As filed with the Securities and Exchange Commission
on July 25, 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. 31 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 32 [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 LLP & 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):
<TABLE>
<S> <C>
[ ] Immediately upon filing pursuant to Rule 485(b); or [X] on July 31, 1996, pursuant to Rule
485(b), or
[ ] 60 days after filing pursuant to Rule 485(a), or [ ] on (date) pursuant to Rule
485(a)
[ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of
Rule 485
</TABLE>
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 March 31,
1996 on May 24, 1996.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 31 to the Registration Statement of
Nations Fund, Inc. is being provided to update financial information and other
non-material changes.
<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 or Repurchase ................................... How To Redeem Shares; How To
Exchange Shares
9. Legal Proceedings .......................................... Organization And History
Part B
Item No.
10. Cover Page.................................................. Cover Page
11. Table of Contents........................................... Table Of Contents
12. General Information and
History..................................................... Introduction
<PAGE>
13. Investment Objectives and
Policies.................................................... Additional Information On Fund
Investments
14. Management of the Registrant................................ Directors And Officers
15. Control Persons and Principal
Holders of Securities....................................... Miscellaneous -- Certain Record
Holders
16. Investment Advisory and Other
Services.................................................... Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing And
Distribution Agreements
17. Brokerage Allocation ....................................... Fund Transactions And Brokerage
-- General Brokerage Policy
18. Capital Stock and Other
Securities.................................................. Description Of Shares;
Investment Advisory,
Administration,
Custody, Transfer Agency,
Shareholder Servicing And
Distribution Agreements -- The
Company And Its Common Stock
19. Purchase, Redemption and Pricing
of Securities Being Offered................................. Net Asset Value -- Purchases
And Redemptions
20. Tax Status.................................................. Additional Information Concerning
Taxes
21. Underwriters................................................ Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing And
Distribution Agreements --
Distributor
<PAGE>
22. Calculation of Performance Data............................. Additional Information On
Performance
23. Financial Statements........................................ Independent Accountant And
Reports
Part C
Item No. Other Information
Information required to be included in Part C is
set forth under the appropriate Item, so
numbered, in Part C of this Document
</TABLE>
<PAGE>
Prospectus
PRIMARY A SHARES
JULY 31, 1996
MONEY MARKET FUNDS
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market
Fund
Nations Tax Exempt Fund
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
Nations Municipal Income Fund
Nations Short-Term Municipal Income
Fund
Nations Intermediate Municipal
Bond Fund
Nations Florida Intermediate Municipal
Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal
Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate
Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate
Municipal Bond Fund
Nations North Carolina Municipal Bond
Fund
Nations South Carolina Intermediate
Municipal Bond Fund
Nations South Carolina Municipal Bond
Fund
Nations Tennessee Intermediate
Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal
Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal
Bond Fund
Nations Virginia Municipal Bond Fund
INVESTMENT ADVISER: NationsBanc Advisors, Inc.
SUB-INVESTMENT ADVISER: TradeStreet Investment Associates, Inc.
SUB-INVESTMENT ADVISER: Gartmore Global Partners
DISTRIBUTOR: Stephens Inc.
(Nations Fund Logo appears here)
<PAGE>
Prospectus
PRIMARY A SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund") of
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios"), each
an open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations Fund
Family"). This Prospectus describes one class of
shares of each Fund -- Primary A Shares (formerly
called Trust A Shares). Nations Disciplined Equity
Fund was formerly called "Nations Special Equity
Fund."
NATIONS PRIME FUND, NATIONS TREASURY FUND, NATIONS
GOVERNMENT MONEY MARKET FUND AND NATIONS TAX EXEMPT
FUND (THE "MONEY MARKET FUNDS") SEEK TO MAINTAIN A
NET ASSET VALUE OF $1.00 PER SHARE. INVESTMENTS IN
THESE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE
THAT THESE FUNDS WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information
about each Fund that a prospective purchaser of
Primary A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios is contained in separate Statements of
Additional Information (the "SAIs"), that 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, each dated July 31, 1996, 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
Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the other Funds. As used
herein the "Adviser" shall mean NBAI, TradeStreet
and/or 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.
MONEY MARKET FUNDS:
Nations Prime Fund
For Fund information call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
<PAGE>
Nations Treasury Fund
Nations Government Money Market Fund
Nations Tax Exempt Fund
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
Nations Municipal Income Fund
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate
Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
<PAGE>
Table Of Contents
Prospectus Summary 3
Expenses Summary 7
Financial Highlights 12
Objectives 37
How Objectives Are Pursued 40
How Performance Is Shown 54
How The Funds Are Managed 55
Organization And History 63
About The Funds
How To Buy Shares 65
How To Redeem Shares 65
How To Exchange Shares 66
How The Funds Value Their Shares 66
How Dividends And Distributions Are Made;
Tax Information 67
Appendix A -- Portfolio Securities 69
Appendix B -- Description Of Ratings 79
About Your
Investment
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) MONEY MARKET FUNDS:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent
consistent with the preservation of capital and the
maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment
objective is to seek as high a level of current income
as is consistent with liquidity and stability of
principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt
from Federal income taxes as is consistent with
liquidity and stability of principal.
(Bullet) EQUITY FUNDS:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by
investing primarily in companies with above average
dividend yields.
(Bullet) Nations International Equity Fund's investment
objective is to seek long-term capital growth by
investing primarily in equity securities of non-United
States companies in Europe, Australia, the Far East
and other areas, including some developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective
is to seek long-term capital growth by investing
primarily in equity securities of companies in
emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far
East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is
to seek long-term capital growth by investing
primarily in equity securities of companies in the
Pacific Basin and the Far East (excluding Japan).
(Bullet) Nations Capital Growth Fund's investment objective is
to seek growth of capital by investing in companies
that are believed to have superior earnings growth
potential.
(Bullet) Nations Emerging Growth Fund's investment objective is
to seek capital appreciation by investing in emerging
growth companies that are believed to have superior
long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective
is to seek growth of capital by investing in companies
that are expected to produce significant increases in
earnings per share.
(Bullet) Nations Equity Index Fund's investment objective is to
seek investment results that correspond, before fees
and expenses, to the total return of the Standard &
Poor's 500 Composite Stock Price Index.
3
<PAGE>
(Bullet) BALANCED FUND:
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income
securities.
(Bullet) BOND FUNDS:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek current income consistent with modest
fluctuation of principal. The Fund will invest primarily in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment
objective is to seek current income by investing
primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment objective
is to seek current income consistent with minimal
fluctuation of principal. The Fund invests primarily
in short-term investment grade fixed income
securities.
(Bullet) Nations Diversified Income Fund's investment objective
is to seek current income consistent with total return
by investing primarily in a diversified portfolio of
fixed income securities.
(Bullet) Nations Strategic Fixed Income Fund's investment
objective is to seek total return by investing
primarily in investment grade fixed income securities.
The Fund may invest in long-term, intermediate-term
and short-term securities.
(Bullet) Nations Global Government Income Fund's investment
objective is to maximize total return by investing
primarily in high quality debt securities issued by
governments, banks and supranational entities located
throughout the world.
(Bullet) Nations Municipal Income Fund's investment objective
is to seek current income exempt from Federal income
tax as is consistent with prudent investment risk.
Such Fund invests primarily in investment grade
obligations issued by or on behalf of states,
territories and possessions of the United States, the
District of Columbia, and their political
subdivisions, agencies, instrumentalities and
authorities, the interest on which, in the opinion of
counsel to the issuer or bond counsel, is exempt from
Federal income tax.
(Bullet) Nations Short-Term Municipal Income Fund's investment
objective is to seek current income exempt from
Federal income tax consistent with minimal fluctuation
of principal. Such Fund invests primarily in
investment grade obligations issued by or on behalf of
states, territories and possessions of the United
States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and
authorities, the interest on which, in the opinion of
counsel to the issuer or bond counsel, is exempt from
Federal income tax.
(Bullet) Nations Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from
Federal income tax consistent with moderate
fluctuation of principal.
(Bullet) Nations Florida Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal income tax and the Florida state
intangibles tax consistent with moderate fluctuation
of principal by investing primarily in
intermediate-term, investment grade municipal
securities.
(Bullet) Nations Florida Municipal Bond Fund's investment
objective is to seek current income exempt from
Federal income tax and the Florida state intangibles
tax as is consistent with prudent investment risk by
investing primarily in long-term, investment grade
municipal securities.
(Bullet) Nations Georgia Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and Georgia state income taxes consistent
with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade
municipal securities.
(Bullet) Nations Georgia Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and Georgia state income taxes as is consistent with
prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) Nations Maryland Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and Maryland state income taxes consistent
with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade
municipal securities.
4
<PAGE>
(Bullet) Nations Maryland Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and Maryland state income taxes as is consistent with
prudent investment risk by investing primarily in long-
term, investment grade municipal securities.
(Bullet) Nations North Carolina Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and North Carolina state income taxes
consistent with moderate fluctuation of principal by
investing primarily in intermediate-term, investment
grade municipal securities.
(Bullet) Nations North Carolina Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and North Carolina state income taxes as is consistent
with prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) Nations South Carolina Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and South Carolina state income taxes
consistent with moderate fluctuation of principal by
investing primarily in intermediate-term, investment
grade municipal securities.
(Bullet) Nations South Carolina Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and South Carolina state income taxes as is consistent
with prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) Nations Tennessee Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal income tax and the Tennessee Hall income
tax on unearned income consistent with moderate
fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal
securities.
(Bullet) Nations Tennessee Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
income tax and the Tennessee Hall income tax on unearned
income consistent with prudent investment risk by
investing primarily in long-term, investment grade
municipal securities.
(Bullet) Nations Texas Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal income tax consistent with moderate
fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal securities.
(Bullet) Nations Texas Municipal Bond Fund's investment objective
is to seek current income exempt from Federal income tax
as is consistent with prudent investment risk by
investing primarily in long-term, investment grade
municipal securities.
(Bullet) Nations Virginia Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and Virginia state income taxes consistent
with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade
municipal securities.
(Bullet) Nations Virginia Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and Virginia state income taxes as is consistent with
prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to certain
of the Funds and Gartmore Global Partners provides sub-advisory
services to the other Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Equity Funds and the Balanced Fund
declare and pay dividends from net investment income each calendar
quarter. The Money Market Funds and the Bond Funds declare dividends
daily and pay them monthly. Each Fund's net realized capital gains,
including net short-term capital gains, are distributed at least
annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. 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 risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and
increase when interest rates fall. In general, longer-term debt
instruments tend to fluctuate in value more than shorter-term debt
instruments in response to interest
5
<PAGE>
rate movements. In addition, debt securities which are not backed by
the United States Government are subject to credit risk, which is the
risk that the issuer may not be able to pay principal and/or interest
when due. Certain of the Fund's investments constitute derivative
securities. Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. Since the State Intermediate Municipal Bond Funds and
State Municipal Bond Funds invest primarily in securities issued by
entities located in a single state, such Funds are more susceptible to
changes in value due to political or economic changes affecting such
states or their subdivisions. For a discussion of these and other
factors, see "How Objectives Are Pursued -- Risk Considerations" and
"Appendix A -- Portfolio Securities."
Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund
are designed for long-term investors seeking international
diversification and who are willing to bear the risks associated with
international investing, such as foreign currency fluctuations and
economic and political risks. For a discussion of these factors, see
"How Objectives Are Pursued -- 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."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
6
<PAGE>
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
Primary A 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 MONEY MARKET FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Government
Nations Prime Nations Money Market
Fund Treasury Fund Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
<CAPTION>
Nations
Tax
Exempt
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees (After Fee Waivers)1 .14% .14% .12%
<S> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .16% .16% .18%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .30% .30% .30%
<CAPTION>
Management Fees (After Fee Waivers)1 .13%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .17%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .30%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Nations Equity Nations Nations
Value Income International Emerging
Fund Fund Equity Fund Markets Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Pacific Growth
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees .75% .70% .90% 1.10%
<S> <C> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .21% .20% .27% 1.03%
Total Operating Expenses (After Expense Reimbursements)1 .96% .90% 1.17% 2.13%
<CAPTION>
Management Fees .90%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .86%
Total Operating Expenses (After Expense Reimbursements)1 1.76%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such expense
reimbursements.
7
<PAGE>
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Capital Emerging Disciplined Equity
Growth Growth Equity Index
Fund Fund Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Balanced
Assets
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees (After Fee Waivers)1 .75% .75% .75% .10%
<S> <C> <C> <C> <C>
All Other Expenses .21% .24% .27% .25%
Total Operating Expenses (After Fee Waivers)1 .96% .99% 1.02% .35%
<CAPTION>
Management Fees (After Fee Waivers)1 .75%
<S> <C>
All Other Expenses .25%
Total Operating Expenses (After Fee Waivers)1 1.00%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers.
NATIONS FUND BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations
Short- Nations Nations Nations
Intermediate Government Short-Term Nations Strategic
Government Securities Income Diversified Fixed
Fund Fund Fund Income Fund Income Fund
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
<CAPTION>
Nations
Global
Government
Income
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C>
Management Fees (After Fee Waivers)1 .40% .50% .30% .50% .50%
All Other Expenses (After Expense Reimbursements)1 .23% .30% .25% ..27% .22%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .63% .80% .55% .77% .72%
<CAPTION>
Management Fees (After Fee Waivers)1 .70%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .62%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 1.32%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C>
Nations Nations
Nations Short-Term Nations Florida
Municipal Municipal Intermediate Intermediate
Income Income Municipal Municipal
Fund Fund Bond Fund Bond Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Florida
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees (After Fee Waivers)1 .30% .06% .17% .14%
<S> <C> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .30% .34% .33% .36%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60% .40% .50% .50%
<CAPTION>
Management Fees (After Fee Waivers)1 .26%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .34%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
8
<PAGE>
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations
Georgia Nations Maryland Nations
Intermediate Georgia Intermediate Maryland
Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
North
Carolina
Intermediate
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees (After Fee Waivers)1 .17% .10% .20% .12%
<S> <C> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .33% .50% .30% .48%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .50% .60% .50% .60%
<CAPTION>
Management Fees (After Fee Waivers)1 .13%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .37%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .50%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Nations South Nations Nations
North Carolina South Tennessee
Carolina Intermediate Carolina Intermediate
Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Tennessee
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees (After Fee Waivers)1 .23% .18% .10% .07%
<S> <C> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .37% .32% .50% .43%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60% .50% .60% .50%
<CAPTION>
Management Fees (After Fee Waivers)1 .02%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .58%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations
Texas Nations Virginia
Intermediate Texas Intermediate
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
<CAPTION>
Nations
Virginia
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees (After Fee Waivers)1 .11% .12% .24%
<S> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .39% .48% .26%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .50% .60% .50%
<CAPTION>
Management Fees (After Fee Waivers)1 .16%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .44%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .60%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
9
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Government Nations Nations Nations
Nations Nations Money Tax Nations Equity International
Prime Treasury Market Exempt Value Income Equity
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 3 $ 3 $ 3 $ 3 $ 10 $ 9 $ 12
3 Years $10 $10 $10 $10 $ 31 $ 29 $ 37
5 Years $17 $17 $17 $17 $ 53 $ 50 $ 64
10 Years $38 $38 $38 $38 $118 $111 $142
<CAPTION>
Nations Nations
Emerging Pacific
Markets Growth
Fund Fund
1 Year $ 22 $ 18
3 Years $ 67 $ 55
5 Years $114 $ 95
10 Years $246 $207
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Nations Nations Nations Short- Nations
Nations Emerging Disciplined Equity Balanced Intermediate Government
Capital Growth Growth Equity Index Assets Government Securities
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 10 $ 10 $ 10 $ 4 $ 10 $ 6 $ 8
3 Years $ 31 $ 32 $ 32 $11 $ 32 $20 $26
5 Years $ 53 $ 55 $ 56 $20 $ 55 $35 $44
10 Years $118 $121 $125 $44 $122 $79 $99
<CAPTION>
Nations Nations
Short-Term Diversified
Income Income
Fund Fund
1 Year $ 6 $ 8
3 Years $18 $25
5 Years $31 $43
10 Years $69 $95
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Nations Nations Nations Florida Nations
Strategic Global Nations Short-Term Intermediate Intermediate Florida
Fixed Government Municipal Municipal Municipal Municipal Municipal
Income Income Income Income Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 7 $ 13 $ 6 $ 4 $ 5 $ 5 $ 6
3 Years $23 $ 42 $19 $13 $16 $16 $19
5 Years $40 $ 72 $33 $22 $28 $28 $33
10 Years $89 $159 $75 $51 $63 $63 $75
<CAPTION>
Nations Nations
Georgia Georgia
Intermediate Municipal
Municipal Bond
Bond Fund Fund
1 Year $ 5 $ 6
3 Years $16 $19
5 Years $28 $33
10 Years $63 $75
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations Nations
Nations North Nations South Nations Nations
Maryland Carolina North Carolina South Tennessee
Intermediate Nations Intermediate Carolina Intermediate Carolina Intermediate
Municipal Maryland Municipal Municipal Municipal Municipal Municipal
Bond Municipal Bond Bond Bond Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 5 $ 6 $ 5 $ 6 $ 5 $ 6 $ 5
3 Years $16 $19 $16 $19 $16 $19 $16
5 Years $28 $33 $28 $33 $28 $33 $28
10 Years $63 $75 $63 $75 $63 $75 $63
<CAPTION>
Nations
Nations Texas
Tennessee Intermediate
Municipal Municipal
Bond Bond
Fund Fund
1 Year $ 6 $ 5
3 Years $19 $16
5 Years $33 $28
10 Years $75 $63
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Virginia Nations
Texas Intermediate Virginia
Municipal Municipal Municipal
Bond Bond Bond
Fund Fund Fund
1 Year $ 6 $ 5 $ 6
3 Years $19 $16 $19
5 Years $33 $28 $33
10 Years $75 $63 $75
</TABLE>
10
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. Except for the Nations
Emerging Markets Fund, Nations Global Government Income Fund and Nations Pacific
Growth Fund, which fees and expenses are based on estimates, certain figures
contained in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees", "Other
Expenses" and "Total Operating Expenses" for Primary A Shares of the indicated
Fund would have been as follows: Nations Prime Fund -- .20%, .16% and .36%,
respectively; Nations Treasury Fund -- .20%, 16% and .36%, respectively; Nations
Government Money Market Fund -- .40%, .18% and .58%, respectively; Nations Tax
Exempt Fund -- .40%, .17% and .57%, respectively; Nations Intermediate Municipal
Bond Fund -- .50%, .33% and .83%, respectively; Nations Florida Intermediate
Municipal Bond Fund -- .50%, .36% and .86%, respectively; Nations Georgia
Intermediate Municipal Bond Fund -- .50%, .33% and .83%, respectively; Nations
Maryland Intermediate Municipal Bond Fund -- .50%, .32% and .86%, respectively;
Nations South Carolina Intermediate Municipal Bond Fund -- .50%, .32% and .82%,
respectively; Nations Municipal Income Fund -- .60%, .30% and .90%;
respectively; Nations Short-Term Municipal Income Fund -- .50%, .34% and .84%,
respectively; Nations Florida Municipal Bond Fund -- .60%, .34% and .94%,
respectively; Nations Georgia Municipal Bond Fund, .60%, .50%, and 1.10%,
respectively; Nations Maryland Municipal Bond Fund -- .60%, .48% and 1.08%,
respectively; Nations North Carolina Municipal Bond Fund -- .60%, .37% and .97%,
respectively; Nations South Carolina Municipal Bond Fund -- .60%, .50% and
1.10%, respectively; Nations Tennessee Municipal Bond Fund -- .60%, .58% and
1.18%, respectively; Nations Texas Municipal Bond Fund -- .60%, .48% and 1.08%,
respectively; Nations Virginia Municipal Bond Fund -- .60%, .44% and 1.04%,
respectively; Nations Virginia Intermediate Municipal Bond Fund -- .50%, .26%
and .76%, respectively; Nations North Carolina Intermediate Municipal Bond
Fund -- .50%, .37% and .87%, respectively; Nations Tennessee Intermediate
Municipal Bond Fund -- .50%, .43% and .93%, respectively; Nations Texas
Intermediate Municipal Bond Fund -- .50%, .39% and .89%, respectively. Absent
expense reimbursements, "Other Expenses" and "Total Operating Expenses" for
Primary A Shares of the indicated Fund would have been as follows: Nations
Equity Income Fund -- .20% and .90%, respectively; and Nations International
Equity Fund -- .26% and 1.16%, respectively. Absent fee waivers, "Management
Fees" and "Total Operating Expenses" for Primary A Shares of the indicated Fund
would have been as follows: Nations Equity Index Fund -- .50% and .75%,
respectively; Nations Short-Term Income Fund -- .60% and .85%, respectively;
Nations Short-Intermediate Government Fund -- .60% and .83%, respectively;
Nations Government Securities Fund -- .64% and .94%, respectively; Nations
Diversified Income Fund -- .60% and .87%, respectively; and Nations Strategic
Fixed Income Fund -- .60% and .82%, 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.
