difference between the amounts of interest and dividends
recorded on the books of the Fund and the amount actually received. The effects
of changes in foreign currency exchange rates on investments in securities are
not segregated in the Statement of Operations from the effects of changes in
market prices of those securities, but are included with the net realized and
unrealized gain or loss on investment securities.
Dollar roll transactions: The Government Securities Fund may enter into dollar
roll transactions with financial institutions to take advantage of opportunities
in the mortgage market. 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. This fee is accrued as income over the life of the
dollar roll contract. 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.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Realized gains and losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income, adjusted for amortization of discounts and premiums on
investments, is earned from settlement date and is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date, except that certain
dividends from foreign securities are recorded as soon as the Funds are informed
of the ex-dividend date. Each Fund's investment income and realized and
unrealized gains and losses are allocated among the classes based upon the
relative net assets of each class.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income is not accrued
until settlement date. Each Fund instructs the custodian to segregate assets in
a separate account with a current value at least equal to the amount of its
when-issued purchase commitments.
Dividends and Distributions to Shareholders: Dividends from net investment
income, if any, for the Equity Income Fund and the International Equity Fund are
declared and paid each calendar quarter. Dividends from net investment income
for the Prime Fund, the Treasury Fund and the Government Securities Fund are
declared on each day the Fund is open for business and paid monthly. Net
realized capital gains (including net short-term capital gains) for the Equity
Income Fund, Government Securities Fund and International Equity Fund are
distributed at least annually. For the Prime Fund and the Treasury Fund, capital
gains, unless offset by any available capital loss carryforward, are distributed
to shareholders annually after the fiscal year in which earned or more
frequently to maintain each Fund's net asset value of $1.00 per share.
Additional distributions may be made at the discretion of the Board of Directors
in order to avoid the application of a 4% nondeductible Federal excise tax on
certain amounts of undistributed ordinary income and capital gains. Income
distributions and capital gain distributions on a Fund level are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to timing differences
and differing characterization of distributions made by the Fund as a whole.
Reclassifications are made to each Funds' capital accounts to reflect income and
gains available for distribution (or available capital loss carryforwards) under
federal income tax regulations.
<TABLE>
Reclassifications for the year ended May 31, 1995 were as follows:
<CAPTION>
DECREASE INCREASE
INCREASE UNDISTRIBUTED NET ACCUMULATED NET
PAID-IN CAPITAL INVESTMENT INCOME REALIZED GAIN/(LOSS)
------------------------------------------------------------
<S> <C> <C> <C>
Equity Income Fund............................ $ 1,334,349 -- $ (1,334,349)
Government Securities Fund.................... 75,436 (262,672) 187,236
International Equity Fund..................... -- (20,411,131) 20,411,131
</TABLE>
Paid-in capital was reduced by $466,545 for the Government Securities Fund, due
to a tax return of capital. This has been reflected in the distributions section
of the Statement of Changes in Net Assets.
56
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Income Taxes: Each Fund intends to qualify as a regulated investment company by
complying with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and by distributing
substantially all of its earnings to shareholders. Therefore, no Federal income
tax provision is required. The Fund may be subject to foreign taxes on income,
gains on investment or currency repatriation.
Expenses: General expenses of the Company are allocated to the Funds based upon
relative net assets. Operating expenses directly attributable to a class of
shares are charged to that class' operations. Expenses of the Company not
directly attributable to the operations of any class of shares or portfolio are
prorated among the classes based on the relative net assets of each class.
Cash Flow Information: Cash, as used in the Statement of Cash Flows, is the
amount reported in the Statement of Assets and Liabilities. The Company issues
its shares, invests in securities, and distributes dividends from net investment
income (which are either paid in cash or reinvested at the discretion of
shareholders). These activities are reported in the Statement of Changes in Net
Assets. Information on cash payments is presented in the Statement of Cash
Flows. Accounting practices that do not affect reporting activities on a cash
basis include unrealized gain or loss on investment securities, accretion income
recognized on investment securities and amortization of deferred organization
costs.
2. INVESTMENT ADVISORY FEE, SUB-INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND
RELATED PARTY TRANSACTIONS.
The Company has entered into Investment Advisory Agreements with NationsBank,
N.A. (Carolinas) (together with its predecessors "NationsBank") as successor to
NationsBank of North Carolina, N.A., an indirect wholly-owned subsidiary of
NationsBank Corporation, with respect to each Fund.
<TABLE>
Under the terms of the Investment Advisory Agreements, NationsBank is entitled
to receive an advisory fee from the Prime Fund and the Treasury Fund at the
following annual rates of the combined average daily net assets of the Prime and
Treasury Funds:
<CAPTION>
FEES ON COMBINED
ASSETS UP TO FEES ON COMBINED
$250 ASSETS EXCEEDING
MILLION $250 MILLION
-------------------------------------
<S> <C> <C>
Prime Fund..................................................... 0.25% 0.20%
Treasury Fund.................................................. 0.25% 0.20%
</TABLE>
<TABLE>
Under the terms of the Investment Advisory Agreements, NationsBank is entitled
to receive an advisory fee from the Equity Income Fund and the Government
Securities Fund at the following annual rates of the average daily net assets of
the Equity Income and Government Securities Funds:
<CAPTION>
FEES ON ASSETS FEES ON ASSETS FEES ON ASSETS
UP TO BETWEEN $100 EXCEEDING
$100 MILLION AND $250 MILLION $250 MILLION
------------------------------------------------------
<S> <C> <C> <C>
Equity Income Fund................................... 0.75% 0.70% 0.60%
Government Securities Fund........................... 0.65% 0.55% 0.50%
</TABLE>
Under the terms of the Investment Advisory Agreement, NationsBank is entitled to
receive an advisory fee from the International Equity Fund at the annual rate of
0.40% of its average daily net assets.
The Company, on behalf of the International Equity Fund, also has entered into a
Sub-Investment Advisory Agreement with Gartmore Capital Management Limited
("Gartmore"), a subsidiary of Gartmore plc, a United Kingdom (U.K.) company.
Under the terms of the Sub-Investment Advisory Agreement, the International
Equity Fund pays Gartmore a fee at the following annual rates: 0.45% of the
first $100 million of its average daily net assets, plus 0.40% of its average
daily net assets in excess of $100 million and up to $250 million, plus 0.35% of
its average daily net assets in excess of $250 million.
Prior to February 1, 1995, the Company, on behalf of the International Equity
Fund, had a Sub-Investment Advisory Agreement with NationsBank Panmure
Investment Management Limited ("Panmure"). Panmure is a wholly-owned subsidiary
of NationsBank Europe Limited which is a wholly-owned subsidiary of NationsBank.
Panmure was paid a fee similar to the current agreement. For the period ended
January 31, 1995, Panmure received $1,339,643 for its services.
57
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stephens Inc. ("Stephens") serves as the Company's administrator pursuant to an
Administration Agreement. The Shareholder Services Group, Inc. ("TSSG"), an
indirect wholly-owned subsidiary of First Data Corporation, serves as the
Company's co-administrator pursuant to a Co-Administration Agreement. Pursuant
to the Administration and Co-Administration Agreements, the administrator and
the co-administrator are entitled to receive a combined fee, computed daily and
paid monthly, at the annual rate of 0.10% of average daily net assets of the
Company and the investment portfolios of Nations Fund Trust (another registered
open-end investment company that is part of the Nations Fund Family) on a
combined basis.
For the year ended May 31, 1995, Stephens earned $4,209,992 (after fee waivers)
for its services as administrator.
<TABLE>
The investment adviser, administrator and co-administrator may, from time to
time, reduce their fees payable by each Fund (either voluntarily or pursuant to
applicable state limitations). For the year ended May 31, 1995, the investment
adviser, administrator and co-administrator voluntarily waived fees and
reimbursed expenses as follows:
<CAPTION>
FEES WAIVED FEES WAIVED BY EXPENSES
BY ADMINISTRATOR/ REIMBURSED
ADVISER CO-ADMINISTRATOR BY ADVISER
----------------------------------------------
<S> <C> <C> <C>
Prime Fund............................................. $ 2,649,510 $190,996 $191,636
Treasury Fund.......................................... 1,285,177 307,929 --
Equity Income Fund..................................... -- 18,677 --
Government Securities Fund............................. 196,944 6,098 --
International Equity Fund.............................. -- 27,683 --
</TABLE>
No officer, director or employee of NationsBank, Stephens or TSSG or any
affiliate thereof receives any compensation from the Company for serving as
Director or officer of the Company. The Company pays each Director an annual fee
of $1,000 ($3,000 for the Chairman of the Board), plus $500 per Fund and an
additional $1,000 for each in-person board meeting, and $500 for each telephonic
board meeting attended. The Company also reimburses expenses incurred by the
Directors in attending such meetings.
Each Fund's eligible Directors may participate in a deferred compensation plan
and a retirement plan which may be terminated at any time. All benefits provided
under these plans are unfunded and any payments to plan participants are paid
solely out of the Funds' assets. If approved by the Securities and Exchange
Commission ("SEC"), income earned on each plan participant's deferral account
will be tied to the rate of return of the eligible mutual funds selected by the
participants or, if no funds are selected, to the rate of return of the Nations
Treasury Fund. Until SEC approval is received, the rate of return will be tied
to the yield on 90-day U.S. Treasury Bills.
NationsBank of Texas, N.A. acts as the custodian for the Prime Fund, the
Treasury Fund, the Equity Income Fund and the Government Securities Fund. Boston
Safe Deposit and Trust Company serves as the International Equity Fund's
custodian. TSSG serves as transfer agent for the Funds' shares. NationsBank of
Texas, N.A. acts as the sub-transfer agent for the Trust A Shares and Trust B
Shares. Prior to July 1, 1994, NationsBank of Texas, N.A. served as the sole
transfer agent for the Trust A Shares. For the year ended May 31, 1995,
NationsBank of Texas, N.A. earned $1,049,578 and $2,743 for its custodian and
transfer agent services, respectively.
Stephens acts as the distributor of the Funds' shares. For the year ended May
31, 1995, the Funds were informed that the distributor received and retained
$57,270, representing commission (sales charges) on sales of Investor A and
Investor C Shares of the Equity Income Fund, the Government Securities Fund and
the International Equity Fund. A substantial portion of these fees are paid to
affiliates of NationsBank.
For the year ended May 31, 1995, the Funds were informed that the distributor
received $557,635, in contingent deferred sales charges from Investor C and
Investor N Shares of the Equity Income Fund, the Government Securities Fund and
the International Equity Fund. A substantial portion of these fees are paid to
affiliates of NationsBank.
3. SHAREHOLDER SERVICING AND DISTRIBUTION PLAN.
The Company has adopted a shareholder servicing plan ("Trust B Servicing Plan")
for the Trust B Shares of the Funds. Under the Trust B Servicing Plan, a Fund
may pay servicing agents that have entered into a shareholder servicing
agreement with the Company for certain shareholder support services that are
provided by the servicing agents to holders
58
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
of Trust B Shares. Payments under the Trust B Servicing Plan are accrued daily
and paid monthly at a rate that will not exceed 0.25%, on an annualized basis,
of the average daily net assets of the Trust B Shares of each Fund. Fees paid
pursuant to the Trust B Servicing Plan are charged as expenses of Trust B Shares
of a Fund as accrued. For the year ended May 31, 1995, the Prime Fund and the
Treasury Fund accrued expenses under the Trust B Servicing Plan totaling 0.25%,
on an annualized basis, of their average daily net assets.
<TABLE>
For the year ended May 31, 1995, the Funds incurred the following amounts
pursuant to the above plan.
<CAPTION>
TRUST B
SERVICING PLAN
--------------
<S> <C>
Prime Fund................................................................. $252,570
Treasury Fund.............................................................. 132,840
</TABLE>
The Company also has adopted shareholder servicing and distribution plans
("Investor A Plan") pursuant to Rule 12b-1 under the 1940 Act for the Investor A
Shares of the Funds. Under the Investor A Plan, the Funds pay fees directly to
the distributor. Payments under the Investor A Plan may not exceed 0.10%, on an
annualized basis, of the average daily net assets of the Prime Fund and the
Treasury Fund, respectively, and 0.25%, on an annualized basis, of the average
daily net assets of the Equity Income Fund, the Government Securities Fund and
the International Equity Fund, respectively. Fees paid pursuant to the Investor
A Plan are charged as expenses of Investor A Shares of a Fund as accrued. For
the year ended May 31, 1995, the Prime Fund and the Treasury Fund accrued 0.10%
and the Equity Income Fund, the Government Securities Fund and the International
Equity Fund accrued 0.25%, on an annualized basis, under the Investor A Plan.
The Company also has adopted a shareholder servicing plan ("Investor A Servicing
Plan") with respect to Investor A Shares of the Prime Fund and the Treasury
Fund. Pursuant to the Investor A Servicing Plan, such Funds may pay servicing
agents that have entered into a shareholder servicing agreement with the Company
for certain shareholder support services that are provided by the servicing
agents to holders of Investor A Shares. Payments under the Investor A Servicing
Plan are accrued daily and paid monthly at a rate that will not exceed 0.25%, on
an annualized basis, of the average daily net assets of the Investor A Shares of
the Prime Fund and Treasury Fund, respectively. Fees paid pursuant to the
Investor A Servicing Plan are charged as expenses of Investor A Shares of a Fund
as accrued. For the year ended May 31, 1995, the Prime Fund and the Treasury
Fund accrued expenses under the Investor A Servicing Plan totaling 0.25%, on an
annualized basis, of their average daily net assets.
<TABLE>
For the year ended May 31, 1995, the Funds incurred the following amounts
pursuant to the above plans:
<CAPTION>
INVESTOR A INVESTOR A
PLAN SERVICING PLAN
---------------------------------
<S> <C> <C>
Prime Fund................................................. $ 616,364 $1,540,909
Treasury Fund.............................................. 96,210 240,525
Equity Income Fund......................................... 83,892 --
Government Securities Fund................................. 28,881 --
International Equity Fund.................................. 10,492 --
</TABLE>
The Company has adopted distribution plans ("Investor B/C Plan") pursuant to
Rule 12b-1 under the 1940 Act with respect to Investor B Shares of the Prime
Fund and Treasury Fund, and Investor C Shares of the Equity Income Fund, the
Government Securities Fund and the International Equity Fund. Pursuant to the
Investor B/C Plan, the Funds pay fees directly to the distributor. Payments
under the Investor B/C Plan are accrued daily and paid monthly at a rate that
will not exceed 0.10%, on an annualized basis, of the Investor B Shares of the
Prime Fund and the Treasury Fund, respectively, and 0.75%, on an annualized
basis, of the average daily net assets of the Investor C Shares of the Equity
Income Fund, International Equity Fund and Government Securities Fund,
respectively. Fees paid pursuant to the Investor B/C Plan are charged as
expenses of the appropriate shares of a Fund as accrued. For the year ended May
31, 1995, the Prime Fund and the Treasury Fund did not accrue any such expenses
and the Equity Income Fund, the Government Securities Fund and the International
Fund accrued expenses under the Investor B/C Plan totaling 0.75%, on an
annualized basis, of their average daily net assets.
59
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company also has adopted a shareholder servicing plan ("Investor B/C
Servicing Plan") with respect to Investor B Shares of the Prime Fund and
Treasury Fund, and Investor C Shares of the Equity Income Fund, the Government
Securities Fund and the International Equity Fund. Pursuant to the Investor B/C
Servicing Plan, a Fund may pay servicing agents that have entered into a
shareholder servicing agreement with the Company for certain shareholder support
services that are provided by the servicing agents. Payments under the Investor
B/C Servicing Plan are accrued daily and paid monthly at a rate that will not
exceed 0.25%, on an annualized basis, of the average daily net assets of the
Investor B Shares of the Prime Fund and the Treasury Fund, respectively, and
Investor C Shares of the Equity Income Fund, Government Securities Fund and
International Equity Fund, respectively. Fees paid pursuant to the Investor B/C
Plan are charged as expenses of the Investor B or Investor C Shares of a Fund as
accrued. For the year ended May 31, 1995, the Government Securities Fund did not
accrue any such expenses and the Prime Fund, the Treasury Fund, the Equity
Income Fund, and the International Equity Fund each accrued expenses under the
Investor B/C Servicing Plan totaling 0.25%, on an annualized basis, of their
average daily net assets.