11
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived
from the financial statements of Nations Fund Trust, Nations Fund, Inc.
and Nations Portfolios. Price Waterhouse LLP is the independent accountant
to Nations Fund Trust, Nations Fund, Inc. and Nations Portfolios. The reports
of Price Waterhouse LLP for the most recent fiscal years of Nations Fund
Trust, Nations Fund, Inc. and Nations Portfolios accompany the financial
statements for such periods and are incorporated by reference in the SAIs,
which are available upon request. For more information see "Organization
And History." Shareholders of a Fund will receive unaudited semi-annual reports
describing the Funds' investment operations and annual financial statements
audited by the Funds' independent accountant.
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0468 0.0519 0.0318 0.0328 0.0506
Dividends from net investment income (0.0468) (0.0519) (0.0318) (0.0328) (0.0506)
Total dividends and distributions (0.0468) (0.0519) (0.0318) (0.0328) (0.0506)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.79% 5.32% 3.22% 3.33% 5.19%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 2,472,469 $ 2,873,096 $ 2,883,762 $ 1,156,266 $ 500,476
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to average
net assets 5.62%+ 5.23% 3.20% 3.25% 5.03%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.37%+ 0.38% 0.37% 0.36% 0.42%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0463 $ 0.0511 $ 0.0311 $ 0.0322 $ 0.0494
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 5/31/91
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0749
Dividends from net investment income (0.0749)
Total dividends and distributions (0.0749)
Net asset value, end of period $ 1.00
Total return++ 7.75%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 574,993
Ratio of operating expenses to average net
assets 0.30%
Ratio of net investment income to average
net assets 7.47%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.44%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0735
</TABLE>
NATIONS PRIME FUND (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0855 0.0839 0.0675
Dividends from net investment income (0.0855) (0.0839) (0.0675)
Total dividends and distributions (0.0855) (0.0839) (0.0675)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.88%+++ 8.71%+++ 6.94%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 433,298 $ 115,295 $ 264,063
Ratio of operating expenses to average net assets 0.32% 0.35% 0.36%
Ratio of net investment income to average net assets 8.43% 8.11% 6.73%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.50%+++ 0.55%+++ 0.56%+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0731+++ $ 0.0819+/+++ $ 0.0655+++
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0277
Dividends from net investment income (0.0277)
Total dividends and distributions (0.0277)
Net asset value, end of period $ 1.00
Total return++ 2.79%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 252,562
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.99%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.65%+/+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0247+++
</TABLE>
* The Nations Prime Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
12
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 5/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0458 0.0494 0.0297 0.0307 0.0483
Dividends from net investment income (0.0458) (0.0494) (0.0297) (0.0307) (0.0483)
Distributions from net realized capital
gains (0.0000)# (0.0000)# -- -- --
Total dividends and distributions (0.0458) (0.0494) (0.0297) (0.0307) (0.0483)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.67% 5.05% 2.99% 3.12% 4.95%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 821,030 $ 2,896,868 $ 2,679,992 $ 2,956,796 $1,094,741
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.29%
Ratio of net investment income to average
net assets 5.52%+ 4.99% 2.97% 3.02% 4.82%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.37%+ 0.35% 0.36% 0.36% 0.42%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0453 $ 0.0489 $ 0.0292 $ 0.0302 $ 0.0470
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 5/31/91
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0721
Dividends from net investment income (0.0721)
Distributions from net realized capital
gains --
Total dividends and distributions (0.0721)
Net asset value, end of period $ 1.00
Total return++ 7.46%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 955,186
Ratio of operating expenses to average net
assets 0.25%
Ratio of net investment income to average
net assets 7.04%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.43%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0703
</TABLE>
NATIONS TREASURY FUND (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0829 0.0802 0.0630
Dividends from net investment income (0.0829) (0.0802) (0.0630)
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.0829) (0.0802) (0.0630)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.61%+++ 8.33%+++ 6.49%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 392,843 $ 90,946 $ 111,414
Ratio of operating expenses to average net assets 0.25% 0.39% 0.38%
Ratio of net investment income to average net assets 8.18% 7.93% 6.31%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.59%+++ 0.58%+++ 0.65%+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0693+++ $ 0.0783+++ $ 0.0603+++
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0262
Dividends from net investment income (0.0262)
Distributions from net realized capital gains --
Total dividends and distributions (0.0262)
Net asset value, end of period $ 1.00
Total return++ 2.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 66,221
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.68%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.75%+/+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0222+++
</TABLE>
* Nations Treasury Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
13
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0173 0.0558 0.0375 0.0294
Distributions:
Dividends from net investment income (0.0173) (0.0558) (0.0375) (0.0294)
Distributions from net realized capital gains -- -- (0.0000)# --
Total dividends and distributions (0.0173) (0.0558) (0.0375) (0.0294)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.74% 5.72% 3.84% 2.96%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 336,771 $ 332,895 $ 432,729 $ 475,180
Ratio of operating expenses to average net assets 0.30%+ 0.30% 0.30% 0.30%
Ratio of net investment income to average net assets 5.20%+ 5.58% 3.79% 2.91%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.59%+ 0.57% 0.59% 0.56%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0163 $ 0.0531 $ 0.0347 $ 0.0269
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/92 11/30/91*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0358 0.0571
Distributions:
Dividends from net investment income (0.0358) (0.0571)
Distributions from net realized capital gains -- --
Total dividends and distributions (0.0358) (0.0571)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 3.63%+++ 5.87%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 414,412 $ 333,979
Ratio of operating expenses to average net assets 0.42% 0.43%+
Ratio of net investment income to average net assets 3.55% 5.49%+
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.58% 0.62%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.0341 $ 0.0551
</TABLE>
* Nations Government Money Market Fund Primary A Shares commenced operations on
December 3, 1990.
+ Annualized.
++ Total return represents aggregate return for the periods indicated and does
not reflect the deduction of any applicable sales charge.
+++ Unaudited.
# Amount represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91 11/30/90
Operating
performance:
Net asset value,
beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment
income 0.0112 0.0361 0.0257 0.0223 0.0267 0.0422 0.0550
Dividends from net
investment income (0.0112) (0.0361) (0.0257) (0.0223) (0.0267) (0.0422) (0.0550)
Total dividends and
distributions (0.0112) (0.0361) (0.0257) (0.0223) (0.0267) (0.0422) (0.0550)
Net asset value, end
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.12% 3.68% 2.60% 2.27% 2.70%+++ 4.31%+++ 5.63%+++
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in 000's) $1,078,764 $ 905,125 $ 820,677 $ 701,403 $ 329,265 $ 168,829 $ 173,834
Ratio of operating
expenses to
average net assets 0.30%+ 0.30% 0.27% 0.23% 0.40% 0.42% 0.40%
Ratio of net
investment income
to average net
assets 3.35%+ 3.62% 2.59% 2.23% 2.65% 4.23% 5.51%
Ratio of operating
expenses to
average net assets
without waivers
and/or expense
reimbursements 0.58%+ 0.57% 0.59% 0.59% 0.57% 0.60% 0.75%
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.0103 $ 0.0335 $ 0.0226 $ 0.0187 $ 0.0250 $ 0.0404 $ 0.0515
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/89 11/30/88*
Operating
performance:
Net asset value,
beginning of
period $ 1.00 $ 1.00
Net investment
income 0.0600 0.0350
Dividends from net
investment income (0.0600) (0.0350)
Total dividends and
distributions (0.0600) (0.0350)
Net asset value, end
of period $ 1.00 $ 1.00
Total return++ 6.17%+++ 3.55%+++
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 145,109 $ 143,245
Ratio of operating
expenses to
average net assets 0.40% 0.40%+
Ratio of net
investment income
to average net
assets 6.00% 4.97%+
Ratio of operating
expenses to
average net assets
without waivers
and/or expense
reimbursements 0.74% 0.75%+
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.0566 $ 0.0325
</TABLE>
* Nations Tax Exempt Fund Primary A Shares commenced operations on March 14,
1988.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
14
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
Operating performance:
Net asset value, beginning of
period $ 16.21 $ 12.98 $ 13.74 $ 12.45 $ 11.16 $ 9.71
Net investment income/loss 0.07 0.27 0.24 0.24 0.28 0.34
Net realized and unrealized
gain/(loss) on investments 1.06 3.91 (0.23) 1.38 1.57 1.47
Net increase/(decrease) in net
asset value from operations 1.13 4.18 0.01 1.62 1.85 1.81
Distributions:
Dividends from net investment
income (0.12) (0.28) (0.23) (0.24) (0.27) (0.36)
Distributions from net realized
capital gains (0.62) (0.67) (0.54) (0.09) (0.29) --
Total dividends and distributions (0.74) (0.95) (0.77) (0.33) (0.56) (0.36)
Net asset value, end of period $ 16.60 $ 16.21 $ 12.98 $ 13.74 $ 12.45 $ 11.16
Total return++ 7.20% 34.53% (0.08)% 13.19% 17.00%+++ 18.79%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 998,957 $ 956,669 $ 799,743 $ 707,185 $ 282,138 $ 82,360
Ratio of operating expenses to
average net assets 0.96%+ 0.94% 0.93% 0.96% 0.90% 0.53%
Ratio of net investment
income/(loss) to average net
assets 1.30%+ 1.90% 1.85% 1.98% 2.31% 3.33%
Portfolio turnover rate 12% 63% 75% 64% 60% 51%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 0.96%+ 0.94% 0.93% 0.97% 0.97% 0.99%
Net investment income/(loss) per
share without waivers and/or
expense reimbursements $ 0.07% $ 0.27 $ 0.24 $ 0.24 $ 0.27 $ 0.30
Average commission rate paid (b) $ 0.0648 N/A N/A N/A N/A N/A
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/90 11/30/89*#
Operating performance:
Net asset value, beginning of
period $ 10.04 $ 10.00
Net investment income/loss 0.35 0.08
Net realized and unrealized
gain/(loss) on investments (0.36) (0.04)
Net increase/(decrease) in net
asset value from operations (0.01) 0.04
Distributions:
Dividends from net investment
income (0.32) --
Distributions from net realized
capital gains -- --
Total dividends and distributions (0.32) --
Net asset value, end of period $ 9.71 $ 10.04
Total return++ (0.16)%+++ 0.40%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 19,769 $ 5,161
Ratio of operating expenses to
average net assets 0.21% 0.49%+
Ratio of net investment
income/(loss) to average net
assets 4.19% 4.41%+
Portfolio turnover rate 24% --
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.11% 1.41%+
Net investment income/(loss) per
share without waivers and/or
expense reimbursements $ 0.26 $ 0.06
Average commission rate paid (b) N/A N/A
</TABLE>
* Nations Value Fund Primary A Shares commenced operations on September 19,
1989.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
15
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 11.81 $ 11.43 $ 12.06 $ 11.41 $ 10.19
Net investment income/(loss) 0.30 0.42 0.38 0.37 0.34
Net realized and unrealized gain/(loss) on
investments 1.77 1.11 0.22 1.08 1.25
Net increase/(decrease) in net asset value
from operations 2.07 1.53 0.60 1.45 1.59
Distributions:
Dividends from net investment income (0.37) (0.42) (0.42) (0.35) (0.30)
Distributions from net realized capital
gains (0.37) (0.73) (0.81) (0.45) (0.07)
Total dividends and distributions (0.74) (1.15) (1.23) (0.80) (0.37)
Net asset value, end of period $ 13.14 $ 11.81 $ 11.43 $ 12.06 $ 11.41
Total return++ 17.98% 14.79% 5.00% 13.30% 15.91%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 283,142 $ 283,082 $ 225,740 $ 175,949 $ 18,104
Ratio of operating expenses to average net
assets 0.90%+ 0.92% 0.94% 0.92% 1.10%
Ratio of net investment income/(loss) to
average net assets 2.84%+ 3.75% 3.41% 3.37% 3.15%
Portfolio turnover rate 59% 158% 116% 55% 84%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.90%+ 0.93% 0.95% 1.04% 2.21%
Net investment income/(loss) per share
without waivers and/or expense
reimbursements $ 0.30 $ 0.42 $ 0.38 $ 0.36 $ 0.22
Average commission rate paid (c) $ 0.0287 N/A N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/91*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.05
Net realized and unrealized gain/(loss) on
investments 0.14
Net increase/(decrease) in net asset value
from operations 0.19
Distributions:
Dividends from net investment income --
Distributions from net realized capital
gains --
Total dividends and distributions --
Net asset value, end of period $ 10.19
Total return++ 1.90%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 10,194
Ratio of operating expenses to average net
assets 1.12%+
Ratio of net investment income/(loss) to
average net assets 3.66%+
Portfolio turnover rate 9%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.80%+
Net investment income/(loss) per share
without waivers and/or expense
reimbursements $ (0.06)
Average commission rate paid (c) N/A
</TABLE>
* Nations Equity Income Fund Primary A Shares commenced operations on April
11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
16
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a)# 05/31/95# 5/31/94# 5/31/93#
Operating performance:
Net asset value, beginning of period $ 11.75 $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.07 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on investments 1.80 (0.20) 1.44 0.21
Net increase/(decrease) in net asset value from
operations 1.87 (0.06) 1.53 0.30
Distributions:
Dividends from net investment income (0.06) (0.03) (0.05) (0.08)
Distributions in excess of net investment income (0.04) -- -- --
Distributions from net realized capital gains (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized capital gains -- (0.10) -- --
Total dividends and distributions (0.12) (0.25) (0.07) (0.10)
Net asset value, end of period $ 13.50 $ 11.75 $ 12.06 $ 10.60
Total return++ 16.01% (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 849,731 $ 572,940 $ 401,559 $ 118,873
Ratio of operating expenses to average net assets 1.17%+ 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to average net
assets 0.65%+ 1.17% 0.75% 1.03%
Portfolio turnover rate 26% 92% 39% 41%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.18%+ 1.04% 1.18% 1.32%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.07 $ 0.14 $ 0.08 $ 0.10
Average commission rate paid (b) $ 0.0272 -- -- --
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.08
Net realized and unrealized gain/(loss) on investments 0.36
Net increase/(decrease) in net asset value from
operations 0.44
Distributions:
Dividends from net investment income (0.04)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total dividends and distributions (0.04)
Net asset value, end of period $ 10.40
Total return++ 4.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 83,970
Ratio of operating expenses to average net assets 1.33%+
Ratio of net investment income/(loss) to average net
assets 1.81%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.43%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.03
Average commission rate paid (b) --
</TABLE>
* Nations International Equity Fund Primary A Shares commenced operations on
December 2, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
17
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
<S> <C>
PRIMARY A SHARES 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 0.37
Net increase in net asset value from operations 0.34
Distributions:
Dividends from net investment income --
Distributions in excess of net investment income 0.00**
Distributions from net realized capital gains --
Total dividends and distributions 0.00**
Net asset value, end of period $ 10.34
Total return++ 3.42%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 47,560
Ratio of operating expenses to average net assets 2.13%+
Ratio of net investment income to average net assets (0.38)%+
Portfolio turnover rate 17%
Average commission rate paid (a) $ 0.0004
</TABLE>
* Nations Emerging Markets Fund Primary A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period, since the use
of the undistributed income method did not accord with the results of
operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
<S> <C>
PRIMARY A SHARES 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.02)
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net asset value from operations 0.27
Distributions:
Dividends from net investment income --
Distributions in excess of net investment income (0.03)
Total dividends and distributions (0.03)
Net asset value, end of period $ 10.24
Total return++ 2.66%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 95,210
Ratio of operating expenses to average net assets 1.76%+
Ratio of net investment income/(loss) to average net assets (0.27)%+
Portfolio turnover rate 23%
Average commission rate paid (b) $ 0.0178
</TABLE>
* Nations Pacific Growth Fund Primary A Shares commenced operations on June 30,
1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
18
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 14.24 $ 11.23 $ 11.08 $ 10.68
Net investment income/(loss) 0.02 0.09 0.09 0.09
Net realized and unrealized gain on investments 0.38 3.28 0.14 0.42
Net increase in net asset value from operations 0.40 3.37 0.23 0.51
Distributions:
Dividends from net investment income (0.02) (0.10) (0.08) (0.10)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (1.21) (0.36) (0.08) (0.11)
Net asset value, end of period $ 13.43 $ 14.24 $ 11.23 $ 11.08
Total return++ 3.14% 30.96% 2.14% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 839,300 $ 867,361 $ 717,914 $ 646,661
Ratio of operating expenses to average net assets 0.96%+ 0.98% 0.90% 0.80%
Ratio of net investment income/(loss) to average net
assets 0.38%+ 0.71% 0.85% 0.84%
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.96%+ 0.98% 0.91% 0.89%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.02 $ 0.09 $ 0.09 $ 0.08
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.02
Net realized and unrealized gain on investments 0.66#
Net increase in net asset value from operations 0.68