<TABLE>
For the year ended May 31, 1995, the Funds incurred the following amounts under
the above plans:
<CAPTION>
INVESTOR B/C INVESTOR B/C
PLAN SERVICING PLAN
-----------------------------------
<S> <C> <C>
Prime Fund................................................ -- $232,857
Treasury Fund............................................. -- 50,757
Equity Income Fund........................................ $ 31,136 10,379
Government Securities Fund................................ 29,739 --
International Equity Fund................................. 3,087 1,029
</TABLE>
The Company has adopted distribution plans ("Investor N Plan") pursuant to Rule
12b-1 under the 1940 Act for the Investor N Shares of the Equity Income Fund,
Government Securities Fund and International Equity Fund. Pursuant to the
Investor N Plan, the Funds pay fees directly to the distributor. Payments under
the Investor N Plan are accrued daily and paid monthly at a rate that will not
exceed 0.75%, on an annualized basis, of the average daily net assets of the
Investor N Shares of each such Fund. Fees paid pursuant to the Investor N Plan
are charged as expenses of Investor N Shares of a Fund as accrued. For the year
ended May 31, 1995, the Equity Income Fund, the Government Securities Fund and
the International Equity Fund accrued expenses under the Investor N Plan
totaling 0.50%, 0.40% and 0.75%, respectively, on an annualized basis, of their
average daily net assets.
The Company also has adopted a shareholder servicing plan ("Investor C/N
Servicing Plan") with respect to the Investor C Shares of the Prime Fund and
Treasury Fund, and the Investor N Shares of the Equity Income Fund, Government
Securities Fund and International Equity Fund. Under the Investor C/N Servicing
Plan, a Fund may pay servicing agents for shareholder support services provided
and related expenses incurred by such servicing agents. Payments under the
Investor C/N Servicing Plan are accrued daily and paid monthly at a rate that
will not exceed 0.25%, on an annualized basis, of the average daily net assets
of the Investor C Shares of the Prime Fund and Treasury Fund, respectively, and
the Investor N Shares of the Equity Income Fund, International Equity Fund and
Government Securities Fund, respectively. Fees paid pursuant to the Investor C/N
Servicing Plan are charged as expenses of Investor C or Investor N Shares of a
Fund as accrued. For the year ended May 31, 1995, the International Equity Fund
did not accrue any such expenses under the Investor C/N Servicing Plan. For the
year ended May 31, 1995, the Prime Fund, the Treasury Fund, the Equity Income
Fund and the Government Securities Fund each accrued expenses under the Investor
C/N Servicing Plan totaling 0.25%, on an annualized basis, of their average
daily net assets.
<TABLE>
For the year ended May 31, 1995, the Funds incurred the following amounts under
the above plans:
<CAPTION>
INVESTOR N INVESTOR C/N
PLAN SERVICING PLAN
---------------------------------
<S> <C> <C>
Prime Fund................................................. -- $ 67,557
Treasury Fund.............................................. -- 5,647
Equity Income Fund......................................... $ 289,973 144,987
Government Securities Fund................................. 224,710 140,443
International Equity Fund.................................. 197,156 --
</TABLE>
60
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company has adopted a shareholder servicing plan ("Investor D Servicing
Plan") for the Investor D Shares of the Prime Fund and the Treasury Fund. Under
the Investor D Servicing Plan, a Fund may pay servicing agents that have entered
into a shareholder servicing agreement with the Company for certain shareholder
support services that are provided by the servicing agents to holders of
Investor D Shares. Payments under the Investor D Servicing Plan are accrued
daily and paid monthly at a rate that will not exceed 0.25%, on an annualized
basis, of the average daily net assets of the Investor D Shares of each Fund.
Fees paid pursuant to the Investor D Servicing Plan are charged as expenses of
Investor D Shares of a Fund as accrued. For the year ended May 31, 1995, the
Prime Fund and the Treasury Fund accrued expenses under the Investor D Servicing
Plan totaling 0.25%, on an annualized basis, of their average daily net assets.
<TABLE>
For the year ended May 31, 1995, the Funds incurred the following amounts
pursuant to the above plan.
<CAPTION>
INVESTOR D
SERVICING PLAN
--------------
<S> <C>
Prime Fund................................................................. $1
Treasury Fund.............................................................. 1
</TABLE>
A substantial portion of the fees paid pursuant to the Plans described above are
paid to affiliates of NationsBank.
4. PURCHASES AND SALES OF SECURITIES.
<TABLE>
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities and U.S. government securities) for the year ended May 31,
1995 were as follows:
<CAPTION>
PURCHASES SALES
---------------------------------
<S> <C> <C>
Equity Income Fund.................................... $482,722,558 $489,232,357
Government Securities Fund............................ -- 7,298,594
International Equity Fund............................. 645,117,236 448,439,648
</TABLE>
<TABLE>
Cost of purchases and proceeds from sales of long-term U.S. government
securities for the year ended May 31, 1995 were as follows:
<CAPTION>
PURCHASES SALES
---------------------------------
<S> <C> <C>
Government Securities Fund............................ $469,228,389 $492,181,965
</TABLE>
<TABLE>
At May 31, 1995, aggregate gross unrealized appreciation and aggregate gross
unrealized depreciation for tax purposes were as follows:
<CAPTION>
TAX BASIS TAX BASIS
UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION
-----------------------------------
<S> <C> <C>
Equity Income Fund...................................... $ 20,044,240 $ 4,457,794
Government Securities Fund.............................. 1,287,714 411,241
International Equity Fund............................... 56,259,172 11,757,898
</TABLE>
<TABLE>
Information regarding dollar roll transactions for the Government Securities
Fund is as follows:
<S> <C>
Maximum amount outstanding during the year.............. $ 50,256,625
Average amount outstanding during the year.............. $ 15,034,798
Average monthly shares outstanding during the year...... 11,756,930
Average debt per share outstanding during the year...... $1.28
</TABLE>
The average amount outstanding during the year was calculated by summing
borrowings at the end of each day and dividing the sum by the number of days in
the year ended May 31, 1995.
Fee income earned for the year ended May 31, 1995, by the Fund under dollar roll
transactions aggregated $411,515.
61
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL STOCK.
As of May 31, 1995, 10,000,000,000 shares of $.001 par value capital stock were
authorized for each class of the Funds.
6. RESTRICTED SECURITIES.
The following securities are illiquid and restricted as to resale and,
accordingly, are valued at fair value in good faith by or under the direction of
the Company's Board of Directors taking into consideration such factors as the
Board deems appropriate.
<TABLE>
The following table shows the acquisition date, the par value, value per unit,
market value, the percentage of the Prime Fund's total net assets that each
security comprises as well as the aggregate cost of each such security at May
31, 1995.
<CAPTION>
VALUE PERCENTAGE
ACQUISITION PER 05/31/95 OF
SECURITY DATE PAR VALUE UNIT VALUE NET ASSETS COST
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allstate Life Insurance Company:
6.325% 08/29/95*.......................... 11/01/94 $25,000,000 $1.00 $ 25,000,000 0.6% $ 25,000,000
6.325% 08/29/95*.......................... 12/27/94 25,000,000 1.00 25,000,000 0.6 25,000,000
Anchor National Life Insurance,
6.183% 08/29/95*.......................... 05/31/95 25,000,000 1.00 25,000,000 0.6 25,000,000
Commonwealth Life Insurance Company, Inc.:
6.330% 11/27/95*.......................... 08/02/94 10,000,000 1.00 10,000,000 0.3 10,000,000
6.330% 11/27/95*.......................... 06/01/94 62,000,000 1.00 62,000,000 1.6 62,000,000
Goldman Sachs Group, L.P.,
6.313% 10/02/95........................... 05/03/95 50,000,000 1.00 50,000,000 1.3 50,000,000
Life Insurance Company of Georgia,
6.350% 11/27/95*.......................... 08/23/94 60,000,000 1.00 60,000,000 1.5 60,000,000
Peoples Security Life Insurance Company,
6.330% 11/27/95*.......................... 01/05/95 20,000,000 1.00 20,000,000 0.5 20,000,000
Sun Life Insurance Company,
6.430% 11/27/95*.......................... 08/19/94 50,000,000 1.00 50,000,000 1.3 50,000,000
Travelers Life Insurance Company,
6.163% 06/30/95*.......................... 01/11/95 25,000,000 1.00 25,000,000 0.6 25,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
*Reset Date $352,000,000 8.9% $352,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The following table shows the acquisition date, the par value, value per unit,
market value, the percentage of the Treasury Fund's total net assets that the
security comprises as well as the aggregate cost of each such security at May
31, 1995.
<CAPTION>
VALUE PERCENTAGE
ACQUISITION PER 05/31/95 OF
REPURCHASE AGREEMENT DATE PAR VALUE UNIT VALUE NET ASSETS COST
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Merrill Lynch & Company,
6.250% 06/01/95*........................... 04/12/95 $75,000,000 $1.00 $ 75,000,000 2.4% $75,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
*Reset Date $ 75,000,000 2.4% $75,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain securities may be sold only pursuant to certain legal restrictions, and
may be difficult to sell. The Prime Fund and Treasury Fund will not invest more
than 10% of the value of their respective net assets in securities that are
illiquid.
The following securities of the Prime Fund are restricted as to resale, however,
they are considered liquid due to the put feature which allows the Fund to put
the security back to the issuer at par value within seven calendar days notice.
62
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
The following table shows the acquisition date, the par value, value per unit,
market value, the percentage of the Prime Fund's total net assets that each
security comprises as well as the aggregate cost of each such security at May
31, 1995.
<CAPTION>
VALUE PERCENTAGE
ACQUISITION PER 05/31/95 OF
SECURITY DATE PAR VALUE UNIT VALUE NET ASSETS COST
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Life Insurance Company of Virginia,
6.097% 06/07/95*.......................... 08/03/94 $50,000,000 $1.00 $ 50,000,000 1.3% $ 50,000,000
6.125% 06/07/95*.......................... 02/01/95 25,000,000 1.00 25,000,000 0.6 25,000,000
6.125% 06/07/95*.......................... 03/01/95 25,000,000 1.00 25,000,000 0.6 25,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
*Reset Date $100,000,000 2.5% $100,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7. ORGANIZATION COSTS.
Each Fund bears all costs in connection with its organization including the fees
and expenses of registering and qualifying its shares for distribution under
Federal and state securities regulations. All such costs are being amortized on
the straight-line method over a period of five years from the commencement of
operations of each Fund. In the event that any of the shares issued by the Funds
to their sponsor prior to the commencement of the Funds' public offering
("initial shares") are redeemed during such amortization period, the Fund will
be reimbursed for any unamortized costs in the same proportion as the number of
shares redeemed bears to the number of initial shares outstanding at the time of
the redemption. All such costs for the Prime Fund and the Treasury Fund have
been fully amortized.
8. FOREIGN SECURITIES.
The Equity Income Fund and the International Equity Fund invest in foreign
securities. Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in U.S. companies and the U.S. Government. These risks include
revaluation of currencies and future adverse political and economic
developments. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more volatile
than those of securities of comparable U.S. companies and the U.S. Government.
9. LINE OF CREDIT.
The Company and Nations Fund Trust participate in a $25 million line of credit
provided by Mellon Bank, N.A. (the "Bank") under a Line of Credit Agreement (the
"Agreement") dated March 17, 1994. 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. Under the Agreement, each Fund may borrow up to the lesser of $10
million or 5% of its net assets. Interest on borrowings is payable either at the
Bank's Money Market Rate or the London Interbank Offered Rate (LIBOR) plus 0.25%
on an annualized basis. Each Fund and the other affiliated entities are charged
an aggregate commitment fee of 0.25% per annum on the amount of the credit. Each
Fund is liable only for any commitment with respect to such Fund and shall not
be liable for the portion of the commitment fee of any other fund. The Agreement
requires, among other things, that each participating fund maintain a ratio of
net assets (not including funds borrowed pursuant to the Agreement) to aggregate
amount of indebtedness pursuant to the Agreement of no less than 4 to 1. During
the year ended May 31, 1995, the Funds did not borrow under the Agreement.
10. CAPITAL LOSS CARRYFORWARD.
<TABLE>
At May 31, 1995 the following Funds had available for Federal income tax
purposes unused capital losses as follows:
<CAPTION>
EXPIRING IN 2000 EXPIRING IN 2003
-------------------------------------
<S> <C> <C>
Prime Fund........................................... $420,174 --
Government Securities Fund........................... -- $6,877,846
</TABLE>
63
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
Under the current tax law, capital and currency losses realized after October
31, may be deferred and treated as occurring on the first day of the following
fiscal year. For the fiscal year ended May 31, 1995, the following Funds have
elected to defer losses occurring between November 1, 1994 and May 31, 1995
under these rules, as follows:
<CAPTION>
POST-OCTOBER POST-OCTOBER CAPITAL
CURRENCY SHORT TERM LONG TERM
FUND NAME LOSS DEFERRAL LOSS DEFERRAL LOSS DEFERRAL
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime Fund................................. -- $ 7,378 --
Treasury Fund.............................. -- 10,035 --
Equity Income Fund......................... -- -- $ 1,449,728
Government Securities...................... -- -- 211,303
International Equity....................... $22,131,570 11,443,956 (8,147,321)
</TABLE>
11. SUBSEQUENT EVENTS.
Advisory Services:
Effective July 1, 1995, the Company on behalf of the International Equity Fund,
entered into a sub-investment advisory agreement with Nations Gartmore
Investment Management ("Nations Gartmore"). Nations Gartmore is a joint venture
structured as a general partnership between NB Partner Group, a wholly owned
subsidiary of NationsBank and Gartmore U.S. Limited, a wholly owned subsidiary
of Gartmore plc. NationsBank is entitled to receive an advisory fee of 0.90% of
the average daily net assets of the International Equity Fund. For services
provided and expenses assumed pursuant to a sub-investment advisory agreement,
Nations Gartmore is entitled to receive from NationsBank a sub-advisory fee of
0.70% of the average daily net assets of the International Equity Fund.
Directors' Compensation:
Each Fund's eligible Directors may participate in a deferred compensation plan
and a retirement plan which may be terminated at any time. All benefits provided
under these plans are unfunded and any payments to plan participants are paid
solely out of the Funds' assets. Pursuant to an exemptive order granted by the
Securities and Exchange Commission on June 20, 1995, income earned on each plan
participant's deferral account is tied to the rate of return of the eligible
mutual funds selected by the participants or, if no funds are selected, to the
rate of return of the Treasury Fund.
64
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF NATIONS FUND, INC.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations,
statements of cash flows for the Nations Treasury Fund and the Nations
Government Securities Fund, statements of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of Nations Prime Fund, Nations Treasury Fund, Nations Equity Income
Fund, Nations Government Securities Fund and Nations International Equity Fund
(each a portfolio of Nations Fund, Inc.) (the "Funds") at May 31, 1995, the
results of each of their operations for the year then ended, the changes in each
of their net assets for each of the two years in the period then ended and
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1995 by
correspondence with custodians and brokers and the application of alternative
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
July 19, 1995
65
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
YEAR ENDED MAY 31, 1995
<TABLE>
The amount of long-term capital gain paid for the fiscal year ended May 31, 1995
was as follows:
<S> <C>
Equity Income Fund......................................................... $8,692,388
International Equity Fund.................................................. 5,059,433
</TABLE>
For the fiscal year ended May 31, 1995, the total amount of income received by
the International Equity Fund from sources within foreign countries and
possessions of the United States was $0.2033 per share (representing a total of
$10,554,146). The total amount of taxes paid by the International Equity Fund to
such countries was $0.0261 per share (representing a total of $1,357,039).
Of the distributions made by the Equity Income Fund during the fiscal year ended
May 31, 1995, 42.81% qualify for the dividends received deduction available to
corporate shareholders.
66
<PAGE>
NATIONS FUND, INC.
- --------------------------------------------------------------------------------
MEETING OF SHAREHOLDERS
On March 31, 1995, a Special Meeting of Shareholders of Nations International
Equity Fund (the "Fund") was held. The purposes of the meeting were (1) to
approve a new sub-advisory agreement among Nations Gartmore Investment
Management, NationsBank and the Company, on behalf of the Fund ("Proposal I");
(2) to approve an amendment to an existing investment advisory agreement between
NationsBank and the Company, on behalf of the Fund, that would increase the
maximum annual advisory/sub-advisory fees from approximately 0.78% to 0.90% of
the Fund's average daily net assets ("Proposal II"); and (3) to ratify and
approve an interim sub-advisory agreement among Gartmore Capital Management
Limited and NationsBank, on behalf of the Fund, that had become effective on
February 1, 1995 ("Proposal III").
With respect to Proposal I, at the meeting, 45,825,902 votes were cast in favor
of the proposal, 125,246 votes were cast against the proposal and 2,982,092
votes were withheld. In addition, there were 102,115 abstentions with respect to
Proposal I. With respect to Proposal II, at the meeting, 45,668,340 votes were
cast in favor of the proposal, 289,648 votes were cast against the proposal and
2,982,092 votes were withheld. There were 95,276 abstentions with respect to
Proposal II. Finally, with respect to Proposal III, at the meeting, 45,816,182
votes were cast in favor of the proposal, 119,942 votes were cast against the
proposal and 2,982,092 votes were withheld. There were 117,139 abstentions with
respect to Proposal III.
67
<PAGE>
THE NATIONS FUND FAMILY
EQUITY FUNDS
GROWTH
Nations Capital Growth Fund
Nations Disciplined Equity Fund
Nations Emerging Growth Fund
Nations Equity Index Fund*
Nations International Equity Fund
GROWTH AND INCOME
Nations Balanced Assets Fund
Nations Equity Income Fund
Nations Value Fund
BOND FUNDS
INCOME
Nations Adjustable Rate Government Fund
Nations Diversified Income Fund
Nations Government Securities Fund
Nations Managed Bond Fund
Nations Short-Intermediate Government Fund
Nations Short-Term Income Fund
Nations Strategic Fixed Income Fund
Nations Mortgage-Backed Securities Fund*
TAX-EXEMPT INCOME
Nations Florida Municipal Bond Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Tennessee Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Short-Term Municipal Income Fund
MONEY MARKET FUNDS
Nations Government Money Market Fund
Nations Prime Fund
Nations Tax Exempt Fund
Nations Treasury Fund
*Trust classes only
<PAGE>
This report is submitted for the general information of shareholders of Nations
Fund, Inc. For more detailed information about Nations Fund, Inc., including
fees and expenses, please see the prospectus and statement of additional
information of Nations Fund, Inc.
<PAGE>
NATIONS FUND -------------
PO Box 9654 ---------
Providence, RI 02940-9654 BULK RATE
Toll Free 1-800-982-2271 U.S. POSTAGE
PAID
BOSTON, MA
PERMIT NO.
54201
--------
------------
<PAGE>
NATIONS FUND, INC.
FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Per Share Income and Capital Changes
Included in Part B:
Audited Financial Statements for the Nations Prime, Nations
Treasury, Nations Equity Income, Nations Government Securities
and Nations International Equity Portfolios:
Schedule of Investments for May 31, 1995
Statements of Assets and Liabilities for May 31, 1995
Statements of Operations for the year ended May 31, 1995
Statements of Changes in Net Assets for the years
ended May 31, 1995 and May 31, 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants dated July 19, 1995
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
Exhibit
Number
(1) Articles of Incorporation dated December 13, 1983, and
the amendment to the Articles of Incorporation dated
March 10, 1986, are incorporated herein by reference to
Registrant's Registration Statement filed March 17,
1986 ("Registration Statement").
(1)(a) Articles of Amendment dated July 30, 1986, are
incorporated by reference to Pre-Effective Amendment No. 2,
filed August 29, 1986.
<PAGE>
(1)(b) Articles of Amendment dated October 4, 1989 and
Articles Supplementary dated November 30, 1989, are
incorporated by reference to Post-Effective Amendment
No. 7, filed July 31, 1990.
(1)(c) Articles Supplementary dated March 26, 1991, are
incorporated by reference to Post-Effective Amendment
No. 9, filed March 29, 1991.
(1)(d) Articles Supplementary filed April 24, 1992, are
incorporated by reference to Post-Effective Amendment
No. 13, filed April 30, 1992.
(1)(e) Articles Supplementary filed July 27, 1992, are
incorporated by reference to Post-Effective Amendment
No. 14, filed July 30, 1992.
(1)(f) Articles Supplementary filed February 22, 1993, are
incorporated by reference to Post-Effective Amendment
No. 20, filed March 26, 1993.
(1)(g) Articles Supplementary, relating to the establishment
of the money market funds' Investor C Shares are
incorporated by reference to Post-Effective Amendment
No. 21, filed March 29, 1994.
(1)(h) Articles Supplementary relating to the changing of the
designation of Investor C Shares to Investor N Shares
and Investor B Shares to Investor C Shares for the
non-money market funds are incorporated by reference to
Post-Effective Amendment No. 21, filed March 29, 1994.
(1)(i) Articles Supplementary relating to the establishment of
Investor D Shares of the Nations Prime Fund and Nations
Treasury Fund are incorporated by reference to
Post-Effective Amendment No. 23, filed December 22,
1994.
(2)(a) By-Laws are incorporated by reference to Registrant's
Registration Statement, filed March 17, 1986.
(2)(b) Amended and Restated By-Laws effective as of October 2,
1989, are incorporated by reference to Post-Effective
Amendment No. 5, filed August 1, 1989.
(2)(c) Amendment to By-Laws dated September 6, 1991, is
incorporated by reference to Post-Effective Amendment
No. 11, filed September 30, 1991.
(3) None.
(4)(a) Specimen copy of share certificates, shall be filed by
amendment.
(5)(a) Investment Advisory Agreement between Registrant and
NCNB Texas National Bank, dated October 3, 1988,
relating to the Prime and Treasury Portfolios, is
2
<PAGE>
incorporated by reference to Post-Effective Amendment
No. 4, filed September 15, 1988.
(5)(b) Investment Advisory Agreement between Registrant and
NCNB National Bank of North Carolina, dated December 4,
1989, relating to the Tax-Exempt Money Market Portfolio
is incorporated by reference to Post-Effective
Amendment No. 6, filed October 16, 1989.
(5)(c) Investment Advisory Agreement between Registrant and
NCNB National Bank of North Carolina, dated March 22,
1991, relating to the Equity Income Portfolio, is
incorporated by reference to Post-Effective Amendment
No. 9, filed March 29, 1991.
(5)(d) Investment Advisory Agreement between Registrant and
NCNB National Bank of North Carolina, dated March 22,
1991, relating to the Government Securities Portfolio,
is incorporated by reference to Post-Effective
Amendment No. 9 filed March 29, 1991.
(5)(e) Investment Advisory Agreement between Registrant and
NCNB National Bank of North Carolina, dated September
27, 1991, relating to the International Equity
Portfolio, is incorporated by reference to
Post-Effective Amendment No. 13, filed April 30, 1992.
(5)(f) Amendment to the Investment Advisory Agreement
described in (5)(a) above, dated June 30, 1992, among
Registrant and NationsBank of Texas, N.A. ("NationsBank
Texas"), and NationsBank of North Carolina, N.A.
("NationsBank North Carolina"), is incorporated by
reference to Post-Effective Amendment No. 14, filed
July 30, 1992.
(5)(g) Investment Advisory Agreement between Registrant and
NationsBank North Carolina dated June 1, 1995, relating
to the Nations International Equity Fund, is
incorporated by reference to Post-Effective Amendment
No. 26, filed June 30, 1995.
(5)(h) Sub-Advisory Agreement among Registrant, NationsBank
North Carolina and Nations Gartmore Investment
Management, dated July 1, 1995, relating to the Nations
International Equity Fund, is incorporated by reference
to Post-Effective Amendment No. 26, filed June 30,
1995.
(5)(i) Investment Advisory Agreement between NationsBanc
Advisors, Inc, ("NBAI") and Registrant is filed
herewith.
(5)(j) Sub-Investment Advisory Agreement between TradeStreet
Investment Associates, Inc. ("TradeStreet") and Registrant
is filed herewith.
3
<PAGE>
(5)(k) Sub-Investment Advisory Agreement between Nations
Gartmore Investment Management ("Nations Gartmore") and
Registrant is filed herewith.
(6)(a) Amended and Restated Distribution Agreement between
Registrant and Funds Distributor, Inc., dated May 1,
1992, is incorporated by reference to Post-Effective
Amendment No. 14, filed July 30, 1992.
(6)(b) Amendment No. 1 dated February 3, 1993 to the Amended
and Restated Distribution Agreement between Registrant
and Funds Distributor, Inc., dated May 1, 1992,
relating to the Money Market Funds' Investor B Shares
and the Non-Money Market Funds' Investor C Shares of
the Company, is incorporated by reference to
Post-Effective Amendment No. 20, filed March 26, 1993.
(6)(c) Forms of Broker-Dealer and Bank Agreements between
Registrant and Funds Distributor, Inc., are
incorporated by reference to Post-Effective Amendment
No. 13, filed April 30, 1992.
(6)(d) Shareholder Administration Agreement for Trust B Shares
is filed herewith.
(6)(e) Shareholder Administration Agreement for Trust B Shares
for Nations Fund Trust, Registrant and Nations Fund
Portfolios, Inc. is filed herewith.
(7) None.
(8)(a) Mutual Fund Custody Agreement between Registrant and
NCNB Texas National Bank dated July 31, 1990, relating
to Prime, Government and Tax-Exempt Money Market
Portfolios, is incorporated by reference to
Post-Effective Amendment No. 8, filed January 24, 1991.
(8)(b) Custody Agreement between Registrant and Boston Safe
Deposit and Trust Company dated December 1, 1992,
relating to Nations International Equity Fund, is
incorporated by reference to Post-Effective Amendment
No. 20, filed March 26, 1993.
(8)(c) Amendment No. 1 to Mutual Fund Custody Agreement dated
July 31, 1990, between Registrant and NationsBank Texas
dated July 31, 1990 relating to Nations Government
Securities Fund and Nations Equity Income Fund, is
incorporated by reference to Post-Effective Amendment
No. 20, filed March 26, 1993.
(8)(d) Global Custody Agreement between the Registrant, on
behalf of Nations International Equity Fund, and Morgan
Guaranty Trust Company of New York is incorporated by
reference to post-Effective Amendment No. 2, filed
September 28, 1995.
4
<PAGE>
(9)(a) Transfer Agency Agreement between Registrant and NCNB
Texas National Bank, dated October 1, 1991, relating to
Institutional Classes (currently known as Trust
Shares), is incorporated by reference to Post-Effective
Amendment No. 14, filed July 30, 1992.
(9)(b) Transfer Agency and Registrar Agreement, dated June 1,
1992, between Registrant and The Shareholder Servicing
Group, Inc., relating to Investor Shares, is
incorporated by reference to Post-Effective Amendment
No. 14, filed July 30, 1992.
(9)(c) Amendment No. 1 dated February 3, 1993, to the Transfer
Agency and Registrar Agreement between Registrant and
The Shareholder Services Group, Inc. dated April 25,
1992, relating to the Money Market Funds' Investor B
Shares and the Non-Money Market Funds' Investor C
Shares of the Company, is incorporated by reference to
Post-Effective Amendment No. 20, filed March 26, 1993.
(9)(d) Amendment No. 2 to the Transfer Agency and Registrar
Agreement between Registrant and The Shareholder
Services Group, Inc. dated April 25, 1992, relating to
the addition of the Investor C Shares to the Money
Market Funds of the Company, is incorporated by
reference to Post-Effective Amendment No. 20, filed
March 26, 1993.
(9)(e) Shareholder Services Plan relating to the Trust B
Shares, is incorporated by reference to Post-Effective
Amendment No. 13, filed April 30, 1992.
(9)(f) Form of Shareholder Servicing Agreement, relating to
the Trust B Shares, is incorporated by reference to
Post-Effective Amendment No. 19 to its Registration
Statement, filed May 27, 1993.
(9)(g) Shareholder Servicing Plan for Investor A Shares
incorporated by reference to Post-Effective Amendment
No. 21, filed March 29, 1994.
(9)(h) Forms of Shareholder Servicing Agreement for Investor A
Shares are incorporated by reference to Post-Effective
Amendment No. 21, filed March 29, 1994.
(9)(i) Amended and Restated Shareholder Servicing Plan for
Investor B Shares of the Money Market Funds and
Investor C Shares (formerly Investor B Shares) of the
Non-Money Market Funds is incorporated by reference to
Post-Effective Amendment No. 21, filed March 29, 1994.
(9)(j) Forms of Shareholder Servicing Agreement for Investor B
Shares of the Money Market Funds and Investor C Shares
(formerly Investor B Shares) of the Non-Money Market
Funds are incorporated by reference to Post-Effective
Amendment No. 21, filed March 29, 1994.
5
<PAGE>
(9)(k) Shareholder Servicing Plan for Investor C Shares of the
Money Market Funds and Investor N Shares (formerly
Investor C Shares) of the Non-Money Market Funds is
incorporated by reference to Post-Effective Amendment
No. 21, filed March 29, 1994.
(9)(l) Forms of Shareholder Servicing Agreement for Investor C
Shares of the Money Market Funds and Investor N Shares
(formerly Investor C Shares) of the Non-Money Market
Funds are incorporated by reference to Post-Effective
Amendment No. 21, filed March 29, 1994.
(9)(m) Cross Indemnification Agreement dated July 30, 1992 by
and between the Registrant and Nations Fund, is
incorporated by reference to Post-Effective Amendment
No. 15, filed December 23, 1992.
(9)(n) Amended and Restated Administration Agreement, dated
May 1, 1992, between the Registrant and The Boston
Company Advisors, Inc., is incorporated by reference to
Amendment No. 14, filed July 30, 1992.
(9)(o) Amendment No. 1 dated February 3, 1993, to the Amended
and Restated Administration Agreement, dated July 1,
1992, between the Registrant and The Boston Company
Advisors, Inc. relating to the addition of the Money
Market Funds' Investor B Shares and the Non-Money
Market Funds' Investor C Shares, is incorporated by
reference to Amendment No. 20, filed March 26,
1993.
(9)(p) Amended Fee Letter dated December 1, 1992, among
Registrant, The Boston Company Advisors, Inc. and
Nations Fund Trust, is incorporated by reference to
Amendment No. 20, filed March 26, 1993.
(9)(q) Cross-Indemnification dated June 27, 1995 between the
Company, Nations Fund Trust and Nations Fund
Portfolios, Inc. is incorporated by reference to
Post-Effective Amendment No. 26, filed June 30, 1995.
(10) Opinion and Consent of Counsel is filed herewith.
(11) Consent of Independent Accountants -- Price Waterhouse
LLP is filed herewith.
(12) None.
(13) None.
(14)(a) Prototype Individual Retirement Account Plan, is
incorporated by reference to Amendment No. 20, filed
March 26, 1993.
6
<PAGE>
(15)(a) Amended and Restated Shareholder Servicing and
Distribution Plan pursuant to Rule 12b-1, relating to
Investor A Shares, is incorporated by reference to
Post-Effective Amendment No. 21, filed March 29, 1994.
(15)(b) Form of Sales Support Agreement, relating to Investor
A Shares is incorporated by reference to
Post-Effective Amendment No. 21, filed March 29, 1994.
(15)(c) Amended and Restated Distribution Plan, relating to
Investor B Shares of the Money Market Funds and
Investor C Shares (formerly Investor B Shares) of the
Non-Money Market Funds is incorporated by reference to
Post-Effective Amendment No. 21, filed March 29, 1994.
(15)(d) Form of Sales Support Agreement relating to Investor B
Shares of the Money Market Funds and Investor C Shares
(formerly Investor B Shares) of the Non-Money Market
Funds is incorporated by reference to Post-Effective
Amendment No. 21, filed March 29, 1994.