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.68
Total return++ 6.80%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 728,629
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income/(loss) to average net
assets 1.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.05%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.01
Average commission rate paid (c) N/A
</TABLE>
* Nations Capital Growth Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
19
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96#(a) 11/30/95 11/30/94#
Operating performance:
Net asset value, beginning of period $ 14.28 $ 11.41 $ 10.87
Net investment income/(loss) (0.00)(b) 0.01 (0.03)
Net realized and unrealized gain on investments 1.26 3.26 0.71
Net increase in net asset value from operations 1.26 3.27 0.68
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14)
Total dividends and distributions (1.50) (0.40) (0.14)
Net asset value, end of period $ 14.04 $ 14.28 $ 11.41
Total return++ 9.87% 29.95% 6.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 295,764 $ 269,484 $ 182,459
Ratio of operating expenses to average net assets 0.99%+ 0.98% 1.01%
Ratio of net investment income/(loss) to average net assets (0.06)%+ 0.08% (0.29)%
Portfolio turnover rate 39% 139% 129%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.99%+ 0.98% 1.01%
Net investment income/(loss) per share without waivers and/or expense
reimbursements (0.00)(b) $ 0.01 $ (0.03)
Average commission rate paid (c) $ 0.0599 N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.01)
Net realized and unrealized gain on investments 0.89
Net increase in net asset value from operations 0.88
Distributions:
Distributions from net realized capital gains (0.01)
Total dividends and distributions (0.01)
Net asset value, end of period $ 10.87
Total return++ 8.81%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 121,281
Ratio of operating expenses to average net assets 0.80%+
Ratio of net investment income/(loss) to average net assets (0.15)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.01%+
Net investment income/(loss) per share without waivers and/or expense
reimbursements $ (0.03)
Average commission rate paid (c) N/A
</TABLE>
* Nations Emerging Growth Fund Primary A Shares commenced operations on
December 4, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
20
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94* 04/29/94*
Operating performance:
Net asset value, beginning of period $ 17.06 $ 13.08 $ 13.31 $ 13.65
Net investment income/(loss) 0.05 0.10 0.01 (0.05)
Net realized and unrealized gain/(loss) on investments 0.35 3.96 (0.23)# 2.66
Net increase/(decrease) in net asset value from
operations 0.40 4.06 (0.22) 2.61
Distributions:
Dividends from net investment income (0.04) (0.08) (0.01) --
Distributions from net realized capital gains (0.23) -- -- (2.95)
Return of capital -- -- (0.00)(b) --
Total dividends and distributions (0.27) (0.08) (0.01) (2.95)
Net asset value, end of period $ 17.19 $ 17.06 $ 13.08 $ 13.31
Total return++ 2.44% 31.13% (1.62)% 18.79%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 116,469 $ 109,939 $ 9,947 $ 8,079
Ratio of operating expenses to average net assets 1.02%+ 1.30% 1.13%+ 1.20%+
Ratio of net investment income/(loss) to average net
assets 0.82%+ 0.85% 0.12%+ (0.60)%+
Portfolio turnover rate 47% 124% 177% 475%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.02%+ 1.30% 1.56%+ 1.53%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.05 $ 0.10 $ (0.03) $ (0.08)
Average commission rate paid (c) 0.0627 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 04/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain/(loss) on investments 3.74
Net increase/(decrease) in net asset value from
operations 3.71
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains (0.06)
Return of capital --
Total dividends and distributions (0.06)
Net asset value, end of period $ 13.65
Total return++ 37.13%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,638
Ratio of operating expenses to average net assets 1.20%+
Ratio of net investment income/(loss) to average net
assets (0.58)%+
Portfolio turnover rate 203%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.31%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.03)
Average commission rate paid (c) N/A
</TABLE>
* The period for Nations Disciplined Equity Fund Primary A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class A Shares, which were reorganized into Primary A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class A Shares commenced operations on October 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Value represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
21
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INDEX FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95
Operating performance:
Net asset value, beginning of period $ 12.91 $ 9.84
Net investment income 0.08 0.28
Net realized and unrealized gain/(loss) on investments 0.86 3.20
Net increase in net asset value from operations 0.94 3.48
Distributions:
Dividends from net investment income (0.13) (0.28)
Distributions from net realized capital gains (0.14) (0.13)
Total dividends and distributions (0.27) (0.41)
Net asset value, end of period $ 13.58 $ 12.91
Total return++ 7.33% 36.35%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 192,388 $ 145,021
Ratio of operating expenses to average net assets 0.35%+ 0.37%
Ratio of operating expenses to average net assets including interest expense 0.35%+ 0.38%
Ratio of net investment income to average net assets 1.99%+ 2.44%
Portfolio turnover rate 2% 18%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.73%+ 0.78%
Net investment income per share without waivers and/or expense reimbursements $ 0.07 $ 0.23
Average commission rate paid (b) $ 0.0291 N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.24
Net realized and unrealized gain/(loss) on investments (0.21)
Net increase in net asset value from operations 0.03
Distributions:
Dividends from net investment income (0.19)
Distributions from net realized capital gains --
Total dividends and distributions (0.19)
Net asset value, end of period $ 9.84
Total return++ 0.29%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 123,147
Ratio of operating expenses to average net assets 0.35%+
Ratio of operating expenses to average net assets including interest expense --
Ratio of net investment income to average net assets 2.64%+
Portfolio turnover rate 14%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.79%+
Net investment income per share without waivers and/or expense reimbursements $ 0.20
Average commission rate paid (b) N/A
</TABLE>
* Nations Equity Index Fund Primary A Shares commenced operations on December
15, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 12.68 $ 10.44 $ 10.87 $ 10.24
Net investment income 0.11 0.38 0.25 0.29
Net realized and unrealized gain/(loss) on investments 0.45 2.21 (0.43) 0.64
Net increase/(decrease) in net asset value from
operations 0.56 2.59 (0.18) 0.93
Distributions:
Dividends from net investment income (0.18) (0.33) (0.25) (0.30)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.59) (0.35) (0.25) (0.30)
Net asset value, end of period $ 11.65 $ 12.68 $ 10.44 $ 10.87
Total return++ 4.90% 25.27% (1.73)% 9.22%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 164,215 $ 163,198 $ 162,215 $ 178,270
Ratio of operating expenses to average net assets 1.00%+ 0.99% 0.98 % 0.90%
Ratio of net investment income to average net assets 2.91%+ 3.25% 2.31 % 2.82%
Portfolio turnover rate 83% 174% 156 % 50%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.00%+ 0.99% 0.99 % 0.97%
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.38 $ 0.25 $ 0.29
Average commission rate paid (c) $ 0.0598 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments 0.18#
Net increase/(decrease) in net asset value from
operations 0.24
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 111,953
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 3.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.05%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.05
Average commission rate paid (c) N/A
</TABLE>
* Nations Balanced Assets Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of
the portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
22
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b)# 11/30/95# 11/30/94 11/30/93 11/30/92
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17
Net investment income 0.07 0.24 0.23 0.23 0.28
Net realized and unrealized gain/(loss) on
investments (0.07) 0.21 (0.33) 0.14 (0.01)
Net increase/(decrease) in net asset value
from operations 0.00 0.45 (0.10) 0.37 0.27
Distributions:
Dividends from net investment income (0.07) (0.24) (0.23) (0.23) (0.28)
Distributions in excess of net investment
income (0.00)(a) (0.00)(a) (0.00)(a) -- --
Distributions from net realized capital
gains -- -- (0.02) (0.02) --
Total dividends and distributions (0.07) (0.24) (0.25) (0.25) (0.28)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16
Total return++ 0.07% 11.70% (2.23)% 9.03% 6.70%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 399,915 $ 425,200 $ 433,278 $ 443,426 $ 360,497
Ratio of operating expenses to average net
assets 0.63%+ 0.60% 0.59% 0.55% 0.37%
Ratio of net investment income to average
net assets 5.32%+ 5.88% 5.76% 5.40% 6.48%
Portfolio turnover rate 189% 328% 133% 92% 25%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.86%+ 0.80% 0.80% 0.79% 0.77%
Net investment income per share without
waivers and/or expense reimbursements $ 0.06 $ 0.23 $ 0.22 $ 0.22 $ 0.26
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/91*
Operating performance:
Net asset value, beginning of period $ 4.00##
Net investment income 0.10
Net realized and unrealized gain/(loss) on
investments 0.17
Net increase/(decrease) in net asset value
from operations 0.27
Distributions:
Dividends from net investment income (0.10)
Distributions in excess of net investment
income --
Distributions from net realized capital
gains --
Total dividends and distributions (0.10)
Net asset value, end of period $ 4.17
Total return++ 6.81%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 158,435
Ratio of operating expenses to average net
assets 0.08%+
Ratio of net investment income to average
net assets 7.21%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.82%+
Net investment income per share without
waivers and/or expense reimbursements $ 0.00 (a)
</TABLE>
* Nations Short-Intermediate Government Fund Primary A Shares commenced
operations on August 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
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.
## Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25, 1991,
the net asset value doubled as a result of the reclassification of each
outstanding share into half as many shares (reverse split).
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
23
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b)# 05/31/95# 05/31/94 05/31/93
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.36
Net investment income 0.52 0.64 0.64 0.71
Net realized and unrealized gain/(loss) on
investments (0.19) 0.06 (0.61) 0.13
Net increase/(decrease) in net asset value from
operations 0.33 0.70 0.03 0.84
Distributions:
Dividends from net investment income (0.50) (0.60) (0.58) (0.70)
Dividends in excess of net investment income 0.02 -- (0.02) --
Distributions from net realized capital gains -- -- -- --
Distributions in excess of net realized capital
gains -- -- (0.05) (0.04)
Distributions from capital -- (0.04) (0.04) --
Total dividends and distributions (0.52) (0.64) (0.69) (0.74)
Net asset value, end of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Total return++ 3.41% 7.55% 0.06% 8.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 55,962 $ 39,909 $ 44,536 $ 40,472
Ratio of operating expenses to average net assets 0.80%+ 0.76% 0.73% 0.85%
Ratio of net investment income to average net
assets 6.36%+ 6.69% 6.08% 6.67%
Portfolio turnover rate 199% 413% 56% 103%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.95%+ 0.94% 0.94% 1.00%
Net investment income per share without waivers
and/or expense reimbursements $ 0.51 $ 0.62 $ 0.61 $ 0.60
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 05/31/92 05/31/91*
Operating performance:
Net asset value, beginning of period $ 10.05 $ 10.00
Net investment income 0.74 0.10
Net realized and unrealized gain/(loss) on
investments 0.37 0.02
Net increase/(decrease) in net asset value from
operations 1.11 0.12
Distributions:
Dividends from net investment income (0.77) (0.07)
Dividends in excess of net investment income -- --
Distributions from net realized capital gains -- --
Distributions in excess of net realized capital
gains (0.03) --
Distributions from capital -- --
Total dividends and distributions (0.80) (0.07)
Net asset value, end of period $ 10.36 $ 10.05
Total return++ 11.43%+++ 1.19%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 42,256 $ 10,047
Ratio of operating expenses to average net assets 1.06% 1.10%+
Ratio of net investment income to average net
assets 7.15% 7.18%+
Portfolio turnover rate 130% 5%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.72% 1.69%+++
Net investment income per share without waivers
and/or expense reimbursements $ 0.07 $ 0.09+++
</TABLE>
* Nations Government Securities Fund Primary A Shares commenced operations on
April 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
24
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.20 0.61 0.50 0.53
Net realized and unrealized gain/(loss) on investments (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value from
operations 0.12 0.97 (0.01) 0.79
Distributions:
Dividends from net investment income (0.20) (0.61) (0.48) (0.53)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.20) (0.61) (0.52) (0.53)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.19% 10.48% (0.11)% 8.26 %
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 179,957 $ 169,291 $ 176,712 $ 201,738
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.50% 0.37%
Ratio of net investment income to average net assets 6.07%+ 6.32% 5.23% 5.27%
Portfolio turnover rate 73% 224% 293% 121%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.87%+ 0.86% 0.82% 0.79%
Net investment income per share without waivers and/or
expense reimbursements $ 0.19 $ 0.58 $ 0.47 $ 0.48
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.09
Net realized and unrealized gain/(loss) on investments (0.25)
Net increase/(decrease) in net asset value from
operations (0.16)
Distributions:
Dividends from net investment income (0.09)
Distributions in excess of net investment income --
Distributions from capital --
Total dividends and distributions (0.09)
Net asset value, end of period $ 9.75
Total return++ (1.58)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 190,680
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 5.54%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.90%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.08
</TABLE>
* Nations Short-Term Income Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
25
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED YEAR
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94# ENDED 11/30/93#
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 9.97
Net investment income 0.23 0.73 0.74 0.78
Net realized and unrealized gain/(loss) on investments (0.40) 1.15 (1.06) 0.91
Net increase/(decrease) in net asset value from
operations (0.17) 1.88 (0.32) 1.69
Distributions:
Dividends from net investment income (0.23) (0.73) (0.74) (0.78)
Distributions in excess of net investment income -- -- (0.00)(a) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.23) (0.73) (0.89) (0.78)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.59)% 20.11% (3.05 )% 17.40%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 65,081 $ 64,800 $ 22,298 $ 28,553
Ratio of operating expenses to average net assets 0.77%+ 0.80% 0.74% 0.55%
Ratio of net investment income to average net assets 6.49%+ 7.03% 7.31% 7.02%
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.87%+ 0.93% 0.95% 0.95%
Net investment income per share without waivers and/or
expense reimbursements $ 0.23 $ 0.72 $ 0.72 $ 0.70
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net asset value from
operations 0.03
Distributions:
Dividends from net investment income (0.06)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.06)
Net asset value, end of period $ 9.97
Total return++ 0.32%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23,962
Ratio of operating expenses to average net assets 0.25%+
Ratio of net investment income to average net assets 7.76%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.85%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.05
</TABLE>
* Nations Diversified Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.19 0.59 0.53 0.56
Net realized and unrealized gain/(loss) on investments (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value from operations (0.10) 1.49 (0.36) 1.18
Distributions:
Dividends from net investment income (0.19) (0.59) (0.51) (0.56)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.19) (0.59) (0.87) (0.57)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.04)% 16.45% (3.58)% 12.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 823,890 $ 823,098 $ 550,697 $ 545,538
Ratio of operating expenses to average net assets 0.72%+ 0.71% 0.68% 0.61%
Ratio of net investment income to average net assets 5.49% 6.05% 5.43% 5.40%
Portfolio turnover rate 1.33% 228% 307% 161%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.83%+ 0.81% 0.76% 0.77%
Net investment income per share without waivers and/or
expense reimbursements $ 0.19 $ 0.58 $ 0.52 $ 0.55
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain/(loss) on investments (0.06)
Net increase/(decrease) in net asset value from operations (0.01)
Distributions:
Dividends from net investment income (0.05)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.05)
Net asset value, end of period $ 9.94
Total return++ (0.11)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 581,329
Ratio of operating expenses to average net assets 0.26%+
Ratio of net investment income to average net assets 6.15%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.86%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.04
</TABLE>
* Nations Strategic Fixed Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year was
November 30.
26
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
<S> <C>
PRIMARY A SHARES 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.39
Net realized and unrealized gain/(loss) on investments 0.11
Net increase in net asset value from operations 0.50
Distributions:
Dividends from net investment income (0.37)
Distributions in excess of net investment income (0.02)
Distributions from net realized capital gains (0.04)
Total dividends and distributions (0.43)
Net asset value, end of period $ 10.07
Total return++ 5.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 24,753
Ratio of operating expenses to average net assets 1.32%+
Ratio of net investment income/(loss) to average net assets 5.17%+
Portfolio turnover rate 213%
</TABLE>
* Nations Global Government Income Fund Primary A Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately represents the per share data for the
period, since the use of the undistributed income method did not accord with
the results of operations.