(15)(e) Distribution Plan relating to the non-money market
funds' Investor N Shares (formerly Investor C Shares)
is incorporated by reference to Post-Effective
Amendment No. 21, filed March 29, 1994.
(15)(f) Form of Sales Support Agreement, relating to non-money
market funds' Investor N Shares (formerly Investor C
Shares) is incorporated by reference to Post-Effective
Amendment No. 21, filed March 29, 1994.
15(g) Shareholder Administration Plan for Trust B Shares is
filed herewith.
(16)(a) Schedules for Computation of Trust A Shares is
incorporated by reference to Post-Effective Amendment
No. 21, filed March 29, 1994.
(16)(b) Schedules for Computation of Trust B Shares, shall be
filed by amendment.
(16)(c) Schedules for Computation of Investor A Shares is
incorporated by reference to Post-Effective Amendment
No. 21, filed March 29, 1994.
(16)(d) Schedules for Computation of Investor C Shares
(formerly Investor B Shares) is incorporated by
reference to Post-Effective Amendment No. 21, filed
March 29, 1994.
(16)(e) Schedules for Computation of Investor N Shares
(formerly Investor C Shares) is incorporated by
reference to Post-Effective Amendment No. 21, filed
March 29, 1994.
17 N/A
7
<PAGE>
18 Revised Form of Plan entered into by Registrant
pursuant to Rule 18f-3 under the Investment Company Act of
1940 (the "1940 Act") is incorporated by reference to
Post-Effective Amendment No. 25, filed March 31, 1995.
Item 25. Persons Controlled By or Under Common Control With Registrant
Registrant is controlled by its Board of Directors.
Item 26. Number of Holders of Securities
The following information is as of January 25, 1996.
Title of Class Number of
Record Holders
Nations Prime Fund
- Trust A Shares 22,524
- Trust B Shares 196
- Investor A Shares 94,997
- Investor B Shares 798
- Investor C Shares
- Investor D Shares 126
Nations Treasury Fund
- Trust A Shares 4,579
- Trust B Shares 137
- Investor A Shares 1,763
- Investor B Shares 97
- Investor C Shares
- Investor D Shares 6
Nations Equity Income Fund
- Trust A Shares 1,557
- Trust B Shares 0
- Investor A Shares 2,211
- Investor C Shares 236
- Investor N Shares 7,342
Nations Government Securities Fund
- Trust A Shares 520
- Trust B Shares 76
- Investor A Shares 394
- Investor C Shares 147
- Investor N Shares 2,659
8
<PAGE>
Nations International Equity Fund
- Trust A Shares 9,201
- Trust B Shares 0
- Investor A Shares 980
- Investor C Shares 63
- Investor N Shares 5,601
Item 27. Indemnification
Under the terms of the Maryland Corporation Law and the Registrant's
Charter and By-Laws, incorporated by reference as Exhibits (1) and
2(a) hereto, provides for the indemnification of Registrant's
directors and employees. Indemnification of Registrant's principal
underwriter, custodian, and transfer agent is provided for,
respectively, in the Registrant's:
1. Amended and Restated Administration Agreement with the Boston
Company Advisor's, Inc.;
2. Amended and Restated Distribution Agreement with Funds
Distributor, Inc.;
3. Mutual Fund Custody Agreement with NationsBank of Texas;
4. Custody Agreement with Boston Safe Deposit and Trust Company;
5. Transfer Agency Agreement with NationsBank Texas; and
6. Transfer Agency and Registrar Agreement with The Shareholder
Services Group, Inc.
The Registrant has entered into a Cross Indemnification Agreement
with Nations Fund Trust (the "Trust") and Nations Fund Portfolios, Inc.
("Portfolios") dated June 27, 1995. The Trust and/or the Portfolios
will indemnify and hold harmless the Company against any losses,
claims, damages or liabilities, to which the Company may become
subject, under the Securities Act of 1933 (the "Act") and the 1940
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a
material fact contained in any Prospectuses, any Preliminary
Prospectuses, the Registration Statements, any other Prospectuses
relating to the securities, or any amendments or supplements to the
foregoing (hereinafter referred to collectively as the "Offering
Documents"), or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
the Offering Documents in reliance upon and in conformity with
written information furnished to the Company by the Trust and/or
Portfolios expressly for use therein; and will reimburse the Company
for any legal or other expenses reasonably incurred by the Company
in connection with investigating or defending any such action or
9
<PAGE>
claim; provided, however, that the Trust and/or Portfolios shall not
be liable in any such case to the extent that any such loss, claim,
damage, or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged
omission made in the Offering Documents in reliance upon and in
conformity with written information furnished to the Trust and/or
Portfolios by the Company expressly for use in the Offering
Documents.
Promptly after receipt by an indemnified party above of notice of
the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission to so notify
the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, to assume
the defense thereof, with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof,
the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than
reasonable costs of investigation.
Registrant has obtained from a major insurance carrier a directors'
and officers' liability policy covering certain types of errors and
omissions. In no event will Registrant indemnify any of its
directors, officers, employees, or agents against any liability to
which such person would otherwise be subject by reason of his/her
willful misfeasance, bad faith, gross negligence in the performance
of his/her duties, or by reason of his/her reckless disregard of the
duties involved in the conduct of his/her office or arising under
his agreement with Registrant. Registrant will comply with Rule 484
under the Act and Release No. 11330 under the 1940 Act, in
connection with any indemnification.
Insofar as indemnification for liability arising under the Act may
be permitted to directors, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid
by a director, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted
by such director, officer, or controlling person in connection with
the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers
10
<PAGE>
To the knowledge of the Registrant, none of the directors or
officers of NBAI, TradeStreet or Nations Gartmore Investment
Management ("Nations Gartmore") except those set forth below, is or
has been, at any time during the past two calendar years, engaged in
any other business, profession, vocation or employment of a
substantial nature, except that certain directors and officers also
hold various positions with, and engage in business for, the company
that owns all the outstanding stock (other than directors'
qualifying shares) of NBAI, TradeStreet or Nations Gartmore or other
subsidiaries of NationsBank Corporation. Set forth below are the
names and principal businesses of the directors and certain of the
senior executive officers of Nations Gartmore who are engaged in any
other business, profession, vocation or employment of a substantial
nature.
(a) Nations Gartmore performs sub-investment advisory services for
Registrant and certain other customers. Listed below are the names
and principal occupation of the directors and principal executive
officers of Nations Gartmore. The address for the individuals
listed below is Nations Gartmore, Gartmore House, 16-18 Monument
Street, London EC3R 8AJ, England and NationsBank North Carolina, One
NationsBank Plaza, Charlotte, North Carolina 28255.
Position with
Name Gartmore Capital Principal Occupation
Charles G. Smith IV Chief Executive Officer Chief Executive Officer,
Nations Gartmore Investment
Management
Simon H. Davies Chief Investment Officer Chief Investment Officer,
Nations Gartmore Investment
Management; Director of
International Investments,
Gartmore Investment Limited
James B. Sommers Committee Member NationsBank Corporation
President, NationsBank Trust
John W. Munce Committee Member Executive Vice President,
NationsBank, N.A. (Carolinas)
Mark H. Williamson Committee Member Senior Vice President,
NationsBank, N.A. (Carolinas)
Paul Myners Committee Member Executive Chairman, Gartmore
plc
11
<PAGE>
Andrew J. Brown Committee Member Finance Director and Chairman,
Gartmore Fund Managers
International Limited, Gartmore
Money Management Limited,
Gartmore Administration
Services Limited
David W. Watts Committee Member Chief Investment Officer,
Gartmore plc
No officer or director of Nations Fund, Inc. is an officer,
employee, director, general partner or shareholder of Nations Gartmore
or any affiliate thereof.
(b) NBAI performs investment advisory services for the Registrant and
certain other customers. NBAI is a wholly owned subsidiary of
NationsBank, N.A. ("NationsBank"), which in turn is a wholly owned
banking subsidiary of NationsBank Corporation. Information with respect
to each director and officer of the investment adviser is incorporated
by reference to Form ADV filed by NBAI with the Securities and Exchange
Commission pursuant to the Investment Advisers Act of 1940 (file no.
801-49874).
(c) TradeStreet performs sub-investment advisory services for the
Registrant and certain other customers. TradeStreet is a wholly owned
subsidiary of NationsBank, which in turn is a wholly owned banking
subsidiary of NationsBank Corporation. Information with respect to each
director and officer of the sub-investment adviser is incorporated by
reference to Form filed by TradeStreet with the Securities and Exchange
Commission pursuant to the Investment Advisers Act of 1940 (file no.
801-50372).
Item 29. Principal Underwriters
(a) Stephens Inc., distributor for the Registrant, does not presently
act as investment adviser for any other registered investment
companies, but does act as principal underwriter for the Overland
Express Funds, Inc., Stagecoach Inc., Stagecoach Funds, Inc. and
Stagecoach Trust and is the exclusive placement agent for Master
Investment Trust, Managed Series Investment Trust, Life & Annuity
Trust and Master Investment Portfolio, all of which are registered
open-end management investment companies, and has acted as
principal underwriter for the Liberty Term Trust, Inc., the Nations
Government Income Term Trust 2003, Inc., Nations Government Income
Term Trust 2004, Inc. and Managed Balanced Target Maturity Fund,
Inc., closed-end management investment companies.
(b) Information with respect to each director and officer of the
principal underwriter is incorporated by reference to Form ADV
filed by Stephens Inc. with the Securities and Exchange Commission
pursuant to the Investment Advisers Act of 1940 (file #501-15510).
(c) Not applicable.
12
<PAGE>
Item 30. Location of Accounts and Records
(1) NationsBank Texas, 901 Main Street Dallas, Texas 75202 (records
relating to its function as custodian for the Nations Prime, Nations
Treasury, Nations Government Securities and Nations Equity Income
Funds, and records relating to its function as transfer agent for
the Trust A and B Shares).
(2) NBAI, One NationsBank Plaza, Charlotte, North Carolina 28255
(records relating to its function as investment adviser).
(3) TradeStreet, One NationsBank Plaza, Charlotte, North Carolina
28255 (records relating to its function as sub-adviser).
(4) Nations Gartmore, Gartmore House, 16-18 Monument Street, London
EC3R 8AJ, England (records relating to its functions as sub-adviser
for the Nations International Equity Fund).
(5) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its functions as distributor).
(6) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its functions as Administrator).
(7) The Shareholder Services Group, Inc. One Exchange Place, Boston,
Massachusetts 02109 (records relating to its functions as
Co-Administrator and Transfer Agent for the Investor A, B, C, D
and N Shares).
(8) NationsBank of Texas, 1401 Elm Street, Dallas, Texas 75202
(records relating to its function as Sub-Transfer Agent for the
Trust A and B Shares and custodian).
(9) Morgan Guaranty Trust Company, Avenue des Arts, 35 1040 Brussels,
Belgium (records relating to its function as
custodian of Nations International Equity Fund).
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
(a) Registrant undertakes to call a meeting for the purpose of
voting upon the question or removal of a director or directors
when requested in writing to do so by the holders of at least
10% of a Fund's outstanding shares of beneficial interest and
in connection with such
13
<PAGE>
meeting to comply with the provisions of Section 16(c) of
the 1940 Act, relating to shareholder communications.
(b) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's most
recent annual report to shareholders upon request and without
charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Amendment to its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Little Rock,
State of Arkansas on the 26th day of January, 1996.
NATIONS FUND, INC.
By: *
A. Max Walker
President and Chairman
of the Board of Directors
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed
below by the following persons in the capacities and on the date
indicated:
SIGNATURES TITLE DATE
* President and Chairman January 26, 1996
(A. Max Walker) of the Board of Directors
(Principal Executive Officer)
* Treasurer January 26, 1996
(Richard H. Rose) Vice President
(Principal Financial and
Accounting Officer)
* Director January 26, 1996
(Edmund L. Benson, III)
* Director January 26, 1996
(James Ermer)
* Director January 26, 1996
(William H. Grigg)
* Director January 26, 1996
(Thomas F. Keller)
* Director January 26, 1996
(Carl E. Mundy, Jr.)
* Director January 26, 1996
(Charles B. Walker)
* Director January 26, 1996
(Thomas S. Word)
/s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description Number
EX-27.011 to EX-27.016 - Financial Data Schedules - Nations Prime Fund
EX-27.021 to EX-27.026 - Financial Data Schedules - Nations Treasury Fund
EX-27.031 to EX-27.034 - Financial Data Schedules - Nations Equity Income Fund
EX-27.041 to EX-27.044 - Financial Data Schedules - Nations Government
Securities Fund
EX 27.051 to EX 27.054 - Financial Data Schedules - Nations International
Equity Fund
EX-B99.5(i) Investment Advisory Agreement between NBAI
and Registrant
EX-B99.5(j) Sub-Investment Advisory Agreement between TradeStreet
and Registrant
EX-B99.5(k) Sub-Investment Advisory Agreement between Nations Gartmore
and Registrant
EX-B99.6(d) Shareholder Administration Agreement for Trust B
Shares for Registrant
EX-B99.6(e) Shareholder Administration Agreement for Trust B
Shares for the Registrant, Nations Fund Trust
and Nations Fund Portfolios, Inc.
EX-B99.10 Opinion and Consent of Counsel
EX-B99.11 Consent of Independent Accountants --
Price Waterhouse LLP
EX-B99.15(g) Shareholder Administration Plan for Trust B Shares
EX-99.B5(i)
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of this 1st day of January, 1996, by and
between Nations Fund, Inc., a Maryland corporation (the "Company"), and
NationsBanc Advisors, Inc., a North Carolina corporation (the "Adviser"), on
behalf of those portfolios of the Company now or hereafter identified on
Schedule I hereto (each a "Fund" and, collectively, the "Funds").
RECITALS
WHEREAS, the Company is registered with the Securities and
Exchange Commission ("Commission") under the Investment Company Act of 1940, as
amended (the "1940 Act") as an open-end, series management investment company;
and
WHEREAS, the Adviser is registered with the Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act") as an
investment adviser; and
WHEREAS, the Company and the Adviser desire to enter into an
agreement to provide for investment advisory services to the Company upon the
terms and conditions hereinafter set forth; and
WHEREAS, the Company and the Adviser contemplate that certain
duties of the Adviser under this Agreement will be delegated to one or more
sub-investment adviser(s) (the "Sub-Adviser(s)") pursuant to separate
sub-advisory agreement(s) (the "Sub-Advisory Agreement(s)");
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Advisory Services. The Adviser shall act as investment adviser
for the Funds and shall, in such capacity, manage and supervise the investment
and reinvestment of the cash, securities or other properties comprising the
Funds' assets, subject at all times to the policies and control of the Company's
Board of Directors. The Adviser shall give the Funds the benefit of its best
judgment, efforts and facilities in rendering its services as investment
adviser.
2. Investment Analysis and Implementation. In carrying out its
obligations under paragraph 1 hereof, the Adviser shall:
(a) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial
data, domestic, foreign or otherwise, whether affecting the
economy generally or the Funds specifically, and whether
concerning the individual issuers whose securities are included in
the Funds or the activities in which such issuers engage, or with
respect to securities which the Adviser considers desirable for
inclusion in the Funds;
<PAGE>
(b) invest and reinvest, on an ongoing basis, assets
held in the Funds in strict accordance with the investment
policies of the Funds as set forth in the registration statement
of the Company with respect to the Funds, as the same may be
amended from time to time;
(c) in accordance with policies and procedures
established by the Company's Board of Directors, select brokers
and dealers to execute portfolio transactions for the Funds and
select the markets on or in which the transactions will be
executed;
(d) vote, either in person or by general or limited
proxy, or refrain from voting, any securities held in the Funds
for any purposes; exercise or sell any subscription or conversion
rights; consent to and join in or oppose any voting trusts,
reorganizations, consolidations, mergers, foreclosures and
liquidations and in connection therewith, deposit securities, and
accept and hold other property received therefor;
(e) determine on an ongoing basis the overall
investment strategy with respect to the Funds, and ensure on an
ongoing basis adherence to such strategy;
(f) use the same skill and care in providing
services to the Funds as it uses in providing services to
fiduciary accounts for which it has investment responsibilities;
(g) furnish the Company's Board of Directors
with such periodic and special reports as the Board of Directors
may request; and
(h) take, on behalf of the Funds, all actions which
appear necessary to carry into effect such purchase and sale
programs and supervisory functions set forth in this Paragraph 2.
3. Delegation of Responsibilities. Subject to the approval of the
Company's Board of Directors and, if required, the shareholders of the Funds,
the Adviser may, pursuant to the Sub-Advisory Agreement(s), delegate to the
Sub-Adviser(s) those of its duties hereunder identified in the Sub-Advisory
Agreement(s), provided that the Adviser shall continue to supervise and monitor
the performance of the duties delegated to the Sub-Adviser(s) and any such
delegation shall not relieve the Adviser of its duties and obligations under
this Agreement. The Adviser shall be solely responsible for compensating the
Sub-Adviser(s) for services rendered under the Sub-Advisory Agreement(s).
4. Control by Board of Directors. Any investment activities
undertaken by the Adviser pursuant to this Agreement, as well as any other
activities undertaken by the Adviser on behalf of the Funds, shall at all times
be subject to any directives of the Company's Board of Directors.
2
<PAGE>
5. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Adviser shall at all times conform to:
(a) all applicable provisions of the 1940 Act,
the Advisers Act and any rules and regulations adopted thereunder;
(b) the provisions of the registration statement
of the Company, as the same may be amended from time to time;
(c) the provisions of the Articles of
Incorporation of the Company, as the same may be amended from time
to time;
(d) the provisions of the By-laws of the
Company, as the same may be amended from time to time; and
(e) any other applicable provisions of state or
federal law.
In addition, any code of ethics adopted by the Adviser pursuant to
Rule 17j-1 under the 1940 Act shall include policies, prohibitions and
procedures which substantially conform to the recommendations regarding personal
investing approved by the Board of Governors of the Investment Company Institute
on June 30, 1994, as such recommendations may be amended from time to time.
6. Broker-Dealer Relationships. The Adviser is responsible for the
purchase and sale of securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates. The Adviser's primary consideration
in effecting a security transaction will be to obtain the best price and
execution. In selecting a broker-dealer to execute each particular transaction
for a Fund, the Adviser will take the following into consideration: the best net
price available, the reliability, integrity and financial condition of the
broker-dealer; the size of and difficulty in executing the order; and the value
of the expected contribution of the broker-dealer to the Fund on a continuing
basis. Accordingly, the price to the Fund in any transaction may be less
favorable than that available from another broker-dealer if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Company's Board of Directors may from
time to time determine, the Adviser shall not be deemed to have acted unlawfully
or to have breached any duty created by this Agreement or otherwise solely by
reason of having caused a Fund to pay a broker or dealer that provides brokerage
and research services to the Adviser an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if the
Adviser determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
overall responsibilities of the Adviser with respect to the Fund and to other
clients of the Adviser. The Adviser is further authorized to allocate the orders
placed by it on behalf of the Funds to brokers and dealers who also provide
research or statistical material, or other services to the Funds or to the
Adviser.
3
<PAGE>
Such allocation shall be in such amounts and proportions as the Adviser shall
determine and the Adviser will report on said allocations regularly to the Board
of Directors of the Company indicating the brokers to whom such allocations
have been made and the basis therefor.
7. Compensation. The Company shall pay the Adviser as
compensation for services rendered hereunder fees, payable monthly, at the
annual rates indicated on Schedule I hereto, as such Schedule may be amended
or supplemented from time to time.
The average daily net asset value of the Funds shall be determined
in the manner set forth in the Company's Articles of Incorporation and
registration statement, as amended from time to time.
8. Expenses of the Funds. All of the ordinary business expenses
incurred in the operations of the Funds and the offering of their shares shall
be borne by the Funds unless specifically provided otherwise in this Agreement.
These expenses borne by the Funds include, but are not limited to, brokerage
commissions, taxes, legal, auditing, or governmental fees, the cost of preparing
share certificates, custodian, transfer agent and shareholder service agent
costs, expenses of issue, sale, redemption and repurchase of shares, expenses of
registering and qualifying shares for sale, expenses relating to directors and
shareholder meetings, the cost of preparing and distributing reports and notices
to shareholders, the fees and other expenses incurred by the Funds in connection
with membership in investment company organizations and the cost of printing
copies of prospectuses and statements of additional information distributed to
the Funds' shareholders.
9. Expense Limitation. If, for any fiscal year, the total of all
ordinary business expenses of a Fund, including all investment advisory fees,
but excluding brokerage commissions, fees, taxes, interest and extraordinary
expenses, such as litigation costs, would exceed the applicable expense
limitations imposed by state securities regulations in any state in which the
Funds' shares are qualified for sale, as such limitations may be raised or
lowered from time to time, the aggregate of all such investment advisory fees
shall be reduced by the amount of such excess. The amount of any such reduction
to be borne by the Adviser shall be deducted from the monthly investment
advisory fee otherwise payable to the Adviser during such fiscal year. If
required pursuant to such state securities regulations, the Adviser will, not
later than the last day of the first month of the next succeeding fiscal year,
reimburse the Fund for any such annual operating expenses (after reduction of
all investment advisory fees in excess of such limitation). For the purposes of
this paragraph, the term "fiscal year" shall exclude the portion of the current
fiscal year which shall have elapsed prior to the date hereof and shall include
the portion of the current fiscal year which shall have elapsed at the date of
termination of this Agreement.
10. Non-Exclusivity. The services of the Adviser to the Funds are
not to be deemed to be exclusive, and the Adviser shall be free to render
investment advisory and administrative or other services to others (including
other investment companies) and to engage in other activities. It is understood
and agreed that officers or directors of the Adviser may serve as officers and
directors of the Company, and that officers or directors of the Company may
serve as officers or directors of the Adviser, to the extent that such services
may be permitted by law, and
4
<PAGE>
that the officers and directors of the Adviser are not prohibited from engaging
in any other business activity or from rendering services to any other person,
or from serving as partners, officers, directors or trustees of any other firm
or trust, including other investment advisory companies.
11. Records. The Adviser shall, with respect to orders the Adviser
places for the purchase and sale of portfolio securities of the Funds, maintain
or arrange for the maintenance of the documents and records required pursuant to
Rule 31a-1 under the 1940 Act as well as such records as the Funds'
administrator reasonably requests to be maintained, including, but not limited
to, trade tickets and confirmations for portfolio trades. All such records shall
be maintained in a form acceptable to the Funds and in compliance with the
provisions of Rule 31a-1. All such records will be the property of the Funds and
will be available for inspection and use by the Funds. The Adviser will promptly
notify the Funds' administrator if it experiences any difficulty in maintaining
the records in an accurate and complete manner.
12. Term and Approval. This Agreement shall become effective
with respect to a Fund if and when approved by the Directors of the Company,
and if so approved, this Agreement shall thereafter continue from year to year,
provided that the continuation of the Agreement is specifically approved at
least annually;
(a) (i) by the Company's Board of Directors or (ii) by
the vote of "a majority of the outstanding voting securities"
of a Fund (as defined in Section 2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the Company's
Directors who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of a party to this Agreement
(other than as Directors of the Company), by votes cast in person
at a meeting specifically called for such purpose.
13. Termination. This Agreement may be terminated with respect to a
Fund at any time, without the payment of any penalty, by vote of the Company's
Board of Directors or by vote of a majority of a Fund's outstanding voting
securities, or by the Adviser, on sixty (60) days' written notice to the other
party. The notice provided for herein may be waived by the party entitled to
receipt thereof. This Agreement shall automatically terminate in the event of
its assignment, the term "assignment" for purposes of this paragraph having the
meaning defined in Section 2(a)(4) of the 1940 Act.
14. Liability of Adviser. In the absence of willful misfeasance, bad
faith, negligence or reckless disregard of obligations or duties hereunder on
the part of the Adviser or any of its officers, directors, employees or agents,
the Adviser shall not be subject to liability to the Company or to any
shareholder of the Company for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
5
<PAGE>
15. Indemnification. In the absence of willful misfeasance, bad
faith, negligence or reckless disregard of duties hereunder on the part of the
Adviser or any of its officers, directors, employees or agents, the Company
hereby agrees to indemnify and hold harmless the Adviser against all claims,
actions, suits or proceedings at law or in equity whether brought by a private
party or a governmental department, commission, board, bureau, agency or
instrumentality of any kind, arising from the advertising, solicitation, sale,
purchase or pledge of securities, whether of the Funds or other securities,
undertaken by the Funds, their officers, directors, employees or affiliates,
resulting from any violations of the securities laws, rules, regulations,
statutes and codes, whether federal or of any state, by the Funds, their
officers, directors, employees or affiliates. Federal and state securities laws
impose liabilities under certain circumstances on persons who act in good faith,
and nothing herein shall constitute a waiver or limitation of any rights which a
Fund may have and which may not be waived under any applicable federal and state
securities laws.
16. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Company
shall be c/o Stephens Inc., 111 Center Street, Suite 300, Little Rock, Arkansas
72201 and that of the Adviser shall be One NationsBank Plaza, Charlotte, North
Carolina 28255.
17. Questions of Interpretation. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act or the Advisers Act shall be
resolved by reference to such terms or provision of the 1940 Act or the Advisers
Act and to interpretations thereof, if any, by the United States Courts or in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the Commission issued pursuant to the 1940 Act or the Advisers Act.
In addition, where the effect of a requirement of the 1940 Act or the Advisers
Act reflected in any provision of this Agreement is revised by rule, regulation
or order of the Commission, such provision shall be deemed to incorporate the
effect of such rule, regulation or order.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to
be executed in duplicate by their respective officers on the day and year first
written above.
NATIONS FUND, INC.
on behalf of the Funds
By: ____/S/ A. Max Walker
A. Max Walker
President
NATIONSBANC ADVISORS, INC.
By: ____/S/ Mark H. Williamson
Mark H. Williamson
President and Director
7
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Fund Rate of Compensation
<S> <C>
Nations Prime Fund 0.25% up to $250 million of combined Net
Asset Value of Prime & Treasury Funds
0.20% in excess of $250 million
Nations Equity Income Fund 0.75% up to $100 million
0.70% up to $250 million
0.60% in excess of $250 million
Nations Government Securities Fund 0.65% up to $100 million
0.55% up to $250 million
0.50% in excess of $250 million
International Equity Fund 0.90% of net asset value
Nations Treasury Fund 0.25% up to $250 million of combined Net
Asset Value of Prime & Treasury Funds
0.20% in excess of $250 million
</TABLE>
EX-99.B5(j)
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of this 1st day of January, 1996, by and
among NationsBanc Advisors, Inc., a North Carolina corporation (the "Adviser"),
TradeStreet Investment Associates, Inc., a Maryland corporation (the
"Sub-Adviser"), and Nations Fund, Inc., a Maryland corporation (the "Company"),
on behalf of those portfolios of the Company now or hereafter identified on
Schedule I hereto (each a "Fund" and collectively, the "Funds").
RECITALS
WHEREAS, the Company is registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "1940 Act") as an open-end, series management investment
company; and
WHEREAS, the Adviser is registered with the Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act") and engages in
the business of acting as an investment adviser; and
WHEREAS, the Sub-Adviser also is registered with the Commission
under the Advisers Act as an investment adviser; and
WHEREAS, the Adviser and the Company have entered into an
Investment Advisory Agreement of even date herewith (the "Investment Advisory
Agreement"), pursuant to which the Adviser shall act as investment adviser with
respect to the Funds; and
WHEREAS, pursuant such Investment Advisory Agreement, the Adviser,
with the approval of the Company, wishes to retain the Sub-Adviser for purposes
of rendering advisory services to the Adviser and the Company in connection with
the Funds upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Adviser. The Adviser hereby appoints, and
the Company hereby approves, the Sub-Adviser to render investment research and
advisory services to the Adviser and the Company with respect to the Funds,
under the supervision of the Adviser and subject to the policies and control of
the Company's Board of Directors, and the Sub-Adviser hereby accepts such
appointment, all subject to the terms and conditions contained herein.
1
<PAGE>
2. Investment Services. The specific duties of the Adviser
delegated to the Sub-Adviser shall be the following:
(a) obtaining and evaluating pertinent information
about significant developments and economic, statistical and
financial data, domestic, foreign or otherwise, whether affecting
the economy generally or the Funds specifically, and whether
concerning the individual issuers whose securities are included in
the Funds or the activities in which such issuers engage, or with
respect to securities which the Adviser or Sub-Adviser considers
desirable for inclusion in the Funds;
(b) investing and reinvesting, on an ongoing basis,
assets held in the Funds in strict accordance with the investment
policies of the Funds as set forth in the registration statement
of the Company with respect to the Funds, as the same may be
amended from time to time;
(c) in accordance with policies and procedures
established by the Board of Directors of the Company and the
Adviser, selecting brokers and dealers to execute portfolio
transactions for the Funds and selecting the markets on or in
which the transactions will be executed;
(d) voting, either in person or by general or
limited proxy, or refraining from voting, any securities held in
the Funds for any purposes; exercising or selling any subscription
or conversion rights; consenting to and joining in or opposing any
voting trusts, reorganizations, consolidations, mergers,
foreclosures and liquidations and in connection therewith,
depositing securities, and accepting other property received
therefor; and
(e) performing other acts necessary or appropriate
in connection with the proper management of the Funds, consistent
with its obligations hereunder, and as may be directed by the
Adviser and/or the Company's Board of Directors.
3. Control by Board of Directors. As is the case with respect to
the Adviser under the Investment Advisory Agreement, any investment activities
undertaken by the Sub-Adviser pursuant to this Agreement, as well as any other
activities undertaken by the Sub-Adviser with respect to the Funds, shall at all
times be subject to any directives of the Board of Directors of the Company.
4. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Sub-Adviser shall at all times conform
to:
(a) all applicable provisions of the 1940 Act,
the Advisers Act and any rules and regulations adopted thereunder;
2
<PAGE>
(b) the provisions of the registration statement
of the Company applicable to the Funds, as the same may be amended
from time to time, under the Securities Act of 1933 and the 1940
Act;
(c) the provisions of the Articles of
Incorporation of the Company, as the same may be amended from time
to time;
(d) the provisions of the By-Laws of the
Company, as the same may be amended from time to time;
(e) any other applicable provisions of state or
federal law.
In addition, any code of ethics adopted by the Sub-Adviser
pursuant to Rule 17j-1 under the 1940 Act shall include policies, prohibitions
and procedures which substantially conform to the recommendations regarding
personal investing approved by the Board of Governors of the Investment Company
Institute on June 30, 1994, as such recommendations may be amended from time to
time.
5. Broker-Dealer Relationships. The Sub-Adviser is responsible for
the purchase and sale of securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates. The Sub-Adviser's primary
consideration in effecting a security transaction will be to obtain the best
price and execution. In selecting a broker-dealer to execute each particular
transaction for a Fund, the Sub-Adviser will take the following into
consideration: the best net price available, the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the Fund on a continuing basis. Accordingly, the price to the
Fund in any transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered. Subject to such policies as the Adviser or
the Company's Board of Directors may from time to time determine, the
Sub-Adviser shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of having caused a
Fund to pay a broker or dealer that provides brokerage and research services to
the Sub-Adviser an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Sub-Adviser determines in
good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer,
viewed in terms of either that particular transaction or the overall
responsibilities of the Sub-Adviser with respect to the Fund and to other
clients of the Sub-Adviser. The Sub-Adviser is further authorized to allocate
the orders placed by it on behalf of the Funds to brokers and dealers who also
provide research or statistical material, or other services to the Funds or to
the Sub-Adviser. Such allocation shall be in such amounts and proportions as the
Sub-Adviser shall determine and the Sub-Adviser will report on said allocations
regularly to the Adviser and to the Board of Directors of the
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<PAGE>
Company indicating the brokers to whom such allocations have been made and the
basis therefor.
6. Compensation. The Adviser shall pay the Sub-Adviser, as
compensation for services rendered hereunder, fees, payable monthly, at the
annual rates indicated on Schedule I hereto, as such Schedule may be amended or
supplemented from time to time. It is understood that the Adviser shall be
responsible for the Sub-Adviser's fee for its services hereunder, and the
Sub-Adviser agrees that it shall have no claim against the Company or the Fund
with respect to compensation under this Agreement.