NATIONS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 11.08 $ 9.64 $ 11.33 $ 10.65
Net investment income 0.20 0.59 0.57 0.59
Net realized and unrealized gain/(loss) on
investments (0.24) 1.44 (1.44) 0.72
Net increase/(decrease) in net asset value
from operations (0.04) 2.03 (0.87) 1.31
Distributions:
Dividends from net investment income (0.20) (0.59) (0.57) (0.59)
Distributions in excess of net investment
income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.25) (0.04)
Total dividends and distributions (0.20) (0.59) (0.82) (0.63)
Net asset value, end of period $ 10.84 $ 11.08 $ 9.64 $ 11.33
Total return++ (0.41)% 21.55% (8.17)% 12.54%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 68,022 $ 68,836 $ 59,279 $ 88,386
Ratio of operating expenses to average net
assets 0.60%+ 0.60% 0.61% 0.52%
Ratio of operating expenses to average net
asset including interest expense --(a) --(a) 0.62% --
Ratio of net investment income to average net
assets 5.35%+ 5.63% 5.42% 5.24%
Portfolio turnover rate 4% 49% 63% 48%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.91%+ 0.88% 0.90% 0.84%
Net investment income per share without
waivers and/or expense reimbursements $ 0.19 $ 0.56 $ 0.54 $ 0.55
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/92 11/30/91*
Operating performance:
Net asset value, beginning of period $ 10.25 $ 10.00
Net investment income 0.59 0.52
Net realized and unrealized gain/(loss) on
investments 0.41 0.25
Net increase/(decrease) in net asset value
from operations 1.00 0.77
Distributions:
Dividends from net investment income (0.59) (0.52)
Distributions in excess of net investment
income -- --
Distributions from net realized capital gains (0.01) --
Total dividends and distributions (0.60) (0.52)
Net asset value, end of period $ 10.65 $ 10.25
Total return++ 9.97%+++ 7.87%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 62,387 $ 23,631
Ratio of operating expenses to average net
assets 0.43% 0.20%+
Ratio of operating expenses to average net
asset including interest expense -- --
Ratio of net investment income to average net
assets 5.51% 6.07%+
Portfolio turnover rate 19% 54%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.90% 0.88%+
Net investment income per share without
waivers and/or expense reimbursements $ 0.54 $ 0.45
</TABLE>
* Nations Municipal Income Fund Primary A Shares commenced operations on
February 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
27
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.03 $ 9.69 $ 9.96
Net investment income 0.15 0.44 0.38
Net realized and unrealized gain/(loss) on investments (0.05) 0.34 (0.27)
Net increase in net asset value from operations 0.10 0.78 0.11
Distributions:
Dividends from net investment income (0.15) (0.44) (0.38)
Distributions from net realized capital gains -- -- (0.00)#
Total dividends and distributions (0.15) (0.44) (0.38)
Net asset value, end of period $ 9.98 $ 10.03 $ 9.69
Total return++ 0.96% 8.16% 1.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 48,511 $ 49,961 $ 33,488
Ratio of operating expenses to average net assets 0.40%+(a) 0.45%(a) 0.34%(a)
Ratio of net investment income to average net assets 4.37%+ 4.38% 3.83%
Portfolio turnover rate 16% 82% 57%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.86%+ 0.93% 0.80%
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.39 $ 0.33
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain/(loss) on investments (0.04)
Net increase in net asset value from operations 0.01
Distributions:
Dividends from net investment income (0.05)
Distributions from net realized capital gains --
Total dividends and distributions (0.05)
Net asset value, end of period $ 9.96
Total return++ 0.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,999
Ratio of operating expenses to average net assets 0.09%+
Ratio of net investment income to average net assets 3.16%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.04%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.04
</TABLE>
* Nations Short-Term Municipal Income Fund Primary A Shares commenced
operations on October 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.17 $ 9.24 $ 10.11
Net investment income 0.16 0.48 0.45
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.86)
Net increase/(decrease) in net asset value from operations 0.02 1.41 (0.41)
Distributions:
Dividends from net investment income (0.16) (0.48) (0.45)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.01)
Total dividends and distributions (0.16) (0.48) (0.46)
Net asset value, end of period $ 10.03 $ 10.17 $ 9.24
Total return++ 0.20% 15.60% (4.25)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 77,423 $ 73,897 $ 38,055
Ratio of operating expenses to average net assets 0.50%+(a) 0.45%(a) 0.35%(a)
Ratio of net investment income to average net assets 4.75%+ 4.91% 4.59%
Portfolio turnover rate 4% 31% 51%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.83%+ 0.84% 0.88%
Net investment income per share without waivers and/or expense
reimbursements $ 0.15 $ 0.45 $ 0.40
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.14
Net realized and unrealized gain/(loss) on investments 0.11
Net increase/(decrease) in net asset value from operations 0.25
Distributions:
Dividends from net investment income (0.14)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.14)
Net asset value, end of period $ 10.11
Total return++ 2.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 28,335
Ratio of operating expenses to average net assets 0.24%+
Ratio of net investment income to average net assets 4.07%+
Portfolio turnover rate 23%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.96%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12
</TABLE>
* Nations Intermediate Municipal Bond Fund Primary A Shares commenced
operations on July 30, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
28
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.63 $ 9.61 $ 10.50
Net investment income 0.17 0.48 0.45
Net realized and unrealized gain/(loss) on investments (0.17) 1.02 (0.88)
Net increase/(decrease) in net asset value from operations 0.00 1.50 (0.43)
Distributions:
Dividends from net investment income (0.17) (0.48) (0.45)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.01)
Total dividends and distributions (0.17) (0.48) (0.46)
Net asset value, end of period $ 10.46 $ 10.63 $ 9.61
Total return++ (0.06)% 15.92% (4.26)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 44,988 $ 44,038 $ 42,717
Ratio of operating expenses to average net assets 0.50%+(a) 0.55%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.66%+ 4.70% 4.44%
Portfolio turnover rate 18% 27% 34%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.86%+ 0.81% 0.76%
Net investment income per share without waivers and/or expense
reimbursements $ 0.15 $ 0.46 $ 0.43
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.44
Net realized and unrealized gain/(loss) on investments 0.50
Net increase/(decrease) in net asset value from operations 0.94
Distributions:
Dividends from net investment income (0.44)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.44)
Net asset value, end of period $ 10.50
Total return++ 9.50%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 41,489
Ratio of operating expenses to average net assets 0.44%+
Ratio of net investment income to average net assets 4.28%+
Portfolio turnover rate 15%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.80%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.40
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund Primary A Shares commenced
operations on December 11, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS FLORIDA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.76 $ 8.40
Net investment income 0.16 0.51
Net realized and unrealized gain/(loss) on investments (0.29) 1.36
Net increase/(decrease) in net asset value from operations (0.13) 1.87
Dividends from net investment income (0.16) (0.51)
Total dividends and distributions (0.16) (0.51)
Net asset value, end of period $ 9.47 $ 9.76
Total return++ (1.33)% 22.69%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,044 $ 11,219
Ratio of operating expenses to average net assets 0.60%+(a) 0.39%(a)
Ratio of net investment income to average net assets 5.03%+ 5.44%
Portfolio turnover rate 7% 13%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.96%+ 0.95%
Net investment income per share without waivers and/or expense reimbursements $ 0.15 $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.93
Net investment income 0.49
Net realized and unrealized gain/(loss) on investments (1.53)
Net increase/(decrease) in net asset value from operations (1.04)
Dividends from net investment income (0.49)
Total dividends and distributions (0.49)
Net asset value, end of period $ 8.40
Total return++ (10.70)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,258
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.55%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.91%+
Net investment income per share without waivers and/or expense reimbursements $ 0.43
</TABLE>
* Nations Florida Municipal Bond Fund Primary A Shares commenced operations on
December 13, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
29
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.81 $ 9.82 $ 10.82 $ 10.29
Net investment income 0.17 0.50 0.49 0.50
Net realized and unrealized gain/(loss) on investments (0.18) 0.99 (0.98) 0.56
Net increase/(decrease) in net asset value from operations (0.01) 1.49 (0.49) 1.06
Distributions:
Dividends from net investment income (0.17) (0.50) (0.49) (0.50)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.02) (0.03)
Total dividends and distributions (0.17) (0.50) (0.51) (0.53)
Net asset value, end of period $ 10.63 $ 10.81 $ 9.82 $ 10.82
Total return++ (0.13)% 15.42% (4.70)% 10.43%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 38,222 $ 40,383 $ 33,111 $ 30,738
Ratio of operating expenses to average net assets 0.50%+ 0.55% 0.54% 0.46%
Ratio of operating expenses to average net assets including
interest expense --(a) --(a) 0.55% --
Ratio of net investment income to average net assets 4.67%+ 4.76% 4.74% 4.57%
Portfolio turnover rate 3% 17% 22% 6%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.83%+ 0.80% 0.75% 0.77%
Net investment income per share without waivers and/or
expense reimbursements $ 0.16 $ 0.47 $ 0.47 $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.41
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net asset value from operations 0.70
Distributions:
Dividends from net investment income (0.41)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.41)
Net asset value, end of period $ 10.29
Total return++ 7.07%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 20,584
Ratio of operating expenses to average net assets 0.20%+
Ratio of operating expenses to average net assets including
interest expense --
Ratio of net investment income to average net assets 5.25%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.77%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.37
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Primary A Shares commenced
operations on March 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS GEORGIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.72 $ 8.38
Net investment income 0.16 0.51
Net realized and unrealized gain/(loss) on investments (0.24) 1.34
Net increase/(decrease) in net asset value from operations (0.08) 1.85
Dividends from net investment income (0.16) (0.51)
Total dividends and distributions (0.16) (0.51)
Net asset value, end of period $ 9.48 $ 9.72
Total return++ (0.84)% 22.48%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,068 $ 2,628
Ratio of operating expenses to average net assets 0.60%+(a) 0.40%(a)
Ratio of net investment income to average net assets 4.96%+ 5.42%
Portfolio turnover rate 7% 26%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.14%+ 1.09%
Net investment income per share without waivers and/or expense reimbursements $ 0.14 $ 0.44
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.02
Net investment income 0.46
Net realized and unrealized gain/(loss) on investments (1.64)
Net increase/(decrease) in net asset value from operations (1.18)
Dividends from net investment income (0.46)
Total dividends and distributions (0.46)
Net asset value, end of period $ 8.38
Total return++ (12.07)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 232
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.60%+
Portfolio turnover rate 35%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.04%+
Net investment income per share without waivers and/or expense reimbursements $ 0.39
</TABLE>
* Nations Georgia Municipal Bond Fund Primary A Shares commenced operations on
January 13, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
30
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.95 $ 10.00 $ 11.09 $ 10.72
Net investment income 0.17 0.51 0.50 0.52
Net realized and unrealized gain/(loss) on
investments (0.15) 0.98 (0.99) 0.44
Net increase/(decrease) in net asset value from
operations 0.02 1.49 (0.49) 0.96
Distributions:
Dividends from net investment income (0.17) (0.51) (0.50) (0.52)
Distributions from net realized capital gains -- (0.03) (0.10) (0.07)
Distributions in excess of net realized capital
gains -- -- (0.00)# --
Total dividends and distributions (0.17) (0.54) (0.60) (0.59)
Net asset value, end of period $ 10.80 $ 10.95 $ 10.00 $ 11.09
Total return++ 0.16% 15.16% (4.64)% 9.11%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 61,337+ $ 62,460 $ 61,349 $ 61,552
Ratio of operating expenses to average net assets 0.50%+(a) 0.55%(a) 0.53%(a) 0.49%
Ratio of net investment income to average net
assets 4.62%+ 4.76% 4.73% 4.73%
Portfolio turnover rate 4% 11% 22% 26%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.81%+ 0.80% 0.73% 0.73%
Net investment income per share without waivers
and/or expense reimbursements $ 0.16 $ 0.48 $ 0.48 $ 0.49
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/92 11/30/91 11/30/90*
Operating performance:
Net asset value, beginning of period $ 10.44 $ 10.21 $ 10.00
Net investment income 0.55 0.60 0.16
Net realized and unrealized gain/(loss) on
investments 0.31 0.24 0.21
Net increase/(decrease) in net asset value from
operations 0.86 0.84 0.37
Distributions:
Dividends from net investment income (0.55) (0.60) (0.16)
Distributions from net realized capital gains (0.03) (0.01) --
Distributions in excess of net realized capital
gains -- -- --
Total dividends and distributions (0.58) (0.61) (0.16)
Net asset value, end of period $ 10.72 $ 10.44 $ 10.21
Total return++ 8.41%+++ 8.46%+++ 3.72%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 48,192 $ 31,088 $ 11,087
Ratio of operating expenses to average net assets 0.39% 0.20% 0.21%+
Ratio of net investment income to average net
assets 5.12% 5.76% 6.12%+
Portfolio turnover rate 38% 26% 49%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.78% 0.71% 0.84%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.51 $ 0.55 $ 0.13
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Primary A Shares commenced
operations on September 1, 1990.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS MARYLAND MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.63 $ 8.37
Net investment income 0.15 0.48
Net realized and unrealized gain/(loss) on investments (0.24) 1.26
Net increase/(decrease) in net asset value from operations (0.09) 1.74
Dividends from net investment income (0.15) (0.48)
Total dividends and distributions (0.15) (0.48)
Net asset value, end of period $ 9.39 $ 9.63
Total return++ (0.95)% 21.23%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 2,788 $ 2,595
Ratio of operating expenses to average net assets 0.60%+ 0.40%
Ratio of net investment income to average net assets 4.72%+ 5.14%
Portfolio turnover rate 7% 11%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.23%+ 1.26%
Net investment income per share without waivers and/or expense reimbursements $ 0.13 $ 0.40
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 8.90
Net investment income 0.11
Net realized and unrealized gain/(loss) on investments (0.53)
Net increase/(decrease) in net asset value from operations (0.42)
Dividends from net investment income (0.11)
Total dividends and distributions (0.11)
Net asset value, end of period $ 8.37
Total return++ (4.89)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 39
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.48%+
Portfolio turnover rate 39%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.30%+
Net investment income per share without waivers and/or expense reimbursements $ 0.09
</TABLE>
* Nations Maryland Municipal Bond Fund Primary A Shares commenced operations
on September 20, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
31
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.51 $ 9.53 $ 10.46
Net investment income 0.16 0.45 0.44
Net realized and unrealized gain/(loss) on investments (0.15) 0.99 (0.88)
Net increase/(decrease) in net asset value from operations 0.01 1.44 (0.44)
Distributions:
Dividends from net investment income (0.16) (0.45) (0.44)
Distributions in excess of net investment income -- (0.00)# --
Distributions from net realized capital gains -- (0.01) (0.05)
Total dividends and distributions (0.16) (0.46) (0.49)
Net asset value, end of period $ 10.36 $ 10.51 $ 9.53
Total return++ 0.05% 15.41% (4.34)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 21,161 $ 20,916 $ 14,148
Ratio of operating expenses to average net assets 0.50%+ 0.57%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.47%+ 4.47% 4.38%
Portfolio turnover rate 3% 57% 37%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.87%+ 0.84% 0.82%
Net investment income per share without waivers and/or expense
reimbursements $ 0.15 $ 0.43 $ 0.42
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.43
Net realized and unrealized gain/(loss) on investments 0.46
Net increase/(decrease) in net asset value from operations 0.89
Distributions:
Dividends from net investment income (0.43)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.43)
Net asset value, end of period $ 10.46
Total return++ 9.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 11,814
Ratio of operating expenses to average net assets 0.42%+
Ratio of net investment income to average net assets 4.23%+
Portfolio turnover rate 29%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.85%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.39
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Primary A Shares
commenced operations on December 11, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.73 $ 8.36
Net investment income 0.16 0.50
Net realized and unrealized gain/(loss) on investments (0.24) 1.37
Net increase/(decrease) in net asset value from operations (0.08) 1.87
Dividends from net investment income (0.16) (0.50)
Total dividends and distributions (0.16) (0.50)
Net asset value, end of period $ 9.49 $ 9.73
Total return++ (0.87)% 22.87%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,593 $ 1,293
Ratio of operating expenses to average net assets 0.60%+ 0.38%(a)
Ratio of net investment income to average net assets 4.86%+ 5.43%
Portfolio turnover rate 22% 40%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.99%+ 0.96%
Net investment income per share without waivers and/or expense reimbursements $ 0.15 $ 0.45
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.06
Net investment income 0.45
Net realized and unrealized gain/(loss) on investments (1.70)
Net increase/(decrease) in net asset value from operations (1.25)
Dividends from net investment income (0.45)
Total dividends and distributions (0.45)
Net asset value, end of period $ 8.36
Total return++ (12.65)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 531
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.53%+
Portfolio turnover rate 29%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.92%+
Net investment income per share without waivers and/or expense reimbursements $ 0.40
</TABLE>
* Nations North Carolina Municipal Bond Fund Primary A Shares commenced
operations on January 11, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
32
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.69 $ 9.76 $ 10.61 $ 10.18
Net investment income 0.17 0.51 0.50 0.50
Net realized and unrealized gain/(loss) on investments (0.17) 0.93 (0.84) 0.43
Net increase/(decrease) in net asset value from
operations 0.00 1.44 (0.34) 0.93
Distributions:
Dividends from net investment income (0.17) (0.51) (0.50) (0.50)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.17) (0.51) (0.51) (0.50)
Net asset value, end of period $ 10.52 $ 10.69 $ 9.76 $ 10.61
Total return++ 0.00%## 15.02% (3.37)% 9.32 %
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 41,817 $ 45,255 $ 49,030 $ 56,995
Ratio of operating expenses to average net assets 0.50%+(a) 0.55%(a) 0.54%(a) 0.45 %
Ratio of net investment income to average net assets 4.81%+ 4.92% 4.82% 4.68 %
Portfolio turnover rate 6% 11% 30% 11 %
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.82%+ 0.75% 0.75% 0.75 %
Net investment income per share without waivers and/or
expense reimbursements $ 0.16 $ 0.49 $ 0.48 $ 0.47
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.47
Net realized and unrealized gain/(loss) on investments 0.18
Net increase/(decrease) in net asset value from
operations 0.65
Distributions:
Dividends from net investment income (0.47)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.47)
Net asset value, end of period $ 10.18
Total return++ 6.62%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 39,535
Ratio of operating expenses to average net assets 0.20%+
Ratio of net investment income to average net assets 4.11%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.74%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.42
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Primary A Shares
commenced operations on January 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
## Amount represents less than 0.01%.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.99 $ 8.65
Net investment income 0.17 0.52
Net realized and unrealized gain/(loss) on investments (0.22) 1.34
Net increase/(decrease) in net asset value from operations (0.05) 1.86
Dividends from net investment income (0.17) (0.52)
Total dividends and distributions (0.17) (0.52)
Net asset value, end of period $ 9.77 $ 9.99
Total return++ (0.57)% 21.99%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,058 $ 1,782
Ratio of operating expenses to average net assets 0.60%+(a) 0.40%(a)
Ratio of net investment income to average net assets 4.96%+ 5.44%
Portfolio turnover rate 20% 13%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.13%+ 1.08%
Net investment income per share without waivers and/or expense reimbursements $ 0.15 $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.02
Net investment income 0.48
Net realized and unrealized gain/(loss) on investments (1.37)
Net increase/(decrease) in net asset value from operations (0.89)
Dividends from net investment income (0.48)
Total dividends and distributions (0.48)
Net asset value, end of period $ 8.65
Total return++ (9.12 )%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 400
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.48%+
Portfolio turnover rate 14%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.12%+
Net investment income per share without waivers and/or expense reimbursements $ 0.41
</TABLE>
* Nations South Carolina Municipal Bond Fund Primary A Shares commenced
operations on December 27, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
33
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.23 $ 9.30 $ 10.18
Net investment income 0.15 0.46 0.45
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.87)
Net increase/(decrease) in net asset value from operations 0.01 1.39 (0.42)
Distributions:
Dividends from net investment income (0.15) (0.46) (0.45)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.01)
Total dividends and distributions (0.15) (0.46) (0.46)
Net asset value, end of period $ 10.09 $ 10.23 $ 9.30
Total return++ 0.12% 15.22% (4.24)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,408 $ 7,160 $ 4,116