The average daily net asset value of the Funds shall be determined
in the manner set forth in the Articles of Incorporation and registration
statement of the Company, as amended from time to time.
7. Expenses of the Funds. All of the ordinary business expenses
incurred by the Company in the operations of the Funds and the offering of their
shares shall be borne by the Funds unless specifically provided otherwise in
this Agreement. These expenses borne by the Funds include but are not limited to
brokerage commissions, taxes, legal, auditing, or governmental fees, the cost of
preparing share certificates, custodian, transfer agent and shareholder service
agent costs, expenses of issue, sale, redemption and repurchase of shares,
directors and shareholder meetings, the cost of preparing and distributing
reports and notices to shareholders, the fees and other expenses incurred by the
Funds in connection with membership in investment company organizations and the
cost of printing copies of prospectuses and statements of additional information
distributed to the Funds' shareholders.
8. Expense Limitation. If, for any fiscal year of a Fund, the
amount of the aggregate advisory fee which the Company would otherwise be
obligated to pay with respect to the Fund is reduced pursuant to expense
limitation provisions of the Investment Advisory Agreement, the fee which the
Sub-Adviser would otherwise receive pursuant to this Agreement shall be reduced
proportionately.
9. Non-Exclusivity. The services of the Sub-Adviser to the Adviser
and the Company with respect to the Fund are not to be deemed to be exclusive,
and the Sub-Adviser shall be free to render investment advisory and
administrative or other services to others (including other investment
companies) and to engage in other activities. It is understood and agreed that
the officers and directors of the Sub-Adviser are not prohibited from engaging
in any other business activity or from rendering services to any the person, or
from serving as partners, officers, directors or trustees of any other firm or
trust, including other investment advisory companies.
10. Records. The Sub-Adviser shall provide to the Adviser, with
respect to the orders the Sub-Adviser places for the purchases and sales of
portfolio securities of the Funds, the documents and records required pursuant
to Rule 31a-1 under the 1940 Act as well as such records as the Funds'
administrator reasonably requests to be maintained,
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including, but not limited to, trade tickets and confirmations for portfolio
trades. All such records shall be maintained in a form acceptable to the
Funds and in compliance with the provisions of Rule 31a-1. All such records
will be the property of the Funds and will be available for inspection and use
by the Funds. The Sub-Adviser will promptly notify the Adviser and the Fund's
administrator if it experiences any difficulty in providing the records in an
accurate and complete manner.
11. Term and Approval. This Agreement shall become effective with
respect to each Fund as of the date first set forth above and shall thereafter
continue in force and effect for one year, and may be continued from year to
year with respect to each Fund thereafter, provided that the continuation of the
Agreement is specifically approved at least annually:
(a) (i) by the Company's Board of Directors or (ii) by the
vote of "a majority of the outstanding voting securities" of the
Fund (as defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the Directors
of the Company who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of a party to
this Agreement (other than as Directors of the Company), by votes
cast in person at a meeting specifically called for such purpose.
12. Termination. This Agreement may be terminated at any time with
respect to a Fund, without the payment of any penalty, by vote of the Company's
Board of Directors or by vote of a majority of the Fund's outstanding voting
securities, or by the Adviser, or by the Sub-Adviser on sixty (60) days' written
notice to the other parties to this Agreement. Any party entitled to notice may
waive the notice provided for herein. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for purposes of
this paragraph having the meaning defined in Section 2(a)(4) of the 1940 Act.
13. Liability of Sub-Adviser. In the absence of willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties hereunder on the part of the Sub-Adviser or any of its officers,
directors, employees or agents, the Sub-Adviser shall not be subject to
liability to the Adviser or to the Company for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security.
14. Indemnification. In the absence of willful misfeasance, bad
faith, negligence or reckless disregard of duties hereunder on the part of the
Sub-Adviser, or any officers, directors, employees or agents thereof, the
Company hereby agrees to indemnify and hold harmless the Sub-Adviser against all
claims, actions, suits or proceedings at law or in equity whether brought by a
private party or a governmental department, commission, board, bureau, agency or
instrumentality of any kind, arising from the
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advertising, solicitation, sale, purchase or pledge of securities, whether
of the Funds or other securities, undertaken by the Funds, their officers,
directors, employees, agents or affiliates, resulting from any violations
of the securities laws, rules, regulations, statutes and codes, whether
federal or of any state, by the Funds, their officers, directors, employees or
affiliates. Federal and state securities laws impose liabilities under certain
circumstances on persons who act in good faith, and nothing herein shall
constitute a waiver or limitation of any rights which a Fund may have and which
may not be waived under any applicable federal and state securities laws.
15. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to such address as may be
designated for the receipt of such notice, with a copy to the Company. Until
further notice, it is agreed that the address of the Company shall be 111 Center
Street, Little Rock, Arkansas 72201; that of the Sub-Adviser shall be One
NationsBank Plaza, Charlotte, North Carolina 28255; and that of the Adviser
shall be One NationsBank Plaza, Charlotte, North Carolina 28255.
16. Questions of Interpretation. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act or the Advisers Act shall be
resolved by reference to such term or provision of the 1940 Act or the Advisers
Act and to interpretations thereof, if any, by the United States courts or in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the Commission issued pursuant to the 1940 Act or the Advisers Act.
In addition, where the effect of a requirement of the 1940 Act or the Advisers
Act reflected in any provision of this Agreement is revised by rule, regulation
or order of the Commission, such provision shall be deemed to incorporate the
effect of such rule, regulation or order.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in triplicate by their respective officers on the day and year
first written above.
NATIONS FUND, INC.,
on behalf of the Funds
Attest:
_________________________ By: __/S/ A. Max Walker
Name:____________________ _______________________
A. Max Walker
President
NATIONSBANC ADVISORS, INC.
Attest:
_________________________ By: __/S/ Mark H. Williamson
Name:____________________ _________________________
Mark H. Williamson
President and Director
TRADESTREET INVESTMENT ASSOCIATES, INC.
Attest:
_________________________ By: __/S/ Andrew M. Silton
Name:____________________ _________________________
Andrew M. Silton
President and Director
7
<PAGE>
SCHEDULE I
Fund Rate of Compensation
Nations Prime Fund 0.055%
Nations Treasury Fund 0.055%
Nations Equity Income Fund 0.20%
Nations Government Securities Fund 0.15%
8
<PAGE>
<PAGE>
EX-99.B5(k)
SUB-ADVISORY AGREEMENT
NATIONS FUND, INC.
THIS AGREEMENT is made this 1st day of January, 1996, by and
among NationsBanc Advisors, Inc., a North Carolina corporation (the
"Adviser"), Nations Gartmore Investment Management, a general
partnership organized under the laws of the State of Delaware (the
"Sub-Adviser"), and Nations Fund, Inc. (the "Company"), on behalf of the
portfolio or portfolios of the Company as now or hereafter may be
identified on Schedule I hereto (each a "Fund" and collectively, the
"Funds").
RECITALS
WHEREAS, the Company is a Maryland corporation registered
under the Investment Company Act of 1940, as amended (the "1940 Act") as
an open-end, series management investment company; and
WHEREAS, the Adviser is a national bank that serves as
investment adviser to other registered investment companies and various
investment accounts; and
WHEREAS, the Sub-Adviser is registered under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), as an investment
adviser and engages in the business of acting as an investment adviser,
and is regulated by the Investment Management Regulatory Organization
Limited ("IMRO") of the United Kingdom in the conduct of its investment
business and is a member of IMRO; and
WHEREAS, the Adviser and the Company have entered into an
Investment Advisory Agreement of even date herewith (the "Investment
Advisory Agreement"), pursuant to which the Adviser shall act as
investment adviser with respect to the Funds; and
WHEREAS, pursuant such Investment Advisory Agreement, the
Adviser, with the approval of the Company, wishes to retain the
Sub-Adviser for purposes of rendering advisory services to the Adviser
and the Company in connection with the Funds upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, the receipt
whereof is hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Adviser. The Adviser hereby appoints,
and the Company hereby approves, the Sub-Adviser to render investment
research and advisory services to the Adviser and the Company with
respect to the Funds, under the supervision of the Adviser and
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<PAGE>
subject to the policies and control of the Company's Board of Directors,
and the Sub-Adviser hereby accepts such appointment, all subject to the
terms and conditions contained herein.
2. Investment Services. The specific duties of the Adviser
delegated to the Sub-Adviser shall be the following:
(a) obtaining and evaluating pertinent information about
significant developments and economic, statistical and financial
data, domestic, foreign or otherwise, whether affecting the economy
generally or the Funds specifically, and whether concerning the
individual issuers whose securities are included in the Funds or the
activities in which such issuers engage, or with respect to
securities which the Adviser or Sub-Adviser considers desirable for
inclusion in the Funds;
(b) investing and reinvesting, on an ongoing basis, assets
held in the Funds in strict accordance with the investment policies
of the Funds as set forth in the registration statement of the
Company with respect to the Funds, as the same may be amended from
time to time;
(c) in accordance with policies and procedures established
by the Board of Directors of the Company and the Adviser, selecting
brokers and dealers to execute portfolio transactions for the Funds
and selecting the markets on or in which the transactions will be
executed;
(d) voting, either in person or by general or limited proxy,
or refraining from voting, any securities held in the Funds for any
purposes; exercising or selling any subscription or conversion
rights; consenting to and joining in or opposing any voting trusts,
reorganizations, consolidations, mergers, foreclosures and
liquidations and in connection therewith, depositing securities, and
accepting and holding other property received therefor; and
(e) performing other acts necessary or appropriate in
connection with the proper management of the Funds, consistent with
its obligations hereunder, and as may be directed by the Adviser
and/or the Company's Board of Directors.
3. Control by Board of Directors. As is the case with
respect to the Adviser under the Investment Advisory Agreement, any
investment activities undertaken by the Sub-Adviser pursuant to this
Agreement, as well as any other activities undertaken by the Sub-Adviser
with respect to the Funds, shall at all times be subject to any
directives of the Board of Directors of the Company.
4. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Sub-Adviser shall at all times
conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder;
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<PAGE>
(b) the provisions of the registration statement of the
Company applicable to the Funds, as the same may be amended from
time to time, under the Securities Act of 1933 and the 1940 Act;
(c) the provisions of the Articles of Incorporation of the
Company, as the same may be amended from time to time;
(d) the provisions of the By-Laws of the Company, as the
same may be amended from time to time;
(e) any other applicable provisions of state or federal law;
and
(f) the Conduct of Business Rules of IMRO ("IMRO Rules") to
the extent that the IMRO Rules are not inconsistent with any
applicable requirements under the 1940 Act, the Advisers Act or
other United States federal or state law.
In addition, any code of ethics adopted by the Sub-Adviser
pursuant to Rule 17j-1 under the 1940 Act shall include policies,
prohibitions and procedures which substantially conform to the
recommendations regarding personal investing approved by the Board of
Governors of the Investment Company Institute on June 30, 1994, as such
recommendations may amended from time to time.
5. Compensation. The Adviser shall pay the Sub-Adviser, as
compensation for services rendered hereunder, fees, payable monthly, at
the annual rates indicated on Schedule I hereto, as such Schedule may be
supplemented and amended from time to time. It is understood that the
Adviser shall be responsible for the Sub-Adviser's fee for its services
hereunder, and the Sub-Adviser agrees that it shall have no claim
against the Company or the Fund with respect to compensation under this
Agreement.
The average daily net asset value of the Funds shall be
determined in the manner set forth in the Articles of Incorporation and
registration statement of the Company, as amended from time to time.
6. Expenses of the Funds. All of the ordinary business expenses
incurred by the Sub-Adviser in the operations of the Funds and the
offering of their shares shall be borne by the Funds unless specifically
provided otherwise in this Agreement. These expenses borne by the Funds
include but are not limited to brokerage commissions, taxes, legal,
auditing, or governmental fees, the cost of preparing share
certificates, custodian, transfer agent and shareholder service agent
costs, expenses of issue, sale, redemption and repurchase of shares,
directors and shareholder meetings, the cost of preparing and
distributing reports and notices to shareholders, the fees and other
expenses incurred by the Funds in connection with membership in
investment company organizations and the cost of printing copies of
prospectuses and statements of additional information distributed to the
Funds' shareholders.
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<PAGE>
7. Expense Limitation. If, for any fiscal year a Fund, the
amount of the aggregate advisory fee which the Company would otherwise
be obligated to pay with respect to the Fund is reduced pursuant to
expense limitation provisions of the Investment Advisory Agreement, the
fee which the Sub-Adviser would otherwise receive pursuant to this
Agreement shall be reduced proportionately.
8. Non-Exclusivity. The services of the Sub-Adviser to the
Adviser and the Company with respect to the Fund are not to be deemed to
be exclusive, and the Sub-Adviser shall be free to render investment
advisory and administrative or other services to others (including other
investment companies) and to engage in other activities. It is
understood and agreed that the officers and directors of the Sub-Adviser
are not prohibited from engaging in any other business activity or from
rendering services to any the person, or from serving as partners,
officers, directors or trustees of any other firm or trust, including
other investment advisory companies.
9. Records. The Sub-Adviser shall provide to the Adviser, with
respect to the orders the Sub-Adviser places for the purchases and sales
of portfolio securities of the Funds, the documents and records required
pursuant to Rule 31a-1 under the 1940 Act as well as such records as the
Funds' administrator reasonably requests to be maintained, including,
but not limited to, trade tickets and confirmations for portfolio
trades. All such records shall be maintained in a form acceptable to
the Funds and in compliance with the provisions of Rule 31a-1. All such
records will be the property of the Funds and will be available for
inspection and use by the Funds. The Sub-Adviser will promptly notify
the Adviser and the Fund's administrator if it experiences any
difficulty in providing the records in an accurate and complete manner.
10. Term and Approval. This Agreement shall become effective
with respect to each Fund as of the date first set forth above and shall
thereafter continue in force and effect for two years, and may be
continued from year to year with respect to each Fund thereafter,
provided that the continuation of the Agreement is specifically approved
at least annually:
(a)(i) by the Company's Board of Directors or (ii) by the
vote of "a majority of the outstanding voting securities" of the
Fund (as defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the Directors
of the Company who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of a party to this Agreement
(other than as Directors of the Company), by votes cast in person at
a meeting specifically called for such purpose.
11. Termination. This Agreement may be terminated at any
time with respect to a Fund, without the payment of any penalty, by vote
of the Company's Board of Directors or by vote of a majority of the
Fund's outstanding voting securities, or by the Adviser, or by the
Sub-Adviser on sixty (60) days' written notice to the other parties to
this Agreement. Any party entitled to notice may waive the notice
provided for herein. This Agreement shall automatically
4
<PAGE>
terminate in the event of its assignment, the term "assignment" for
purposes of this paragraph having the meaning defined in Section 2(a)(4)
of the 1940 Act.
12. Liability of Sub-Adviser. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Sub-Adviser or any of
its officers, directors, employees or agents, the Sub-Adviser shall not
be subject to liability to the Adviser or to the Company for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
13. Indemnification. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of duties hereunder on the
part of the Sub-Adviser, or any officers, directors, employees or agents
thereof, the Company hereby agrees to indemnify and hold harmless the
Sub-Adviser against all claims, actions, suits or proceedings at law or
in equity whether brought by a private party or a governmental
department, commission, board, bureau, agency or instrumentality of any
kind, arising from the advertising, solicitation, sale, purchase or
pledge of securities, whether of the Funds or other securities,
undertaken by the Funds, their officers, directors, employees, agents or
affiliates, resulting from any violations of the securities laws, rules,
regulations, statutes and codes, whether federal or of any state, by the
Funds, their officers, directors, employees or affiliates.
14. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to such address
as may be designated for the receipt of such notice, with a copy to the
Company. Until further notice, it is agreed that the address of the
Company shall be 111 Center Street, Little Rock, Arkansas 72201; that of
the Sub-Adviser shall be One NationsBank Plaza, Charlotte, North
Carolina 28255; and that of the Adviser shall be One NationsBank Plaza,
Charlotte, North Carolina 28255.
15. Questions of Interpretation. Any question of interpretation
of any term or provision of this Agreement having a counterpart in or
otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or in the
absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued
pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement
is revised by rule, regulation or order of the Securities and Exchange
Commission, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
16. IMRO Rules. Addendum A attached hereto sets forth certain
requirements under the IMRO Rules which are applicable to the
Sub-Adviser, that are expressly incorporated herein and made a part
hereof, but only to the extent that such requirements are not
inconsistent with any applicable requirements under the 1940 Act, the
Advisers Act or other United States federal or state law.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in triplicate by their respective officers on
the day and year first written above.
NATIONS FUND, INC.,
on behalf of the Funds
Attest:
By: /S/ A. Max Walker
Name:
A. Max Walker
President
NATIONSBANC ADVISORS, INC.
Attest:
By: /S/ Mark H. Williamson
Name:
Mark H. Williamson
President and Director
NATIONS GARTMORE INVESTMENT
MANAGEMENT
Attest:
By: /S/ Charles G. Smith IV
Name:
Charles G. Smith IV
President
6
<PAGE>
SCHEDULE I
Fund Rate of Compensation
1. Nations International Equity Fund 0.70% of average daily net assets
7
<PAGE>
ADDENDUM A
1. To the extent that the Sub-Adviser receives any commissions or other
forms of remuneration, directly or indirectly, in connection with
Fund transactions, no portion of the Sub-Adviser's accrued
investment advisory fee shall be abated thereby.
2. Subject to the supervision of the Adviser and the policies and
ultimate control of the Company's Board of Directors, the
Sub-Adviser shall advise the Company and the Adviser on the
management of the Funds' investments in accordance with the terms of
this Agreement and in accordance with the investment parameters
(including, inter aha, percentage limitations, quality standards,
investment selection criteria and types of permissible investments
and investment techniques, such as borrowing, options and futures
transactions, portfolio securities lending, etc.) established
pursuant to the investment objectives, policies and restrictions
specifically embodied in the Company's Registration Statement on
Form N-lA, and any amendments thereto, under the Securities Act of
1933 and the 1940 Act (the "Fund's Registration Statement").
3. The Sub-Adviser shall not have or maintain custody of any
securities, cash or other assets of the Funds. Custody of the Funds'
assets will be maintained by the custodian bank pursuant to an
agreement approved by the Funds' Board of Directors. It is expected
that such custodian, or any successor thereto, will not be an
"Associate" of the Sub-Adviser as that term is defined under IMRO
Rules.
4. In the event the Funds or the Adviser has a significant complaint
regarding the services provided by the Sub-Adviser under the
Sub-Advisory Agreement by and among the Company, the Adviser and the
Sub-Adviser, a Fund officer should communicate such complaint to the
Sub-Adviser, whereupon such complaint will be recorded on a standard
form prepared by the Sub-Adviser for such purposes. The
Sub-Adviser's complaints procedure requires that if a complaint has
not been cleared within twenty-one (21) days, the Sub-Adviser must
so advise IMRO and the Fund also must be advised that it has the
right to issue its complaint directly with a referee appointed by
IMRO.
5. The Sub-Adviser will provide to the Funds' Board of Directors
written financial reports and analyses on the Funds' securities
transactions and the operations of comparable investment companies
on a quarterly basis or more frequently as requested by the Board of
Directors. Such reports and analyses shall include information as at
the last day of an applicable reporting period.
6. The Funds may from time to time request or instruct the Sub-Adviser,
directly or through the Adviser, to act or not to act regarding
certain Fund-related investment and/or operational matters. Such
request or instructions will be communicated orally or in writing to
the Sub- Adviser, directly or through the Adviser and will be
acknowledged in the same manner in which they are communicated. To
the extent that a particular request or instruction is, or may be,
refused (i.e., because it (a) is in contravention of (i) a law or
regulation, (ii) an investment policy of the Fund, or (iii) a
provision of this Agreement or (b) is not operationally feasible),
such refusal shall be communicated by the Sub-Adviser, including
through the Adviser, and the Fund
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<PAGE>
and the Sub-Adviser, upon advice of counsel, shall discuss
altematives and detemmine an appropriate course of action which will
be reported to the full Board at the next meeting of the Fund's
Board of Directors for its approval.
7. Notwithstanding that all required disclosure conceming the risks
associated with the Funds' pemmissible investments and investment
techniques is included in the Funds' Registration Statement, which
Statement is intended for review by the investors in the Funds and
to be retained by them for future reference, with respect to the
Funds' specified use of options and futures transactions, the
following shall be specifically noted herein:
"Options and futures markets can be highly volatile and
transactions of this type carry a high risk of loss. Moreover, a
relatively small adverse market movement with respect to these
types of transactions may result not only in loss of the
original investment but also in unquantifiable further loss
exceeding any margin deposited."
Further, in managing the Funds' assets, the Sub-Adviser shall
consider the risks associated with the Fund's pemmissible
investments and investment techniques.
8. The Sub-Adviser or its representatives may from time to time
recommend to the Funds or effect on behalf of the Funds with respect
to Fund transactions in securities the subject of a recent new
issue, the price of which transactions may have been influenced by
bids made or transactions effected for the purpose of stabilizing
the price of those securities. Such transactions would at all times
be effected in accordance with the provisions of IMRO Rule 14 and,
in particular, with the conditions of the IMRO Rule 14.02, including
the requirement that the Sub-Adviser, with respect to any specific
transaction, communicate to the Fund orally or in writing a
statement in a fomm substantially similar to that which is set forth
in IMRO Rule 1 4.02(c). In addition, with respect to these
transactions, it is understood when executing this Agreement and
thereafter when approving the continuance of this Agreement in
accordance with its temms, that management of the Fund has carefully
read the following paragraphs in order to enable Fund management to
judge whether it wishes a Fund's assets to be invested at all in
such securities or, if so, whether it wishes to authorize the
Sub-Adviser generally to effect transactions in such securities on
behalf of the Fund without further reference to Fund management or
whether Fund management wishes to be consulted before any particular
transaction is effected on behalf of the Fund.
Stabilization is a process whereby the market price of a security is
pegged or fixed during the period in which a new issue of securities
is sold to the public. Stabilization may take place in the new issue
or in other securities related to the new issue in such a way that
the price of the other securities may affect the price of the new
issue or vice versa.
The reason stabilization is pemmitted is that when a new issue is
brought to market the sudden glut will sometimes force the price
lower for a period of time before buyers are found for the
securities on offer.
As long as it obeys a strict set of rules, the "stabilizing
manager," nommally the issuing house chiefly responsible for
bringing a new issue to market, is entitled to buy securities in
the market
9
<PAGE>
that it has previously sold to investors or allotted to
institutions who were included in the new issue but who have
decided not to continue participating. The effect of this may be
to keep the price at a higher level than would otherwise be the
case during the period of stabilizing.
The rules referred to above in the immediately preceding paragraph
limit the period in which the stabilizing manager may stabilize,
fix the price at which it may stabilize (in the case of shares and
warrants but not bonds), and require the stabilizing manager to
disclose that it may be (but not that it is) stabilizing. The fact
that a new issue or a related security is being stabilized does
not in itself mean that investors are not interested in the issue,
but neither should the existence of transactions in an issue where
the stabilizing may take place be relied upon as an indication
that investors are interested in the new issue or interested in
purchasing at the price at which transactions are taking place.
9. A report containing the Funds' financial statements (including the
contents and valuation of the Funds) shall be submitted to
shareholders and to the Securities and Exchange Commission at
least semi-annually. Such reports shall include infommation as at
the last day of any semi-annual period for which such reports
relate. To the extent that any perfommance infommation is included
in such report, it shall confomm to the standards set forth in the
Funds' Registration Statement.
10. Except as pemmitted by or pursuant to Section 17 of the 1940 Act
and the Rules promulgated thereunder, the Sub-Adviser, or an
"affiliate" thereof (as that temm is defined in the 1940 Act), may
not effect transactions: (i) with or for the Funds in which the
Sub-Adviser or such affiliate has directly or indirectly a
material interest or a relationship of any kind with another party
which may involve a conflict with the Sub-Adviser's
responsibilities to the Funds as a sub-investment adviser; or (ii)
with or through the agency or another person with whom the
Sub-Adviser or such affiliate maintains an arrangement as
described in Rule 6.01 of Chapter IV of the IMRO Rules.
11. Upon termination of the Sub-Advisory Agreement by and among the
Company, the Adviser and the Sub-Adviser, unless otherwise
directed by the Fund's Board of Directors, all securities
positions and other portfolio transactions then in progress shall
be transferred to the successor investment adviser selected by the
Board of Directors.
12. The Sub-Adviser shall be entitled at its discretion to disclose
any infommation known to it relating to the Fund's business or
affairs to the Securities and Investment Board or to IMRO on the
temms that the infommation so disclosed shall not without its
consent be further disclosed otherwise than is pemmitted in
respect of Restricted Infommation under the provisions of Part
VIII of the Financial Services Act of 1986.
10
<PAGE>
EX-99.B6(d)
SHAREHOLDER ADMINISTRATION AGREEMENT
NATIONS FUND, INC.
TRUST B SHARES
Ladies and Gentlemen:
We wish to enter into this Shareholder Administration Agreement
("Agreement") with you concerning the provision of administrative
support services to your clients ("Customers") who may from time to time
beneficially own Trust B Shares in certain portfolios (as listed on
Exhibit I) (the "Funds") of Nations Fund, Inc. (the "Company").
The terms and conditions of this Agreement are as follows:
Section 1. You agree to provide the following administrative
support services to your Customers who may from time to time
beneficially own Trust B Shares: (i) aggregating and processing purchase
and redemption requests for Trust B Shares from Customers and
transmitting promptly net purchase and redemption orders to our
distributor or transfer agent; (ii) providing Customers with a service
that invests the assets of their accounts in Trust B Shares pursuant to
specific or pre-authorized instructions; (iii) processing dividend and
distribution payments from the Company on behalf of Customers; (iv)
providing information periodically to Customers showing their positions
in Trust B Shares; (v) arranging for bank wires; (vi) responding to
Customers' inquiries concerning their investment in Trust B Shares;
(vii) providing subaccounting with respect to Trust B Shares
beneficially owned by Customers or the information to us necessary for
subaccounting; (viii) if required by law, forwarding shareholder
communications from us (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax
notices) to Customers; (ix) forwarding to Customers proxy statements and
proxies containing any proposals regarding this Agreement; (x) providing
employee benefit plan recordkeeping, administration, custody and trustee
services; (xi) general shareholder liaison services; and (xii) providing
such other similar services as we may reasonably request to the extent
you are permitted to do so under applicable statutes, rules or
regulations. All services rendered hereunder by you shall be performed
in a professional, competent and timely manner.
Section 2. You will perform only those activities which are
consistent with statutes and regulations applicable to you. You will
act solely as agent or, upon the order of, and for the account of, your
Customers.
Section 3. You will provide such office space and equipment,
telephone facilities and personnel (which may be any part of the space,
equipment and facilities currently used in your
- --------------
1 Services may be modified or omitted in the particular case and items
relettered or renumbered.
<PAGE>
business, or any personnel employed by you) as may be reasonably
necessary or beneficial in order to provide the administrative support
services contemplated hereby.
Section 4. Neither you nor any of your officers, employees or
agents are authorized to make any representations concerning us or the
Trust B Shares except those contained in our then current prospectuses
and statements of additional information, as amended or supplemented
from time to time, copies of which will be supplied by us to you, or in
such supplemental literature or advertising as may be authorized by the
Distributor or us in writing.
Section 5. For all purposes of this Agreement you will be deemed
to be an independent contractor, and will have no authority to act as
agent for us in any matter or in any respect, except as provided herein.
By your written acceptance of this Agreement, you agree to and do
release, indemnify and hold us harmless from and against any and all
direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder or the
purchase, redemption, transfer or registration of Trust B Shares (or
orders relating to the same) by or on behalf of Customers. You and your
employees will, upon request, be available during normal business hours
to consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 6. In consideration of the services and facilities
provided by you hereunder, we will pay to you, and you will accept as
full payments therefor, a fee as described in the applicable then
current prospectuses. The fee rate payable to you may be prospectively
increased or decreased by us, in our sole discretion, at any time upon
notice to you. Further, we may, in our discretion and without notice,
suspend or withdraw the sale of Trust B Shares of any and all Funds,
including the sale of Trust B Shares to you for the account of any
Customer or Customers. Compensation payable under this Agreement is
subject to, among other things, the National Association of Securities
Dealers, Inc. ("NASD") Rules of Fair Practice governing receipt by NASD
members of service fees from registered investment companies. In this
regard, in no event may the portion of any fee payable hereunder that
constitutes a "service fee," as that term is defined in Article III,
Section 26(b)(9) of the NASD's Rules of Fair Practice, exceed 0.25% of
the average daily net asset value of the Trust B Shares of a Fund.
Section 7. You agree to provide to us at least quarterly, a
written report of the amounts expended by you in connection with the
provision of administrative support services hereunder and the purposes
for which such expenditures were made. In addition, you will furnish us
or our designees with such information as we or they may reasonably
request (including, without limitation, periodic certifications
confirming the provision to Customers of the services described herein),
and will otherwise cooperate with us and our designees (including,
without limitation, any auditors or legal counsel designated by us), in
connection with the preparation of reports to our Board of Directors
concerning this Agreement and the monies paid or payable by us pursuant
hereto, as well as any other reports or filings that may be required by
law.
Section 8. We may enter into other similar Agreements with any
other person or persons without your consent.
2
<PAGE>
Section 9. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) in no event will any of the
services provided by you hereunder be primarily intended to result in
the sale of any shares issued by us; (ii) the compensation payable to
you hereunder, together with any other compensation you receive in
connection with the investment of your Customers' assets in Trust B
Shares of the Funds, will be disclosed by you to your Customers to the
extent required by applicable laws or regulations, will be authorized by
your Customers and will not result in an excessive or unreasonable fee
to you and (iii) in the event an issue pertaining to this Agreement is
submitted for shareholder approval, and you have the authority from your
Customer to do so, you will vote any Trust B Shares held for your own
account in the same proportion as the vote of the Trust B Shares held
for your Customers' benefit.
Section 10. You agree to conform to compliance standards adopted
by the Company or its distributor as to when a class of shares in a Fund
may be appropriately sold to particular investors.
Section 11. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by us or our designee
and continues in effect until terminated. This Agreement is terminable
with respect to any series of Trust B Shares, without penalty, at any
time by us (which termination may be by a vote of a majority of the
disinterested Directors of the Company) or by you upon written notice to
the other party hereto.
Section 12. All notices and other communications to either you or
us will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device to the appropriate address or number
stated herein (with a confirming copy by mail), or to such other address
as either party shall so provide in writing to the other.
Section 13. This Agreement will be construed in accordance with
the internal laws of The State of Maryland without giving effect to
principles of conflict of laws, and is nonassignable by the parties
hereto.
3
<PAGE>
If you agree to be legally bound by the provisions of this
Agreement, please sign a copy of this letter where indicated below and
promptly return it to us, at the following address: 111 Center Street,
Little Rock, Arkansas 72201; Fax No. (501) 377-2331; Attention: Mr.
Richard H. Blank, Jr.
Very truly yours,
NATIONS FUND, INC.
Date: ____________________ By: _____________________________
Name: ___________________________
Title: ____________________________
Accepted and Agreed to:
Servicing Agent
----------------------------------
(Firm Name)
----------------------------------
(Address)
----------------------------------
(City) (State) (County)
Fax No.______________________
Attention:___________________
Date: ____________________ By: _____________________________
Name: ___________________________
Title: ____________________________
4
<PAGE>
EXHIBIT I
NATIONS FUND, INC.