Ratio of operating expenses to average net assets 0.50%+ 0.57% 0.52%
Ratio of operating expenses to average net assets including interest
expense -- -- (a) 0.53%
Ratio of net investment income to average net assets 4.51%+ 4.65% 4.56%
Portfolio turnover rate 3% 34% 41%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.02%+ 0.92% 0.89%
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.43 $ 0.41
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.06
Net investment income 0.29
Net realized and unrealized gain/(loss) on investments 0.12
Net increase/(decrease) in net asset value from operations 0.41
Distributions:
Dividends from net investment income (0.29)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.29)
Net asset value, end of period $ 10.18
Total return++ 4.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,123
Ratio of operating expenses to average net assets 0.27%+
Ratio of operating expenses to average net assets including interest
expense --
Ratio of net investment income to average net assets 4.31%+
Portfolio turnover rate 16%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.94%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.24
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund Primary A Shares commenced
operations on April 13, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS TENNESSEE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.87 $ 8.58
Net investment income 0.16 0.52
Net realized and unrealized gain/(loss) on investments (0.19) 1.29
Net increase/(decrease) in net asset value from operations (0.03) 1.81
Dividends from net investment income (0.16) (0.52)
Total dividends and distributions (0.16) (0.52)
Net asset value, end of period $ 9.68 $ 9.87
Total return++ (0.30)% 21.52%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 975 $ 768
Ratio of operating expenses to average net assets 0.60%+ 0.40%(a)
Ratio of operating expenses to average net assets including interest expense 0.61%+ --
Ratio of net investment income to average net assets 4.92%+ 5.49%
Portfolio turnover rate 2% 45%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.47%+ 1.27%
Net investment income per share without waivers and/or expense reimbursements $ 0.13 $ 0.44
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.59
Net investment income 0.39
Net realized and unrealized gain/(loss) on investments (1.01)
Net increase/(decrease) in net asset value from operations (0.62)
Dividends from net investment income (0.39)
Total dividends and distributions (0.39)
Net asset value, end of period $ 8.58
Total return++ (6.66)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 311
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of operating expenses to average net assets including interest expense --
Ratio of net investment income to average net assets 5.56%+
Portfolio turnover rate 38%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.20%+
Net investment income per share without waivers and/or expense reimbursements $ 0.32
</TABLE>
* Nations Tennessee Municipal Bond Fund Primary A Shares commenced operations
on March 2, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
34
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.36 $ 9.53 $ 10.35
Net investment income 0.16 0.46 0.44
Net realized and unrealized gain/(loss) on investments (0.15) 0.83 (0.79)
Net increase/(decrease) in net asset value from operations 0.01 1.29 (0.35)
Distributions:
Dividends from net investment income (0.16) (0.46) (0.44)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.03)
Total dividends and distributions (0.16) (0.46) (0.47)
Net asset value, end of period $ 10.21 $ 10.36 $ 9.53
Total return++ 0.05% 13.83% (3.48)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 27,176 $ 26,382 $ 24,066
Ratio of operating expenses to average net assets 0.50%+ 0.57%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.52%+ 4.62% 4.40%
Portfolio turnover rate 11% 64% 61%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.89% 0.83% 0.78%
Net investment income per share without waivers and/or expense
reimbursements $ 0.15 $ 0.44 $ 0.42
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.41
Net realized and unrealized gain/(loss) on investments 0.35
Net increase/(decrease) in net asset value from operations 0.76
Distributions:
Dividends from net investment income (0.41)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.41)
Net asset value, end of period $ 10.35
Total return++ 7.72%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 31,875
Ratio of operating expenses to average net assets 0.44%+
Ratio of net investment income to average net assets 4.43%+
Portfolio turnover rate 63%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.82%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.38
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund Primary A Shares commenced
operations on January 12, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS TEXAS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.70 $ 8.39
Net investment income 0.16 0.50
Net realized and unrealized gain/(loss) on investments (0.21) 1.31
Net increase/(decrease) in net asset value from operations (0.05) 1.81
Dividends from net investment income (0.16) (0.50)
Total dividends and distributions (0.16) (0.50)
Net asset value, end of period $ 9.49 $ 9.70
Total return++ (0.55)% 22.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,138 $ 4,613
Ratio of operating expenses to average net assets 0.60%+ 0.39%(a)
Ratio of net investment income to average net assets 4.92%+ 5.45%
Portfolio turnover rate 6% 50%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.11%+ 1.05%
Net investment income per share without waivers and/or expense reimbursements $ 0.14 $ 0.44
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.01
Net investment income 0.42
Net realized and unrealized gain/(loss) on investments (1.62)
Net increase/(decrease) in net asset value from operations (1.20)
Dividends from net investment income (0.42)
Total dividends and distributions (0.42)
Net asset value, end of period $ 8.39
Total return++ (12.21)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,285
Ratio of operating expenses to average net assets 0.22%+(a)
Ratio of net investment income to average net assets 5.52%+
Portfolio turnover rate 107%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.06%+
Net investment income per share without waivers and/or expense reimbursements $ 0.35
</TABLE>
* Nations Texas Municipal Bond Fund Primary A Shares commenced operations on
February 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
35
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
Operating performance:
Net asset value, beginning
of period $ 10.83 $ 9.94 $ 10.99 $ 10.59 $ 10.34 $ 10.14
Net investment income 0.17 0.51 0.50 0.48 0.54 0.58
Net realized and unrealized
gain/(loss) on
investments (0.14) 0.89 (0.96) 0.42 0.29 0.21
Net increase/(decrease) in
net asset value from
operations 0.03 1.40 (0.46) 0.90 0.83 0.79
Distributions:
Dividends from net
investment income (0.17) (0.51) (0.50) (0.48) (0.54) (0.58)
Distributions from net
realized capital gains -- (0.00)# (0.09) (0.02) (0.04) (0.01)
Distributions in excess of
net realized capital
gains -- -- (0.00)# -- -- --
Total dividends and
distributions (0.17) (0.51) (0.59) (0.50) (0.58) (0.59)
Net asset value, end of
period $ 10.69 10.83 $ 9.94 $ 10.99 $ 10.59 $ 10.34
Total return++ 0.27% 14.39% (4.35)% 9.08% 8.28%+++ 8.04%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $ 155,464 $ 157,252 $ 167,405 $ 193,084 $ 157,773 $ 119,757
Ratio of operating expenses
to average net assets 0.50%+(a) 0.56%(a) 0.61%(a) 0.57% 0.56% 0.45%
Ratio of net investment
income to average net
assets 4.72%+ 4.87% 4.76% 4.80% 5.17% 5.67%
Portfolio turnover rate 2% 22% 14% 26% 13% 24%
Ratio of operating expenses
to average net assets
without waivers and/or
expense reimbursements 0.76%+ 0.74% 0.73% 0.69% 0.68% 0.73%
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.16 $ 0.49 $ 0.49 $ 0.47 $ 0.53 $ 0.55
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/90 11/30/89*
Operating performance:
Net asset value, beginning
of period $ 10.08 $ 10.00
Net investment income 0.61 0.12
Net realized and unrealized
gain/(loss) on
investments 0.11 0.03
Net increase/(decrease) in
net asset value from
operations 0.72 0.15
Distributions:
Dividends from net
investment income (0.66) (0.07)
Distributions from net
realized capital gains -- --
Distributions in excess of
net realized capital
gains -- --
Total dividends and
distributions (0.66) (0.07)
Net asset value, end of
period $ 10.14 $ 10.08
Total return++ 7.41%+++ 1.46%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $ 75,962 $ 46,560
Ratio of operating expenses
to average net assets 0.26% 0.16%+
Ratio of net investment
income to average net
assets 6.09% 6.09%+
Portfolio turnover rate 19% 12%
Ratio of operating expenses
to average net assets
without waivers and/or
expense reimbursements 0.80% 0.81%+
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.55 $ 0.08
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Primary A Shares commenced
operations on September 20, 1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
36
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.62 $ 8.29
Net investment income 0.16 0.51
Net realized and unrealized gain/(loss) on investments (0.24) 1.33
Net increase/(decrease) in net asset value from operations (0.08) 1.84
Dividends from net investment income (0.16) (0.51)
Total dividends and distributions (0.16) (0.51)
Net asset value, end of period $ 9.38 $ 9.62
Total return++ (0.84)% 22.63%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,296 $ 3,527
Ratio of operating expenses to average net assets 0.60%+ 0.39%(a)
Ratio of operating expenses to average net assets including interest expense 0.61%+ --
Ratio of net investment income to average net assets 5.06%+ 5.51%
Portfolio turnover rate 8% 16%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.07%+ 1.04%
Net investment income per share without waivers and/or expense reimbursements $ 0.14 $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.45
Net realized and unrealized gain/(loss) on investments (1.71)
Net increase/(decrease) in net asset value from operations (1.26)
Dividends from net investment income (0.45)
Total dividends and distributions (0.45)
Net asset value, end of period $ 8.29
Total return++ (12.86)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 432
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of operating expenses to average net assets including interest expense --
Ratio of net investment income to average net assets 5.52%+
Portfolio turnover rate 61%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.99%+
Net investment income per share without waivers and/or expense reimbursements $ 0.38
</TABLE>
* Nations Virginia Municipal Bond Fund Primary A Shares commenced operations on
January 11, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
MONEY MARKET FUNDS:
Each Money Market Fund described below endeavors to achieve its investment
objective by investing in a diversified portfolio of high quality money market
instruments with maturities of 397 days or less from the date of purchase.
Securities subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
EQUITY FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
37
<PAGE>
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
NATIONS EQUITY INDEX FUND: Nations Equity Index Fund's investment objective is
to seek investment results that correspond, before fees and expenses, to the
total return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index" 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 Index.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing primarily in
investment grade fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
NATIONS MUNICIPAL INCOME FUND: The investment objective of Nations Municipal
Income Fund is to seek current income exempt from Federal income tax, consistent
with prudent investment risk.
NATIONS SHORT-TERM MUNICIPAL INCOME FUND: The investment objective of Nations
Short-Term Municipal Income Fund is to seek current income exempt from Federal
income tax consistent with minimal fluctuation of principal.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: Nations Intermediate Municipal Bond
Fund's investment objective is to seek current income exempt from Federal income
tax, consistent with moderate fluctuation of principal.
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND: Nations Florida Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal income tax and the Florida state intangibles tax consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS FLORIDA MUNICIPAL BOND FUND: Nations Florida Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax
and the Florida state intangibles tax, consistent with prudent investment risk,
by investing primarily in long-term, investment grade municipal securities.
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Georgia Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Georgia state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
38
<PAGE>
NATIONS GEORGIA MUNICIPAL BOND FUND: Nations Georgia Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Georgia
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND: Nations Maryland Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Maryland state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
NATIONS MARYLAND MUNICIPAL BOND FUND: Nations Maryland Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Maryland
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations North Carolina
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal and North Carolina state income taxes consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND: Nations North Carolina Municipal
Bond Fund's investment objective is to seek current income exempt from Federal
and North Carolina state income taxes, consistent with prudent investment risk,
by investing primarily in long-term, investment grade municipal securities.
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations South Carolina
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal and South Carolina state income taxes consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND: Nations South Carolina Municipal
Bond Fund's investment objective is to seek current income exempt from Federal
and South Carolina state income taxes, consistent with prudent investment risk,
by investing primarily in long-term, investment grade municipal securities.
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND: Nations Tennessee
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade municipal securities.
NATIONS TENNESSEE MUNICIPAL BOND FUND: Nations Tennessee Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax
and the Tennessee Hall Income Tax on unearned income consistent with prudent
investment risk by investing primarily in long-term, investment grade municipal
securities.
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND: Nations Texas Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal income tax consistent with moderate fluctuation of principal by
investing primarily in intermediate-term, investment grade municipal securities.
NATIONS TEXAS MUNICIPAL BOND FUND: Nations Texas Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax,
consistent with prudent investment risk, by investing primarily in long-term,
investment grade municipal securities.
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Virginia Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Virginia state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
NATIONS VIRGINIA MUNICIPAL BOND FUND: Nations Virginia Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Virginia
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations South Carolina
Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund and Nations Virginia
Intermediate Municipal Bond Fund, sometimes collectively referred to as the
"State Intermediate Municipal Bond Funds," and Nations Florida Municipal Bond
Fund, Nations Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations North Carolina Municipal Bond Fund, Nations South Carolina Municipal
Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas Municipal Bond
Fund and Nations Virginia Municipal Bond Fund, sometimes collectively referred
to as the "State Municipal Bond Funds".
39
<PAGE>
How Objectives Are Pursued
MONEY MARKET FUNDS:
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations") and other obligations issued
or guaranteed as to payment of principal and interest by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Obligations"). Some U.S.
Government Obligations 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 are supported by the right of the issuer to
borrow from the U.S. Government, such as obligations of Federal Home Loan Banks,
and some are backed only by the credit of the issuer itself, such as obligations
of the Federal National Mortgage Association ("FNMA"). U.S. Government
Obligations also include U.S. Treasury Obligations, which differ only in their
interest rates, maturities and times of issuance. The Fund also may invest in
bank and commercial instruments that may be available in the money markets, high
quality short-term taxable obligations issued by state and local governments,
their agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified first tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and in instruments issued by trusts or certain partnerships, including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such trusts or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in obligations the
principal and interest of which are backed by the full faith and credit of the
United States Government, provided that such Fund shall, under normal market
conditions, invest at least 65% of its total assets in U.S. Treasury bills,
notes and bonds and other instruments issued directly by the U.S. Government.
The Fund also may lend its portfolio securities to qualified institutional
investors. For more information concerning these instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund may lend its
portfolio securities to qualified institutional investors. For more information
concerning these instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: In pursuing its investment objective, the Fund invests
in a diversified portfolio of obligations issued by or on behalf of states,
territories, and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel to the issuer or bond counsel, is
exempt from regular Federal income tax ("Municipal Securities"). The Fund will
not knowingly purchase securities the interest on which is subject to such tax.
A portion of the Fund's assets, however, may be invested in private activity
bonds, the interest on which may be treated as a specific tax preference item
under the Federal alternative minimum tax. See "How Dividends And Distributions
Are Made; Tax Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "A" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation
("S&P"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"), Thomson
BankWatch, Inc. ("BankWatch"), or Moody's Investors Service, Inc. ("Moody's"),
in the case of bonds; rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"SP-1" by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher
by D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of
variable-rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by
Fitch, "A-1" or higher by S&P or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by Nations
Fund Trust's Board of Trustees. The applicable Municipal Securities ratings are
described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
40
<PAGE>
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. For more information concerning the Fund's investments, see "Appendix
A."
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 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-to-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.
The Fund invests under normal market conditions 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 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 up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in U.S. Government Obligations, and
investment grade securities of domestic companies. 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.
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 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.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, 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. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
41
<PAGE>
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, 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 and government 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 up to 20%
of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such 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.
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 companies 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 companies 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 may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers and securities of foreign investment
funds or trusts. 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
equity securities of companies in emerging markets.
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.
Emerging markets include, but are not limited to: Argentina, Brazil, Chile,
China, Czech Republic, Colombia, Ecuador, Greece, Hong Kong, Indonesia, India,
Malaysia, Mexico, the Philippines, Poland, Portugal, Peru, Russia, Singapore,
South Africa, Thailand, Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. A company will
be considered to conduct its principal business activities in a country, market
or region if it derives a significant portion (at least 50%) of its revenues or
profits from goods produced or sold, investments made, or services performed in
such country, market or region or has at least
42
<PAGE>
50% of its assets situated in such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's 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 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.
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 in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in 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 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
mar-
43
<PAGE>
kets 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
types of companies:
(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.
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 up to 20% of its total assets in 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.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
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. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities.
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 pursu-
44
<PAGE>
ing 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 an NRSRO 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 up to 20% of its total assets in 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 among common stocks 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
closely 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.
The correlation between the performance of Nations Equity Index Fund and the S&P
500 Index is expected to be over 0.95 on an annual basis. A correlation of 1.00
would indicate perfect correlation, which would be achieved when the net asset
value of the Fund, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
500 Index. The Fund's ability to track the S&P 500 Index, however, may be
affected by, among other things, transaction costs, changes in either the
composition of the S&P 500 Index or the number of shares outstanding for the
components of the S&P 500 Index, and the timing and amount of shareholder
purchase and redemptions. The Fund may utilize stock index futures contracts to
minimize tracking error. In connection with engaging in futures transactions,
the Fund may hold cash, cash equivalents, and/or U.S. government securities.