Nations Equity Income Fund
Nations International Equity Fund
Nations Government Securities Fund
5
<PAGE>
EX-99.B6(e)
SHAREHOLDER ADMINISTRATION AGREEMENT
NATIONS FUND
TRUST B SHARES
Ladies and Gentlemen:
We wish to enter into this Shareholder Administration Agreement
("Agreement") with you concerning the provision of administrative
support services to your clients ("Customers") who may from time to time
beneficially own Trust B Shares in one or more of the portfolios
(collectively, the "Funds") listed on Schedule I of Nations Fund Trust,
Nations Fund, Inc. and Nations Fund Portfolios, Inc. (collectively,
"Nations Fund"). The shares listed on Schedule I are collectively
referred to herein as "Shares." The terms and conditions of this
Agreement are as follows:
1. Provision of Shareholder Services.
(a) You agree to provide the following administrative support
services to your Customers who may from time to time beneficially own
Shares: (i) aggregating and processing purchase and redemption requests
for Shares from Customers and transmitting promptly net purchase and
redemption orders to our distributor or transfer agent; (ii) providing
Customers with a service that invests the assets of their accounts in
Shares pursuant to specific or pre-authorized instructions; (iii)
processing dividend and distribution payments from Nations Fund on
behalf of Customers; (iv) providing information periodically to
Customers showing their positions in Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their
investment in Shares; (vii) providing subaccounting with respect to
Shares beneficially owned by Customers or the information to us
necessary for subaccounting; (viii) if required by law, forwarding
shareholder communications from us (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (ix) forwarding to Customers
proxy statements and proxies containing any proposals regarding this
Agreement; (x) employee benefit plan recordkeeping, administration,
custody and trustee services; (xi) general shareholder liaison services;
and (xii) providing such other similar services as we may reasonably
request to the extent you are permitted to do so under applicable
statutes, rules or regulations.
(b) All services rendered hereunder by you shall be performed in
a professional, competent and timely manner.
(c) You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment
and facilities currently used in your business, or any personnel
employed by you) as may be reasonably necessary or beneficial in order
- ----------------
1 Services may be modified or omitted in the particular case and items
relettered or renumbered.
<PAGE>
to provide the administrative support services contemplated hereby. You
and your employees will, upon request, be available during normal
business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
(d) By your written acceptance of this Agreement, you represent,
warrant and agree that in no event will any of the services provided by
you hereunder be primarily intended to result in the sale of any shares
issued by us.
2. Adherence to Applicable Law.
You will perform only those activities which are consistent with
statutes and regulations applicable to you. You will act solely as
agent or, upon the order of, and for the account of, your Customers.
3. Representations Regarding Nations Fund and Shares.
Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us or the Shares
except those contained in our then current prospectuses and statements
of additional information, as amended or supplemented from time to time,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by our distributor or us
in writing.
4. Status of Servicing Agent.
(a) For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent
for us in any matter or in any respect, except as expressly provided
herein.
(b) We may, in our discretion and without notice, suspend or
withdraw the sale of Shares of any and all Funds, including the sale of
Shares to you for the account of any Customer or Customers.
5. Indemnification.
By your written acceptance of this Agreement, you agree to and do
release, indemnify and hold us harmless from and against any and all
direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder or the
purchase, redemption, transfer or registration of Shares (or orders
relating to the same) by or on behalf of Customers.
6. Compensation.
(a) In consideration of the services and facilities provided by
you hereunder, we will pay to you, and you will accept as full payment
therefor, a fee as described in the applicable then
2
<PAGE>
current prospectuses for the Shares. The fee rate payable to you may be
prospectively increased or decreased by us, in our sole discretion, at
any time upon notice to you.
(b) Compensation payable under this Agreement is subject to,
among other things, the National Association of Securities Dealers, Inc.
("NASD") Rules of Fair Practice governing receipt by NASD members of
service fees from registered investment companies. In this regard, in
no event may the portion of any fee payable hereunder that constitutes a
"service fee," as that term is defined in Article III, Section 26(b)(9)
of the NASD's Rules of Fair Practice, exceed 0.25% of the average daily
net asset value of the Shares of a Fund.
7. Reports.
You agree to provide to us at least quarterly, a written report of
the amounts expended by you in connection with the provision of
administrative support services hereunder and the purposes for which
such expenditures were made. In addition, you will furnish us or our
designees with such information as we or they may reasonably request
(including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and will
otherwise cooperate with us and our designees (including, without
limitation, any auditors or legal counsel designated by us), in
connection with the preparation of reports to our Boards of
Trustees/Directors concerning this Agreement and the monies paid or
payable by us pursuant hereto, as well as any other reports or filings
that may be required by law.
8. Agreement Not Exclusive.
We may enter into other similar Agreements with any other person or
persons without your consent.
9. Disclosure of Compensation.
You agree that the compensation payable to you hereunder, together
with any other compensation you receive in connection with the
investment of your Customers' assets in Shares of the Funds, will be
disclosed by you to your Customers to the extent required by applicable
laws or regulations, will be authorized by your Customers and will not
result in an excessive or unreasonable fee to you.
10. Voting of Shares.
You agree that in the event an issue pertaining to this Agreement
is submitted for shareholder approval, and you have the authority from
your Customers to do so, you will vote any Shares held for your own
account in the same proportion as the vote of the Shares held for your
Customers' benefit.
3
<PAGE>
11. Compliance Standards.
You agree to conform to compliance standards adopted by Nations
Fund or its distributor as to when a class of shares in a Fund may be
appropriately sold to particular investors.
12. Effective Date and Termination.
(a) This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee and
continues in effect until terminated.
(b) This Agreement is terminable with respect to any series of
Shares, without penalty, at any time by us (which termination may be by
a vote of a majority of the disinterested Trustees of Nations Fund
Trust, the disinterested Directors of Nations Fund, Inc., or
disinterested Directors of Nations Fund Portfolios, Inc., as
appropriate) or by you upon written notice to the other party hereto.
13. Communications.
All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address or number stated
herein (with a confirming copy by mail), or to such other address as
either party shall so provide in writing to the other.
14. Governing Law.
This Agreement will be construed in accordance with the internal
laws of the State of Maryland without giving effect to principles of
conflict of laws, and is nonassignable by the parties hereto.
15. Actions by Nations Fund Trust and Trustees.
The names "Nations Fund Trust" and "Trustees" refer respectively to
the trust created and the Trustees, as trustees but not individually or
personally, acting from time to time under a Declaration of Trust dated
May 6, 1985 which is hereby referred to and a copy of which is on file
at the office of the State Secretary of The Commonwealth of
Massachusetts and at the principal office of Nations Fund Trust. The
obligations of "Nations Fund Trust" entered into in the name or on
behalf thereof by any of the Trustees, officers, representatives or
agents are made not individually, but in such capacities, and are not
binding upon any of the Trustees, Shareholders, officers,
representatives or agents of the Trust personally, but bind only the
Trust Property (as defined in the Declaration of Trust), and all persons
dealing with any class of shares of Nations Fund Trust must look solely
to the Trust Property belonging to such class for the enforcement of any
claims against Nations Fund Trust.
4
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly
return it to us, at the following address: 111 Center Street, Little
Rock, AR; Fax No. (501) 377-2331; Attention: Mr. Richard H. Blank, Jr.
Very truly yours,
NATIONS FUND TRUST
Date: ____________________ By: ____________________
Name: __________________
Title: ___________________
NATIONS FUND, INC.
Date: ____________________ By: _____________________________
Name: ___________________________
Title: ____________________________
NATIONS FUND PORTFOLIOS, INC.
Date: ____________________ By: _____________________________
Name: ___________________________
Title: ____________________________
Accepted and Agreed to:
Servicing Agent
_________________________________
(Firm Name)
_________________________________
(Address)
_________________________________
(City) (State) (County)
5
<PAGE>
Fax No. _________________________
Attention: .________________________
Date: ____________________ By: ______________________________
Name: ____________________________
Title: _____________________________
6
<PAGE>
SCHEDULE I
Equity Funds
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
Nations Tax Managed Equity Fund
Balanced Fund
Nations Balanced Assets Fund
Bond Funds
Nations Short-Intermediate Government Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government Income Fund
7
EX.-99.B10
[MORRISON & FOERSTER LLP LETTERHEAD]
January 25, 1996
Nations Fund, Inc.
111 Center Street
Little Rock, AR 72201
Re: Shares of Common Stock in the Funds of the Nations Fund, Inc.
Gentlemen:
We refer to Post-Effective Amendment No. 28 to the Registration
Statement on Form N-1A (SEC File Nos. 33-4038; 811-4614) (the "Registration
Statement") of Nations Fund, Inc. (the "Company") relating to the registration
of an indefinite number of Shares of Common Stock in the Company (collectively,
the "Shares").
We have been requested by the Company to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined such records, documents, instruments, and certificates
of public officials and of the Company, made such inquiries of the Company, and
examined such questions of law as we have deemed necessary for the purpose of
rendering the opinion set forth herein. We have also verified with the Company's
transfer agent the maximum number of shares issued by the Company during the
fiscal period ended May 31, 1995. We have assumed the genuineness of all
signatures and the authenticity of all items submitted to us as originals and
the conformity with originals of all items submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Company have been duly and
validly authorized by all appropriate action, and assuming delivery by sale or
in accord with the Fund's dividend reinvestment plan in accordance with the
description set forth in the Registration Statement, as amended, the Shares will
be validly issued, fully paid and nonassessable.
<PAGE>
Nations Fund, Inc.
[MORRISON & FOERSTER LLP LETTERHEAD]
January 25, 1996
Page Two
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we hereby consent to the use of our name and to the
reference to our firm under the caption "Counsel" in the Statement of Additional
Information, and the description of advice rendered by our firm under the
heading "How The Funds Are Managed" in the Prospectuses, both of which are
included as part of the Registration Statement.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
<PAGE>
EX-99.B11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 28 under the Securities Act of 1933 to the registration statement
on Form N-1A (the "Registration Statement") of our report dated July 19, 1995,
relating to the financial statements and financial highlights appearing in the
May 31, 1995 Annual Report to Shareholders of Nations Fund, Inc., which is also
incorporated by reference into the Registration Statement. We also consent to
the reference to us under the heading "Other Service Providers" in the
Prospectuses and under the heading "Independent Accountants and Reports" in the
Statement of Additional Information.
/s/ Price Waterhouse
PRICE WATERHOUSE LLP
Boston, Massachusetts
January 24, 1996
<PAGE>
EX-99.B15(g)
NATIONS FUND, INC.
SHAREHOLDER ADMINISTRATION
PLAN ("PLAN") FOR TRUST B SHARES
Section 1. Each of the proper officers of Nations Fund, Inc. (the
"Company") is authorized to execute and deliver, in the name and on behalf of
the Company, written agreements based substantially on the form attached hereto
as Appendix A or any other form duly approved by the Company's Board of
Directors ("Agreements") with broker/dealers, banks and other financial
institutions that are dealers of record or holders of record or which have a
servicing relationship with the beneficial owners of Trust B Shares ("Servicing
Agents") in certain of the Company's Funds (as listed on Exhibit I) offering
such shares provided that any material modifications of services listed in the
Agreement shall be presented for approval or ratification by the Directors at
the next regularly scheduled Board Meeting. Pursuant to such Agreements,
Servicing Agents shall provide shareholder support services as set forth therein
to their clients who beneficially own Trust B Shares of the Funds in
consideration of a fee, computed monthly in the manner set forth in the
applicable Fund's then current prospectus, at an annual rate of up to 0.60% of
the average daily net asset value of the Trust B Shares beneficially owned by or
attributable to such clients, provided that in no event may the portion of such
fee that constitutes a "service fee," as that term is defined in Article III,
Section 26(b)(9) of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., exceed 0.25% of the average daily net asset value of
such Trust B Shares of a Fund. Affiliates of the Company's distributor,
administrator, co-administrator and adviser are eligible to become Servicing
Agents and to receive fees under this Plan. All expenses incurred by a Fund in
connection with the Agreements and the implementation of this Plan shall be
borne entirely by the holders of the Trust B Shares of the particular Fund
involved. If more than one Fund is involved and these expenses are not directly
attributable to Trust B Shares of a particular Fund, then the expenses may be
allocated between or among the Trust B Shares of the Funds in a fair and
equitable manner.
Section 2. The Company's administrator and/or co-administrator shall
monitor the arrangements pertaining to the Company's Agreements with Servicing
Agents. The Company's administrator and co-administrator shall not, however, be
obligated by this Plan to recommend, and the Company shall not be obligated to
execute, any Agreement with any qualifying Servicing Agents.
Section 3. So long as this Plan is in effect, the Company's distributor
shall provide to the Company's Board of Directors, and the Directors shall
review, at least quarterly, a written report of the amounts expended pursuant to
this Plan and the purposes for which such expenditures were made.
Section 4. Unless sooner terminated, this Plan shall continue in effect
for a period of one year from its date of execution and shall continue
thereafter for successive annual periods, provided that such continuance is
specifically approved by a majority of the Board of Directors, including a
majority of the Directors who are not "interested persons," as defined in the
<PAGE>
Investment Company Act of 1940 (the "Act"), of the Company and have no direct or
indirect financial interest in the operation of this Plan or in any Agreement
related to this Plan (the "Disinterested Directors") cast in person at a meeting
called for the purpose of voting on this Plan.
Section 5. This Plan may be amended at any time with respect to any
Fund by the Company's Board of Directors, provided that any material amendment
of the terms of this Plan (including a material increase of the fee payable
hereunder) shall become effective only upon the approvals set forth in
Section 4.
Section 6. This Plan is terminable at any time with respect to any Fund
by vote of a majority of the Disinterested Directors.
Section 7. While this Plan is in effect, the selection and nomination
of the Disinterested Directors shall be committed to the discretion of such
Disinterested Directors.
Section 8. To the extent that any portion of the fees payable under the
Agreements is deemed to be for services primarily intended to result in the sale
of Fund shares, such fees are deemed approved and may be paid pursuant to the
Plan and in accordance with Rule 12b-1 under the Act, provided that the
Agreements, to the extent they are deemed to relate to services primarily
intended to result in the sale of Fund shares, are approved and otherwise
treated in all respects as agreements related to the Plan.
Section 9. The Company will preserve copies of this Plan, Agreements,
and any written reports regarding this Plan presented to the Board of Directors
for a period of not less than six years.
2
<PAGE>
EXHIBIT I
NATIONS FUND, INC.
Nations Equity Income Fund
Nations International Equity Fund
Nations Government Securities Fund
3
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Nations Prime Fund Tr-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 3,999,079,573
<INVESTMENTS-AT-VALUE> 3,999,079,573
<RECEIVABLES> 16,392,074
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 220,446
<TOTAL-ASSETS> 4,015,692,093
<PAYABLE-FOR-SECURITIES> 25,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,691,485
<TOTAL-LIABILITIES> 47,691,485
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,873,409,094
<SHARES-COMMON-STOCK> 2,873,396,651
<SHARES-COMMON-PRIOR> 2,884,115,518
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (427,552)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,873,096,086
<DIVIDEND-INCOME> 2,953,192
<INTEREST-INCOME> 201,668,467
<OTHER-INCOME> 0
<EXPENSES-NET> 14,436,579
<NET-INVESTMENT-INCOME> 190,185,080
<REALIZED-GAINS-CURRENT> 1,780
<APPREC-INCREASE-CURRENT> 0
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<NAME> Nations Prime Fund Inv-B
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<NAME> Nations Fund Treasury Tr-A
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<NAME> Nations Fund Treasury Tr-B
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<NAME> Nations Fund Treasury Inv-A
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<NAME> Nations Fund Treasury Inv-B
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<NAME> Nations Fund Treasury Inv-C
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<NAME> Nations Fund Treasury Inv-D
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<NAME> Nations Fund Equity Income Tr-A
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<NAME> Nations Fund Equity Income Inv-A
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<NAME> Nations Fund Equity Income Inv-C
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<NAME> Nations Fund Equity Income Inv-N
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<NAME> Nations Fund Government Securities Tr-A
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<NAME> Nations Fund Government Securities Inv-A
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<NAME> Nations Fund Government Securities Inv-C
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<NAME> Nations Fund Government Securities Inv-N
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<NAME> Nations Fund Int'l Equity Tr-A
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<NAME> Nations Fund Int'l Equity Inv-A
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<NAME> Nations Fund Int'l Equity Inv-C
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<NAME> Nations Fund Int'l Equity Inv-N
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