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
45
<PAGE>
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. The Fund may also invest
in warrants. 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. 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. 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.
GENERAL: Each Equity Fund also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Each Equity Fund may lend its portfolio securities to
qualified institutional investors. Each Equity Fund also may invest in
restricted, private placement and other illiquid securities. Each Equity Fund
(except Nations Equity Index Fund) also may invest in real estate investment
trust securities. In addition, each Equity Fund may invest in securities issued
by other investment companies, consistent with the Fund's investment objective
and policies.
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 classes in which the Fund 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. These asset classes are actively managed in
an effort to maximize total return. In general, the Adviser believes that common
stocks offer the best opportunity for long-term capital appreciation.
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. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as 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 to instruments so rated. Obligations with
the lowest investment grade rating (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. Unrated obligations may be acquired by the Fund
if they are determined by the Adviser to be of comparable quality at the time of
purchase to rated obligations that may be acquired.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in 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
antici-
46
<PAGE>
pated redemption requests, or as a temporary defense measure if market
conditions warrant.
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 may invest in real estate investment trust securities. The Fund also may
invest in restricted, private placement and other illiquid securities, and also
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: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will not exceed seven years
and the duration will not exceed five years. 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.
The Fund also 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; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers 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 and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will be greater than four
years and the Fund's duration is expected to be in a range of 3.5 to six years.
The Fund also 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; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers 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. Under normal market conditions, it is
expected that the average weighted maturity of the Fund's portfolio will be
greater than four years. Duration is expected to be 3.5 to six years. For a more
detailed description of the investment practices of this Fund, see "Appendix A".
The Fund also may invest in "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 Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity and duration of the Fund's portfolio will not exceed three
years.
The Fund may invest in corporate convertible and non-convertible 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; and
mortgage-related securities of governmental issuers or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed and municipal 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.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities. As noted above, the Fund
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<PAGE>
will invest in investment grade debt obligations. 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 invest in "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 circumstances warrant.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity of the Fund's portfolio will be greater than five years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed- and variable-rate bonds; U.S. Government Obligations;
dollar-denominated and non-dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
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.
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 "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.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade debt obligations. It is expected that
the average weighted maturity of the Fund's portfolio will be 10 years or less
and under no circumstances will it exceed 15 years.
The 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; mortgage-backed securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund may invest in long-term, intermediate-term and short-term
securities. Under normal market conditions, it is expected that the average
weighted maturity of the Fund's portfolio will be 10 years or less. Pursuant to
its investment objective, the Fund also may invest in dividend paying preferred
and common stock.
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<PAGE>
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
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 invest in "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.
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 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.
NATIONS MUNICIPAL INCOME FUND, NATIONS SHORT-TERM MUNICIPAL INCOME FUND AND
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: In pursuing their objectives, the
Funds will invest at least 80% of the total value of their assets in investment
grade obligations
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issued by or on behalf of states, territories, and possessions of the United
States, the District of Columbia, and their political subdivisions, agencies,
instrumentalities, and authorities, the interest on which, in the opinion of
counsel to the issuer or bond counsel, is exempt from Federal income tax
("Municipal Securities"). To the extent consistent with the Funds' investment
approach described in this Prospectus, the Funds are managed to seek capital
appreciation and minimize capital losses due to interest rate movements.
Under normal market conditions, the average weighted maturity and duration of
each of the Funds' portfolios are expected to be as follows: Nations Municipal
Income Fund -- average weighted maturity greater than 10 years and duration
between 7.5 and 9.5 years; Nations Intermediate Municipal Bond Fund -- average
weighted maturity between three and 10 years and duration between five and six
years; Nations Short-Term Municipal Income Fund -- average weighted maturity
less than three years and duration between 1.25 and 2.75 years.
Municipal Securities will be rated investment grade at the time of purchase by
at least one of the following nationally recognized statistical rating
organizations: D&P, Fitch, S&P, Moody's, IBCA or BankWatch (collectively,
"NRSROs") or, if unrated, determined by the Adviser to be of comparable quality
at the time of purchase to rated obligations that may be acquired by a Fund.
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 a Fund, an issue of Municipal Securities may cease to be rated, or
its rating may be reduced below the minimum rating required for purchase by a
Fund. The Adviser will consider such an event in determining whether a Fund
should continue to hold the obligation. See "Appendix B" for a description of
these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by a Fund include repurchase agreements and short-term debt
securities. Under normal market conditions, each Fund's investments in taxable
obligations and private activity bonds, the interest on which may be treated as
a specific tax preference item under the Federal alternative minimum tax, will
not exceed 20% of its total assets at the time of purchase. The Funds may hold
uninvested cash reserves pending investment or during defensive periods.
STATE INTERMEDIATE MUNICIPAL BOND FUNDS AND STATE MUNICIPAL BOND FUNDS: Under
normal market conditions, at least 80% of the total value of the assets of the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
be invested in Municipal Securities, and substantially all of each Fund's assets
will be invested in debt instruments issued by or on behalf of the pertinent
state and its political subdivisions, agencies, instrumentalities and
authorities ("Municipal Securities"). Under normal market conditions, the
average weighted maturity and duration of each of the State Intermediate
Municipal Bond Funds and State Municipal Bond Funds are expected to be as
follows: State Intermediate Municipal Bond Funds -- average weighted maturity
between three and 10 years and duration between five and six years; State
Municipal Bond Funds -- average weighted maturity greater than 10 years and
duration greater than 10 years.
Each of the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds operates as a non-diversified fund (except to the extent diversification
is required for Federal income tax purposes).
Dividends paid by each of these Funds which are derived from interest
attributable to tax-exempt obligations of the pertinent state and that state's
political subdivisions, agencies, instrumentalities and authorities, as well as
certain other governmental issuers such as Puerto Rico, will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state. Texas and Florida do not impose a state
income tax; however, Florida imposes a state intangibles tax. Dividends derived
from interest on obligations of other governmental issuers will be exempt from
regular Federal income tax, but generally will be subject to state income tax
(with the exception of Texas and Florida). (See "How Dividends And Distributions
are Made; Tax Information.") During normal market conditions and as a matter of
fundamental investment policy, each of these Funds will invest at least 80% of
its total assets in obligations the interest on which will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state.
Municipal Securities acquired by the Funds will be rated investment grade at the
time of purchase at least one NRSRO or, if unrated, determined by the Adviser to
be of comparable quality at the time of purchase to rated obligations that may
be acquired by the Funds. 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 a Fund, an issue of Municipal Securities may cease
to be rated or its rating may be reduced below the minimum rating required for
purchase by a Fund. The
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Adviser will consider such an event in determining whether a Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by the Funds include repurchase agreements and short-term
debt securities. Under normal market conditions, each Fund's investments in
taxable obligations and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax, will not exceed 20% of its total assets at the time of purchase.
GENERAL: Each of the Funds 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 the Funds also may
lend its portfolio securities to qualified institutional investors and may
invest in restricted, private placement and other illiquid securities. 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 engage in reverse repurchase agreements and dollar roll
transactions. 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. Nations Tax Exempt Fund may invest more than 40% of its
portfolio in puts or other securities guaranteed by banks and other financial
institutions. Accordingly, changes in the credit quality of these institutions
could cause losses to the Fund and affect its share price. Certain government
securities that have variable or floating interest rates or demand, put or
prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity and duration of the Funds. The Funds also may invest in instruments
issued by trusts or certain partnerships including pass-through certificates
representing participations in, or debt instruments backed by, the securities
and other assets owned by such trusts or partnerships.
For more information concerning these and other investments in which the Funds
may invest and their investment practices, see "Appendix A." Although changes in
the value of securities subsequent to their acquisition are reflected in the net
asset value of the Funds' shares, such changes will not affect the income
received by the Funds from such securities. However, since available yields vary
over time, no specific level of income can ever be assured. The dividends paid
by the Funds will increase or decrease in relation to the income received by the
Funds from their investments, which will in any case be reduced by the Funds'
expenses before being distributed to the Funds' shareholders.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN 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 investing. In addition, each
Fund presents unique risks that investors should be aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in 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.
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.
Nations Global Government Income Fund's yield and share price will change based
on changes in domestic or
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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 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.
Certain government securities that have variable or floating interest rates or
demand, put or prepayment features or paydown schedules may be deemed to have
remaining maturities shorter than their nominal maturities for purposes of
determining the average weighted maturity and duration of the Funds.
For more information concerning these and other investments in which the Funds
may invest and the Funds' investment practices, see "Appendix A."
PORTFOLIO TURNOVER (NON-MONEY MARKET FUNDS): Generally, the Equity Funds, the
Balanced Fund and the Bond Funds (the "Non-Money Market Funds") will purchase
portfolio securities for capital appreciation or investment income, or both, and
not for short-term trading profits. If a Fund's annual portfolio turnover rate
exceeds 100%, it may result in higher brokerage costs and possible tax
consequences for the Fund and its shareholders. For the Funds' portfolio
turnover rates, see "Financial Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods. The value
of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
Since each of the State Intermediate Municipal Bond Funds and State Municipal
Bond Funds invests primarily in securities issued by entities located in a
single state, such Funds are more susceptible to changes in value due to
political or economic changes affecting that state or its subdivisions.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with such Funds'
investment objectives and do not unduly increase the Funds' 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.
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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 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.
Nations Prime Fund, Nations Treasury Fund, Nations Government Money Market Fund,
Nations Tax Exempt Fund, 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 Balanced Assets
Fund, Nations Short-Intermediate Government Fund, Nations Government Securities
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund, Nations Intermediate Municipal Bond Fund, Nations
Municipal Income Fund and Nations Short-Term Municipal 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, the State Intermediate Municipal Bond
Funds and the State Municipal Bond Funds 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 a Fund's
total assets would be invested in the securities of one issuer, and with
respect to 50% of such Fund's total assets, more than 5% of its assets
would be invested in the securities of one issuer.
In addition, as a matter of non-fundamental policy, the Nations Tax Exempt Fund
may not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations.
Also, as a matter of fundamental policy, except during defensive periods, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
invest at least 80% of their respective total net assets in Municipal Securities
the interest on which is exempt from Federal income tax and the pertinent
state's income taxes (with the exception of Texas and Florida). Similarly, as a
matter of fundamental policy, except during defensive periods, Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund and Nations Intermediate
Municipal Bond Fund will invest at least 80% of their respective total net
assets in Municipal Securities the interest on which is exempt from Federal
income taxes. For purposes of these fundamental policies, private activity bonds
are included in the term "Municipal Securities" only if the interest paid
thereon is exempt from Federal income tax and not treated as a specific tax
preference item under the Federal alternative minimum tax.
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 current position and
needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Money Market
Funds to value their investments on the basis of amortized cost, investments
must be in accordance with the requirements of Rule 2a-7 under the 1940 Act,
some of which are described below. A Money Market Fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with a
remaining maturity of more than 397 days, provided such obligations are subject
to demand features or resets and to maintaining a dollar-weighted average
portfolio maturity of 90 days or less. Quality requirements generally limit
investments to U.S. dollar-denominated instruments determined to present minimal
credit risks and that at the time of acquisition are rated in the first or
second rating catego-
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ries (known as "first tier" and "second tier" securities, respectively) by the
required number of NRSROs (at least two or, if only one NRSRO has rated the
security, that one NRSRO) or, if unrated by any NRSRO, are (i) comparable in
priority and security to a class of short-term securities of the same issuer
that has the required rating, or (ii) determined to be comparable in quality to
securities having the required rating. The diversification requirements provide
generally that a Money Market Fund may not at the time of acquisition invest
more than 5% of its assets in securities of any one issuer except that up to 25%
of total assets may be invested in the first tier securities of a single issuer
for three business days. Additionally, (except for Nations Tax Exempt Fund) no
more than 5% of total assets may be invested, at the time of the acquisition, in
second tier securities in the aggregate, and any investment in second tier
securities of one issuer is limited to the greater of 1% of total assets or one
million dollars. Securities issued by the U.S. Government, its agencies,
authorities or instrumentalities, are exempt from the quality requirements,
other than minimal credit risk. In the event that a Money Market Fund's
investment restrictions or permissible investments are more restrictive than the
requirements of Rule 2a-7, the Money Market Fund's own restrictions will govern.
How Performance Is Shown
MONEY MARKET FUNDS: From time to time the Money Market Funds may advertise the
yield and effective yield on a class of shares and Nations Tax Exempt Fund also
may advertise the tax-equivalent yield of a class of shares. YIELD, EFFECTIVE
YIELD AND TAX-EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a class of shares in a
Fund refers to the income generated by an investment in such class over a
seven-day period identified in the advertisement. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but, when annualized, the income earned by an investment in a class
of shares in the Fund is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. The "tax-equivalent yield" of each class of shares in
Nations Tax Exempt Fund shows the level of taxable yield needed to produce an
after-tax equivalent to such class's tax-free yield. This is done by increasing
the class's yield (calculated as above) by the amount necessary to reflect the
payment of Federal income tax at a stated tax rate.
NON-MONEY MARKET FUNDS: From time to time the Non-Money Market Funds may
advertise the total return and yield on a class of shares. Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate
Municipal Bond Fund, the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds also may advertise the tax-equivalent yield of a class of
shares. TOTAL RETURN, YIELD AND TAX-EQUIVALENT YIELD FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
"total return" of a class of shares of Non-Money Market 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.
The "tax-equivalent yield" of Nations Municipal Income Fund, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund, the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds also may be
quoted from time to time, which shows the level of taxable yield needed to
produce an after-tax equivalent to the Fund's tax-free yield. This is done by
increasing the Fund's yield (calculated as above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate.
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.
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In addition to Primary A Shares, the Money Market Funds offer Primary B,
Investor A, Investor B, Investor C and Investor D Shares. In addition to Primary
A Shares, the Non-Money Market Funds offer Primary B, 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 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 an investor's Institution, as defined below.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios are managed under the direction of their Board of Trustees
and Boards of Directors, respectively. Nations Fund Trust's SAI contains the
names of and general background information concerning each Trustee of Nations
Fund Trust. Nations Fund, Inc.'s and Nations Portfolios' SAIs contain the names
of and general background information concerning each Director of Nations Fund,
Inc. and Nations Portfolios.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Gartmore serves as sub-investment adviser. TradeStreet is a wholly owned
subsidiary of NationsBank. TradeStreet provides investment management services
to individuals, corporations and institutions.
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. 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, an indirect
wholly owned subsidiary of Gartmore Investment Management plc ("Gartmore plc"),
a UK company which is the holding company for a leading UK-based international
fund management group of companies, National Westminster Bank plc and affiliated
entities (collectively, "Natwest") own 100% of the equity of Gartmore Investment
Management plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management ("Nations Gartmore"), the
predecessor to Gartmore, pursuant to sub-advisory agreements among NBAI, Nations
Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively, on behalf
of the Funds. Nations Gartmore was a joint venture structured as a general
partnership between NB Partner Corp. and Gartmore U.S. Limited. On April 10,
1996, NatWest acquired a controlling interest in Gartmore plc from Compagnie de
Suez and affiliated entities ("Compagnie de Suez") through a direct purchase
from Compagnie de Suez of its indirect subsidiary Indosuez UK Asset Management
Limited, which held 75% of Gartmore plc's outstanding voting securities (the
"Acquisition"). NatWest acquired the remaining portion of Gartmore plc's shares
held by public shareholders through a tender offer. Gartmore is the successor
entity resulting from the Acquisition and change of control of Nations Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in the personnel who provide services under the
new Sub-Advisory Agreements, and the Funds receive the same sub-advisory
services, provided in the same manner and at the same fee levels, as they
received under the Previous Sub-Advisory Agreements.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments
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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 and Nations
Tax Exempt Fund, 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 has a lending
relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus 0.20% of the combined average daily net assets of such Funds
in excess of $250 million; 0.40% of the average daily net assets of each of
Nations Government Money Market Fund and Nations Tax Exempt Fund; 0.50% of the
average daily net assets of each of the Nations Equity Index Fund, Nations
Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund and
the State Intermediate Municipal Bond Funds; 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, Nations Strategic Fixed
Income Fund, Nations Municipal Income Fund and the State Municipal Bond Funds;
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
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 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 expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.055% of Nations Prime Fund's, Nations
Treasury Fund's, Nations Government Money Market Fund's and Nations Tax Exempt
Fund's average daily net assets; 0.20% of Nations Equity Income Fund's average
daily net assets; 0.10% of Nations Equity Index Fund's average daily net assets;
0.25% of Nations Value Fund's, Nations Balanced Assets Fund's, Nations Capital
Growth Fund's, Nations Emerging Growth Fund's and Nations Disciplined Equity
Fund's average daily net assets; 0.15% of Nations Short-Intermediate Government
Fund's, Nation's Government Securities Fund's, Nations Short-Term Income Fund's,
Nations Diversified Income Fund's and Nations Strategic Fixed Income Fund's
average daily net assets; and 0.07% of Nations Municipal Income Fund's, Nations
Short-Term Municipal Income Fund's, Nations Intermediate Municipal Bond Fund's,
Nations Florida Municipal Bond Fund's, Nations Georgia Municipal Bond Fund's,
Nations Maryland Municipal Bond Fund's, Nations North Carolina Municipal Bond
Fund's, Nations South Carolina Municipal Bond Fund's, Nations Tennessee
Municipal Bond Fund's, Nations Texas Municipal Bond Fund's, Nations Virginia
Municipal Bond Fund's, Nations Florida Intermediate Municipal Bond Fund's,
Nations Georgia Intermediate Municipal Bond Fund's, Nations Maryland
Intermediate Municipal Bond Fund's, Nations North Carolina Intermediate
Municipal Bond Fund's, Nations South Carolina Intermediate Municipal Bond
Fund's, Nations Tennessee Intermediate Municipal Bond Fund's, Nations Texas
Intermediate Municipal Bond Fund's and Nations Virginia Intermediate Municipal
Bond Fund's average daily net assets.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
Gartmore is entitled to receive from NBAI sub-advisory fees, computed daily and
paid monthly, at the annual rate of 0.70% of Nations International Equity Fund's
average daily net assets; 0.85% of Nations Emerging Markets Fund's average daily
net assets; 0.70% of Nations Pacific Growth Fund's average daily net assets and
0.54% of Nations Global Government Income Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet and/or Nations Gartmore) may waive
or reimburse (either voluntarily or pursuant to applicable state limitations)
advisory fees or expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; Nations Tax Exempt
Fund -- 0.13%; Nations Value Fund -- 0.75%; Nations Capital Growth
Fund -- 0.75%; Nations Emerging
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Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%; Nations Equity
Index Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%; Nations Short-
Intermediate Government Fund -- 0.37%; Nations Short-Term Income Fund -- 0.27%;
Nations Diversified Income Fund -- 0.50%; Nations Strategic Fixed Income
Fund -- 0.50%; Nations Municipal Income Fund -- 0.30%; Nations Short-Term
Municipal Income Fund -- 0.06%; Nations Intermediate Municipal Bond Fund --
0.17%; Nations Florida Intermediate Municipal Bond Fund -- 0.14%; Nations
Florida Municipal Bond Fund -- 0.26%; Nations Georgia Intermediate Municipal
Bond Fund -- 0.17%; Nations Georgia Municipal Bond Fund -- 0.10%; Nations
Maryland Intermediate Municipal Bond Fund -- 0.20%; Nations Maryland Municipal
Bond Fund -- 0%; Nations North Carolina Intermediate Municipal Bond
Fund -- 0.13%; Nations North Carolina Municipal Bond Fund -- 0.23%; Nations
South Carolina Intermediate Municipal Bond Fund -- 0.18%; Nations South Carolina
Municipal Bond Fund -- 0.10%; Nations Tennessee Intermediate Municipal Bond
Fund -- 0%; Nations Tennessee Municipal Bond Fund -- 0%; Nations Texas
Intermediate Municipal Bond Fund -- 0.11%; Nations Texas Municipal Bond
Fund -- 0.12%; Nations Virginia Intermediate Municipal Bond Fund -- 0.24%; and
Nations Virginia Municipal Bond Fund -- 0.16%.
For the fiscal period ended March 31, 1996, NationsBank reimbursed expenses at
the indicated rates of the following Funds' average daily net assets: Nations
Georgia Municipal Bond Fund -- 0.02%; Nations Maryland Municipal Bond
Fund -- 0.16%; Nations South Carolina Municipal Bond Fund -- 0.01%; Nations
Tennessee Municipal Bond Fund -- 0.19%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; Nations Treasury Fund -- 0.18%; Nations
Equity Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and
Nations Government Securities Fund -- 0.48%.
For the fiscal period from June 30, 1995 to December 31, 1995, after waivers,
Nations Portfolios paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth Fund --
0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; Nations Tax Exempt
Fund -- 0.13%; Nations Value Fund -- 0.75%; Nations Capital Growth
Fund -- 0.75%; Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity
Fund -- 0.75%; Nations Equity Index Fund -- 0.09%; Nations Balanced Assets
Fund -- 0.75% Nations Short-Intermediate Government Fund -- 0.37%; Nations
Short-Term Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%;
Nations Strategic Fixed Income Fund -- 0.50%; Nations Municipal Income
Fund -- 0.30%; Nations Short-Term Municipal Income Fund -- 0.06%; Nations
Intermediate Municipal Bond Fund -- 0.17%; Nations Florida Intermediate
Municipal Bond Fund -- 0.14%; Nations Florida Municipal Bond Fund -- 0.26%;
Nations Georgia Intermediate Municipal Bond Fund -- 0.17%; Nations Georgia
Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate Municipal Bond
Fund -- 0.20%; Nations Maryland Municipal Bond Fund -- 0%; Nations North
Carolina Intermediate Municipal Bond Fund -- 0.13%; Nations North Carolina
Municipal Bond Fund -- 0.23%; Nations South Carolina Intermediate Municipal Bond
Fund -- 0.18%; Nations South Carolina Municipal Bond Fund -- 0.10%; Nations
Tennessee Intermediate Municipal Bond Fund -- 0%; Nations Tennessee Municipal
Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond Fund -- 0.11%;
Nations Texas Municipal Bond Fund -- 0.12%; Nations Virginia Intermediate
Municipal Bond Fund -- 0.24%; and Nations Virginia Municipal Bond Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; Nations Treasury Fund -- 0.18%; Nations
Equity Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and
Nations Government Securities Fund -- 0.48%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- 0.055%; Nations Tax Exempt Fund -- 0.055%;
Nations Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations
Emerging Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations
Equity Index Fund -- 0.10%; Nations Balanced Assets Fund -- 0.25%; Nations
Short-Intermediate Government Fund -- 0.15%; Nations Short-Term Income
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Fund -- 0.15%; Nations Diversified Income Fund -- 0.15%; Nations Strategic Fixed
Income Fund -- 0.15%; Nations Municipal Income Fund -- 0.07%; Nations Short-Term
Municipal Income Fund -- 0.07%; Nations Intermediate Municipal Bond
Fund -- 0.07%; Nations Florida Intermediate Municipal Bond Fund -- 0.07%;
Nations Florida Municipal Bond Fund -- 0.07%; Nations Georgia Intermediate
Municipal Bond Fund -- 0.07%; Nations Georgia Municipal Bond Fund -- 0.07%;
Nations Maryland Intermediate Municipal Bond Fund -- 0.07%; Nations Maryland
Municipal Bond Fund -- 0.07%; Nations North Carolina Intermediate Municipal Bond
Fund -- 0.07%; Nations North Carolina Municipal Bond Fund -- 0.07%; Nations
South Carolina Intermediate Municipal Bond Fund -- 0.07%; Nations South Carolina
Municipal Bond Fund -- 0.07%; Nations Tennessee Intermediate Municipal Bond
Fund -- 0.07%; Nations Tennessee Municipal Bond Fund -- 0.07%; Nations Texas
Intermediate Municipal Bond Fund -- 0.07%; Nations Texas Municipal Bond
Fund -- 0.07%; Nations Virginia Intermediate Municipal Bond Fund -- 0.07%;
Nations Virginia Municipal Bond Fund -- 0.07%; Nations Prime Fund -- 0.055%;
Nations Treasury Fund -- 0.055%; Nations Equity Income Fund -- .20%; and Nations
Government Securities Fund -- 0.15%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors sub-advisory fees at the indicated rates of the following
Funds' average daily net assets: Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income
Fund -- 0.54%.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. She has worked in the
investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysts.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund. He has been
Portfolio Manager for Nations Equity Index Fund since 1993. Prior to assuming
his position with TradeStreet, he was Vice President and Structured Products
Manager for the Investment Management Group at NationsBank. He has worked in the
investment community since 1990. His past experience includes portfolio
management, derivatives management and quantitative analysis for the Investment
Management Group at NationsBank and Sovran Bank of Tennessee. Mr. Golden
received a B.B.A. in Finance from Belmont University. He is a Chartered
Financial Analyst candidate and a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager of the Nations Prime since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been the
Portfolio Manager of Nations Value Fund since 1989. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Herrmann has worked for
the Investment Management Group at NationsBank since 1981 where her
responsibilities included fund management and institutional portfolio
management. She attended Virginia Wesleyan College. Ms. Herrmann holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been the Portfolio Manager for Nations Equity Income Fund since
1991. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Manage-
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<PAGE>
ment Group at NationsBank. He has worked in the investment community since 1980.
His past experience includes fund analysis and portfolio management for National
Bank of Detroit. Mr. Williams received a B.S. in Accounting from East Carolina
University, Summa Cum Laude and an M.B.A. from Indiana University. He holds the
Chartered Financial Analyst designation, is on the Advisory Board of Indiana
University's Investment Management Academy, and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Stephen Watson has been Principal Portfolio Manager for 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 Ehrmann is Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Gartmore Emerging Markets Team. He has been Portfolio
Manager for Nations Emerging Markets Fund since the Fund's inception. 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 Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been Portfolio Manager for Nations Pacific Growth Fund since the Fund's
inception. 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.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has worked in the financial investment community since 1981. His
past experience includes portfolio management, equity research and financial
analysis for the Investment Management Group at NationsBank and Duke Power
Company. Mr. Sanders received a B.A. in Economics from the University of
Michigan and an M.B.A. from University of North Carolina at Charlotte. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been the Portfolio Manager for Nations Emerging
Growth Fund since 1992. Prior to assuming his position with TradeStreet, he was
Senior Vice President and Senior Portfolio Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1968. His
past experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager of the Nations Disciplined Equity Fund
since 1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from Mount St. Mary's College and an M.B.A. from Kent State University. She
holds the Chartered Financial
59
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Analyst designation and is a member of the Association for Investment Management
and Research as well as the North Carolina Society of Security Analysts, Inc.
She is also a member of the National Association for Petroleum Investment
Analysts and the World Affairs Council of Washington, D.C.
Mark Rimmer is the Principal Portfolio Manager for Nations Global Government
Income Fund and has been an International Fixed Income Manager with the Gartmore
Group since 1990. He has been Portfolio Manager for Nations Global Government
Income Fund since 1995. 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.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and the Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud
has been the Portfolio Manager for the Nations Diversified Income Fund since
1992. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Ahnrud has worked for the Investment Management Group at
NationsBank since 1985 where his responsibilities initially included
institutional investment management sales and later involved high yield credit
analysis. Mr. Ahnrud received a dual B.S. in Finance and Investments from Babson
College and an M.B.A. from Duke University, Fuqua School of Business. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Michele M. Poirier is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and Senior Portfolio Manager for Nations Municipal
Income Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida
Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond
Fund and Nations South Carolina Municipal Bond Fund. Ms. Poirier has been
Portfolio Manager for Nations Municipal Income Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond
Fund, and South Carolina Intermediate Municipal Bond Fund since 1992. She has
been Portfolio Manager for the other Funds since 1993. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. She has worked in
the investment community since 1974. Her past experience includes serving as
Director of Trading, Institutional Sales, and Municipal Trader for Financial
Service Corporation, Bankers Trust Company and The Robinson-Humphrey Company
respectively. Ms. Poirier received a B.B.A. in Marketing from Georgia State
University.
Mathew M. Kiselak is a Product Manager, Municipal Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Short-Term Municipal Income Fund,
Nations North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations
Tennessee Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund
and Nations Texas Municipal Bond Fund. Mr. Kiselak has been Portfolio Manager
for Nations North Carolina Intermediate Municipal Bond Fund and Nations North
Carolina Municipal Bond Fund since 1995. He has been Portfolio Manager for the
other Funds since 1994. Prior to assuming his position with TradeStreet, he was
Vice President and Portfolio Manager for the Investment Management Group at
NationsBank. He has worked in the investment community since 1987. His past
experience includes Portfolio Manager and Municipal Credit Analysis for Reich &
Tang Inc. Mr. Kiselak received a B.A. in Economics from Pace University.
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John C. Kohl is a Director of Municipal Fixed Income Management and Municipal
Fixed Income Management for TradeStreet. He is responsible for overseeing all
municipal product management and is the Senior Portfolio Manager for Nations
Intermediate Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond
Fund, Nations Maryland Municipal Bond Fund, Nations Virginia Intermediate
Municipal Bond Fund and Nations Virginia Municipal Bond Fund. Mr. Kohl has been
Portfolio Manager for the Funds since 1994. Prior to assuming his position with
TradeStreet, he was Senior Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Kohl has worked in the
investment community since 1979. His past experience includes serving as Chief
Investment Officer for London Pacific Life & Annuity, Team Leader and Portfolio
Manager for Harris Trust and Savings Bank, and Management Consultant for
asset-liability of Continental Bank. Mr. Kohl received a joint B.A. in Economics
and North American Studies from McGill University.
David M. Hetherington, CFA, is a Director of TradeStreet and Managing Director
of Fixed Income Management. Mr. Hetherington is responsible for overseeing all
fixed income product management and is Senior Portfolio Manager for Nations
Short-Term Income Fund. Mr. Hetherington has been Portfolio Manager for Nations
Short-Term Income Fund since 1995. Previously he was Senior Vice President and
Director of Fixed Income for the Investment Management Group at NationsBank. Mr.
Hetherington has worked in the investment community since 1975. His past
experience includes working as a portfolio manager, a trust investment officer
and a securities analyst for First Citizens Bank and Deposit Guarantee as well
as working as an Economist for the U.S. Department of Labor in the Bureau of
Labor Statistics. Mr. Hetherington received a B.A. in Economics from Duke
University. He holds the Chartered Financial Analyst designation and is a member
of the Association for Investment Management and Research.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any of such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Government Money
Market Fund, Nations Tax Exempt Fund -- 0.09%; 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, Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate
Municipal Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations
Florida Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund,
Nations Georgia Municipal Bond Fund, Nations Maryland Intermediate Municipal
Bond Fund, Nations Maryland Municipal Bond Fund, Nations North Carolina
Intermediate Municipal Bond Fund, Nations North Carolina Municipal Bond Fund,
Nations South Carolina Intermediate Municipal Bond Fund, Nations South Carolina
Municipal Bond Fund,
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Nations Tennessee Intermediate Municipal Bond Fund, Nations Tennessee Municipal
Bond Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Texas
Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund, and
Nations Virginia Municipal Bond Fund -- 0.10%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
Nations Treasury Fund -- 0.05%; Nations Equity Income Fund -- 0.10%; Nations
International Equity Fund -- 0.10%; and Nations Government Securities
Fund -- 0.10%.
For the fiscal period from June 30, 1995 to March 31, 1996, after waivers,
Nations Portfolios paid its administrator combined fees at the rate of 0.10% of
the following Funds' average daily net assets: Nations Pacific Growth Fund,
Nations Emerging Markets Fund and Nations Global Government 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
Primary A Shares of the Funds.
Bank of New York, 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.
First Data serves as the Transfer Agent for each of the Fund's Primary A Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with Bank
of New York, 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, which also serves as the sub-transfer agent for each
Fund's Primary A Shares, 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 acts 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 Primary A Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
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 First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Any general expenses of Nations Fund Trust, Nations
Fund, Inc. and/or Nations Portfolios that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Fund Trust, Nations Fund, Inc. and/or Nations Portfolios or in such
other manner as the Board of Trustees or the relevant Board of Directors
determines is fair and equitable.
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Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional
Reserves. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Money Market
Funds currently offer six classes of shares -- Primary A Shares, Primary 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 -- Primary A Shares, Primary 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 Primary A Shares of the
following funds of Nations Fund Trust: Nations Government Money Market Fund,
Nations Tax Exempt Fund, 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, Nations Municipal Income Fund, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond
Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations North Carolina
Intermediate Municipal Bond Fund, Nations South Carolina Intermediate Municipal
Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond
Fund, Nations Florida Municipal Bond Fund, Nations Georgia Municipal Bond Fund,
Nations Maryland Municipal Bond Fund, Nations North Carolina Municipal Bond
Fund, Nations South Carolina Municipal Bond Fund, Nations Tennessee Municipal
Bond Fund, Nations Texas Municipal Bond Fund and Nations Virginia Municipal Bond
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 July 15, 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. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. 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
Primary A Shares of the following funds of Nations Fund, Inc.: Nations Prime
Fund, Nations Treasury Fund, 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
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particular fund or class will have the exclusive right to vote on matters
affecting only the rights of the holders of such fund or class. In the event of
dissolution or liquidation, holders of each class will receive pro rata, subject
to the rights of creditors, (a) the proceeds of the sale of that portion of the
assets allocated to that class held in the respective fund of Nations Fund,
Inc., less (b) the liabilities of Nations Fund, Inc. attributable to the
respective fund or class or allocated among the funds or classes based on the
respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 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. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Primary A Shares of Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund of Nations Portfolios. 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 July 15, 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 disclosures on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
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
Primary A Shares may be sold to financial institutions (including NationsBank
and its affiliated and correspondent banks) and fee-based planners acting on
behalf of their customers, employee benefit plans, charitable foundations and
endowments. Primary A Shares may, at times, be sold to other similar categories
of investors.
Primary A Shares are sold at net asset value without the imposition of a sales
charge. Financial institutions ("Institutions") acting on behalf of their
customers ("Customers") may establish certain procedures for processing
Customers' purchase orders and may charge their Customers for services provided
to them in connection with their investments.
Purchases of the Money Market Funds may be effected on days on which the Federal
Reserve Bank of New York is open for business (a "Bank Business Day"). Purchases
of the Non-Money Market Funds may be effected on days on which the New York
Stock Exchange (the "Exchange") is open for business (a "NYSE Business Day").
Unless otherwise specified, the term Business Day in this Prospectus refers to a
Bank Business Day with respect to a Money Market Fund, and a NYSE Business Day
with respect to a Non-Money Market Fund.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund reserves the right to reject any purchase order. The issuance of
Primary A Shares is recorded on the books of the Funds, and share certificates
are not issued. It is the responsibility of Institutions, when applicable, to
record beneficial ownership of Primary A Shares and to reflect such ownership in
the account statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES -- MONEY MARKET FUNDS: Purchases will be effected
only when federal funds are available for investment on the Business Day the
purchase order is received by Stephens or by the Transfer Agent. A purchase
order must be received by Stephens or by the Transfer Agent by 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund). A purchase order received by Stephens or
the Transfer Agent after such time will not be accepted; notice thereof will be
given to the Institution or investor placing the order, and any funds received
will be returned promptly to the sending Institution or investor. If federal
funds are not available by 4:00 p.m., Eastern time, the order will be canceled.
Primary A Shares are purchased at the net asset value per share next determined
after receipt of the order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases by their
Customers, and delivering required funds, on a timely basis. It is Stephens'
responsibility to transmit orders it receives to Nations Fund.
EFFECTIVE TIME OF PURCHASES -- NON-MONEY MARKET FUNDS: Purchase orders for
Primary A Shares in the Non-Money Market 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
or investor placing the order. Payment for orders which are not received or
accepted will be returned after prompt inquiry to the sending Institution or
investor. Primary A Shares are purchased at the net asset value per share next
determined after receipt of the order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases of Primary A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
With respect to the Money Market Funds, redemption orders must be received on a
Business Day before 3:00 p.m., Eastern time (12 noon, Eastern time, with respect
to Nations Tax Exempt Fund and Nations Government Money Market Fund), and
payment will normally be wired the same day to the Institution or investor.
Nations Fund reserves the right to wire redemption proceeds within three
Business Days after receiving the redemption orders if, in the judgment of the
Adviser, an earlier payment could adversely impact a Fund. However, redemption
proceeds for shares purchased by check may not be remitted until at least 15
days after the date of purchase to ensure that the check has cleared; a
certified check, however, is deemed to be cleared immediately. Redemption orders
will not be accepted by Stephens or by the Transfer Agent after 3:00 p.m.,
East-
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ern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund) for execution on that Business Day.
With respect to the Non-Money Market Funds, redemption proceeds are normally
remitted in federal funds wired to the redeeming Institution or investor within
three Business Days following receipt of the order.
Nations Fund may redeem a shareholder's Primary A Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a Customer 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 Customer may
be obliged to redeem all or a part of his or her Primary A 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.
Institutions are responsible for transmitting redemption orders to Stephens or
to the Transfer Agent and for crediting their Customers' accounts with the
redemption proceeds on a timely basis. It is the responsibility of Stephens to
transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary A Shares and may establish additional procedures.
Information concerning any charges or procedures is available from the
Institutions. Redemption orders are effected at the net asset value per share
next determined after acceptance of the order by Stephens or by the Transfer
Agent.
How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of a Fund to
acquire Primary A Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary A Shares for Primary A Shares of another Fund is made on the basis of
the next calculated net asset value per share of each Fund after the exchange
order is received.
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.
If you have telephone exchange privileges, during periods of significant
economic or market change, such telephone exchanges may be difficult to
complete. In such event, shares may be exchanged by mailing your request
directly to the entity through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary A Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary A Shares were purchased
or in other cases Stephens or the Transfer Agent. Investors should consult their
Institution, Stephens, or the Transfer Agent for further information regarding
exchanges. Your exchange feature may be governed by your account agreement with
your Institution.
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 Money Market Funds are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), each Bank Business Day. Shares of the
Non-Money Market 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.
Cur-
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rently, the days on which the Federal Reserve Bank of New York is closed (other
than weekends) are: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Memorial Day (observed), Independence Day, Labor Day, Columbus Day,
Thanksgiving Day and Christmas Day. Currently, the days on which the Exchange is
closed (other than weekends) are: New Year's Day, Presidents' Day, Good Friday,
Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The assets in the Money Market Funds are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
With respect to the Non-Money Market 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
MONEY MARKET FUNDS: Dividends from net investment income of each of the Money
Market Funds are declared daily to shareholders at 3:00 p.m., Eastern time (1:00
p.m., Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), on the day of declaration. Primary A Shares begin
earning dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in cash within five Business Days
after a shareholder's complete redemption of his Primary A Shares in a Fund. To
the extent that there are any net short-term capital gains, they will be paid at
least annually.
NON-MONEY MARKET FUNDS: 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 calendar 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.
Primary A 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. Primary A Shares of the Equity Funds and the Balanced Fund are
eligible to receive dividends when declared, provided, however, that the
purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
The net asset value of Primary A Shares in the Non-Money Market 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. Dividends are paid within five
Business Days after the end of each month. Dividends are paid in the form of
additional Primary A Shares of the same Fund unless the Customer or investor has
elected prior to the date of distribution to receive payment in cash. Such
election, or any revocation thereof, must be made in writing to the Fund's
Transfer Agent and will become effective with respect to dividends paid after
its receipt. Dividends and distributions payable to a shareholder are paid in
cash within five Business Days after a shareholder's complete redemption of his
or her Primary A Shares in a Fund.
TAX INFORMATION
Each of the Funds 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 tax 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 tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders in the Funds 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
sharehold-
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ers of Nations International Equity, Nations Emerging Markets and Nations
Pacific Growth Funds may be eligible for the dividends-received deduction on the
dividends (excluding the net capital gains dividends) paid by these Funds to the
extent that each such 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 tax 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.
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
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
Portions of each 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 tax for such amount.
NATIONS TAX EXEMPT FUND, NATIONS MUNICIPAL INCOME FUND, NATIONS SHORT-TERM
MUNICIPAL INCOME FUND, NATIONS INTERMEDIATE MUNICIPAL BOND FUND, THE STATE
INTERMEDIATE MUNICIPAL BOND FUNDS AND THE STATE MUNICIPAL BOND FUNDS
As regulated investment companies, each of these Funds is entitled to pass
through to their shareholders tax-exempt interest income ("exempt-interest
dividends") subject to certain conditions which these Funds intend to satisfy.
To the extent that any of these Funds earn taxable income or realize long-term
capital gains, distributions to shareholders from such sources will be subject
to Federal income tax. The policy of Nations Municipal Income Fund, Nations
Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds is to
pay to their shareholders an amount equal to at least 90% of their
exempt-interest income net of certain deductions and 90% of their investment
company taxable income. Nations Tax Exempt Fund does not intend to earn
investment company taxable income or long-term capital gains. Exempt-interest
dividends may be treated by shareholders as items of interest excludable from
their Federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund, Nations Municipal Income Fund, Nations Intermediate Municipal Bond Fund
and Nations Short-Term Municipal Income Fund may be taxable to investors under
state or local law even though a substantial portion of such distributions may
be derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes.
If any of these Funds should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate
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shareholders must also take all exempt-interest dividends into account in
determining certain adjustments for Federal alternative minimum and
environmental tax purposes. The environmental tax applicable to corporations is
imposed at the rate of 0.12% on the excess of the corporation's modified Federal
alternative minimum taxable income over $2,000,000. Shareholders receiving
Social Security benefits should note that all exempt-interest dividends will be
taken into account in determining the taxability of such benefits.
With respect to the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds, it is anticipated that exempt-interest dividends derived
from tax-exempt interest paid on municipal obligations of the pertinent state
and that state's political subdivisions, agencies, instrumentalities and
authorities, and certain other issuers, including Puerto Rico and Guam, will be
exempt from state income tax with respect to those states which impose a state
income tax. Florida and Texas do not impose income taxes, but Florida imposes a
tax upon intangible personal property which may apply to shares of Nations
Florida Intermediate Municipal Bond Fund and Nations Florida Municipal Bond Fund
held by residents of that state. Florida has issued a Technical Assistance
Advisement indicating that shares in such Funds will not be subject to Florida's
intangibles tax, subject to certain requirements which the Funds intend to
satisfy. See Nations Fund Trust's SAI for further details about state tax
treatment relevant to shareholders of these Funds.
In addition to annual disclosures as to Federal tax consequences of dividends
and distributions, shareholders of the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds will also be advised as to the state tax
consequences of dividends and distributions made each year.
The foregoing discussion is based on tax laws and regulations that 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 advisors 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 this 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 may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, other economic and demographic
factors. For example, falling interest rates generally result in an increase in
the rate of prepayments of mortgage loans while rising interest rates generally
decrease the rate of prepayments. An acceleration in prepayments in response to
sharply falling interest rates will shorten the security's average maturity and
limit the potential appreciation in the security's value relative to a
conventional debt security. Consequently, asset-backed securities may not be as
effective in locking in high, long-term yields. Conversely, in periods of
sharply rising rates, prepayments are generally slow, increasing the security's
average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
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
mort-
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gage 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 mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return 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.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
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.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments, mortgage refinancings, or foreclosures.
The rate of mortgage prepayments, and hence the average life of the
certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined by
the Adviser and used for the purpose of determining the average weighted
maturity and duration of the Funds. For additional information concerning
mortgage backed securities, see the related SAI.
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
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owning such assets and issuing such debt. Such securities also may include
instruments issued by trusts or certain partnerships, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such trusts or partnerships.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Prime Fund may invest up to 100% of its assets in obligations issued by
banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
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
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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 Funds may use reverse repurchase agreements
for the purpose of investing the proceeds in tri-party repurchase agreements.
Generally, the effect of such a transaction is that the Funds can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while they will be able to keep the
interest income associated with those portfolio securities. Such transactions
are only advantageous if the interest cost to the Funds of the reverse
repurchase transaction is less than the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, the 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.
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.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations Prime Fund
will limit purchases of commercial instruments to instruments which: (a) if
rated by at least two 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 objective. 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
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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
U.S. dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when 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.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by 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
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swap-related products such as interest rate swaps, currency swaps, caps, collars
and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
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 hold 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
hold 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, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by the Nations Prime Fund, the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds may be subject to this limitation.
If otherwise consistent with their investments objective and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) 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 and
Section 4(2), 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 their
portfolios 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.
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LOWER-RATED DEBT SECURITIES: Certain of the Funds may invest in 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 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' Boards, 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.
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, or instruments subject to demand features or resets if the remaining
maturity is more than 397 days. 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."
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 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
munic-
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ipal 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 tax.
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 does not
intend to exercise its 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.
Since each of the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds will invest primarily in securities issued by issuers
located in one state, each of these Funds is susceptible to changes in value due
to political and economic factors affecting that state's issuers. A comparable
municipal bond fund which is not concentrated in obligations issued by issuers
located in one state would be less susceptible to these risks. If any issuer of
securities held by one of these Funds is unable to meets its financial
obligations, that Fund's income, capital, and liquidity may be adversely
affected.
The fourth most populous state, Florida, rated "Aa" by Moody's and "AA" by both
S&P and Fitch, has been and continues to be a leading tourist and retiree
destination. Florida's growing population and manageable debt load are just two
of the factors that will help Florida remain a solid investment. Led by the
service, construction and trade sectors, job growth in Florida has rebounded
from the lows of 1991-1992 and is projected to be almost double the national
average for 1996. Tourism was back in 1995 after it had suffered in the prior
two years due to hurricane Andrew and a rash of violent crimes involving foreign
tourists.
The state of Georgia has one of the best debt structures in the country, hence
the "Aaa" by Moody's, and "AAA" rating by both S&P and Fitch. The population of
Georgia has been growing at twice the national rate for the past four years. Job
growth and economic expansion have been outstanding in recent years, as Georgia
prepares to host the 1996 Summer Olympic Games. Following the Olympics,
Georgia's economy should continue to expand, albeit at a slightly lower rate.
This is due in part to Georgia's competitive manufacturing base, and the diverse
service and transportation center of Atlanta.
Maryland is one of the wealthiest states in the U.S. and has been able to
maintain its "Aaa" rating by Moody's, and "AAA" rating by both Fitch and S&P,
despite the contraction of government and defense related industries. Maryland's
economic base is highly diversified with a lower than average dependence on
manufacturing. Slow growth in Maryland is expected to continue, as government
cutbacks and downsizing reduce the employment opportunities within the state.
Debt ratios are moderate and, with Maryland ranked fifth in per capita income,
it's no surprise that income taxes and highway use taxes provide the vast
majority of support for general obligation debt. As defense cutbacks continue,
Maryland's dependence on income taxes could depress growth within the state
below national levels.
North Carolina, rated "Aaa" by Moody's, and "AAA" by both S&P and Fitch, has
benefited from an inflow of people as well as businesses. This is due in part to
North Carolina's affordable housing, above-average growth in per capita income
and below-average cost of doing business. North Carolina's declining textile
industry has begun to give way to the high-tech and financial sectors, as
evidenced by the title of "Banking Center of the South." Consequently, high wage
job growth has been expanding at a pace greater than national averages and is
expected to continue to do so for the foreseeable future.
The dominance of the manufacturing sector has been both a positive and a
negative for South Carolina. On the positive side, the expansion of
manufacturing, specifically autos and related parts, has lessened the impact of
the naval base closure in Charleston and provided a much needed infusion of new
jobs. On the negative side, the cyclical nature of South Carolina's
manufacturing economy has kept per capita income below national levels and
considerably below regional levels. That said, South Carolina's low debt burden,
strong security arrangements and lack of credit extension have led to a "Aaa"
rating by Moody's, "AA+" rating by S&P and a "AAA" rating by Fitch, for the
state. Combine this with
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a conservative plan of finance, and South Carolina looks to be in a very strong
financial position, despite its reliance on the manufacturing sector.
Tennessee's very low debt burden, nearly exclusive use of general obligation
debt and conservative financial policies all combine to give the state of
Tennessee a "Aaa" rating by Moody's, "AA+" rating by S&P, and a "AAA" rating by
Fitch. Tennessee's economy remains in a developing mode, as the state continues
to shift its growth in manufacturing output to autos (Tennessee ranks third in
the nation in automobile production) and related products from textiles.
Tennessee relies on sales tax revenues as a main source of funds. This could
prove to be a limiting factor were it not for Tennessee's strong pattern of job
growth and growing population.
Texas has proven its ability to adapt and rebound to a changing economic
environment, both within the state and abroad. Texas has also historically taken
a conservative approach to financial management, as is reflected in the state's
"Aa" rating by Moody's, "AA" rating by S&P, and "AA-" rating by Fitch. Although
Texas has consistently led the U.S. in employment growth, unemployment in Texas
is above the national average. This is due, in part, to the heavy migration into
the state (in 1994 Texas replaced New York as the second most populous state).
Look for economic conditions in Texas to improve further as Mexico comes out of
its economic dilemma.
The state of Virginia has earned its "Aaa" rating by Moody's and "AAA" rating by
S&P and Fitch, by having a low relative tax rate, high per capita income and
strong growth in service sector jobs. A very high share of Virginia's population
is college educated, so it's no surprise that Virginia has the highest per
capita income of any of the southern states. Virginia has also maintained a low
unemployment rate despite strong growth in the labor force. Although it has a
large exposure to defense and related industries, Virginia's prudent financial
management and low debt burden should help to insulate it from any government
cutbacks in those areas.
There can be no assurance that the economic conditions on which the above
ratings for a specific state are based will continue or that particular bond
issues may not be adversely affected by changes in economic or political
conditions. More detailed information about matters relating to each of the
State Intermediate Municipal Bond Funds and State Municipal Bond Funds is
contained in Nations Fund Trust's SAI.
OTHER INVESTMENT COMPANIES: Each 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
uninvested 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.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in their
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
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
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equal amount of securities convertible into, or exchangeable without further
consideration for, securities of the same issuer as the securities sold short.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by the trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts, and therefore backed by the full faith and
credit, 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.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
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 and foreign 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. Certain Funds may
invest in securities with demand features where (a) the security or its issuer
has received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) 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.
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Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be
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negligible, being only slightly more than for risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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.
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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 obligations. Issuers
rated Prime-2 (or related supporting institutions) are considered to have a
strong capacity for repayment of senior short-term obligations. This will
normally be evidenced by many of the characteristics of issuers rated Prime-1,
but to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term 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.
81
<PAGE>
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- When issues possess 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.
82
<PAGE>
Prospectus
Primary A Shares
July 31, 1996
MONEY MARKET FUNDS
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market
Fund
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
Investment Adviser: NationsBanc Advisors, Inc.
Sub-Investment Adviser: TradeStreet Investment Associates, Inc.
Sub-Investment Adviser: Gartmore Global Partners
Distributor: Stephens Inc.
<PAGE>
Prospectus
Primary A Shares
July 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund") of
Nations Fund Trust, Nations Fund, Inc., and Nations
Fund Portfolios, Inc. ("Nations Portfolios"), each
an open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations Fund
Family"). This Prospectus describes one class of
shares of each Fund -- Primary A Shares (formerly
called Trust A Shares). Nations Disciplined Equity
Fund was formerly called "Nations Special Equity
Fund."
Nations Prime Fund, Nations Treasury Fund and
Nations Government Money Market Fund (the "Money
Market Funds") seek to maintain a net asset value of
$1.00 per share. Investments in these Funds are
neither insured nor guaranteed by the U.S.
Government and there can be no assurance that these
Funds will be able to maintain a stable net asset
value of $1.00 per share.
This Prospectus sets forth concisely the information
about each Fund that a prospective purchaser of
Primary A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios is contained in separate Statements of
Additional Information (the "SAIs"), that 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, each dated July 31, 1996, 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
Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the other Funds. As used
herein the "Adviser" shall mean NBAI, TradeStreet
and/or 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.
MONEY MARKET FUNDS:
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market Fund
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations International Equity 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 Fund information call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 7
Objectives 22
How Objectives Are Pursued 23
How Performance Is Shown 35
How The Funds Are Managed 36
Organization And History 42
About Your
Investment
How To Buy Shares 44
How To Redeem Shares 45
How To Exchange Shares 45
How The Funds Value Their Shares 46
How Dividends And Distributions Are Made;
Tax Information 46
Appendix A -- Portfolio Securities 48
Appendix B -- Description Of Ratings 56
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
Prospectus Summary
(Bullet) Type of Companies: Open-end management investment companies.
(Bullet) Investment Objectives and Policies:
(Bullet) Money Market Funds:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the
preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent
with the preservation of capital and the maintenance of
liquidity.
(Bullet) Nations Government Money Market Fund's investment
objective is to seek as high a level of current
income as is consistent with liquidity and
stability of principal.
(Bullet) Equity Funds:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is to
seek current income and growth of capital by investing
primarily in companies with above average dividend yields.
(Bullet) Nations International Equity Fund's investment
objective is to seek long-term capital growth by
investing primarily in equity securities of
non-United States companies in Europe, Australia,
the Far East and other areas, including some
developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective is to seek
long-term capital growth by investing primarily in equity securities of
companies in emerging markets countries such as those in Latin America,
Eastern Europe, the Pacific Basin, the Far East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity
securities of companies in the Pacific Basin and the Far East
(excluding Japan).
(Bullet) Nations Capital Growth Fund's investment objective is to seek
growth of capital by investing in companies that are believed to
have superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment objective is to seek
capital appreciation by investing in emerging growth companies that are
believed to have superior long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective is to seek
growth of capital by investing in companies that are expected to
produce significant increases in earnings per share.
(Bullet) Nations Equity Index Fund's investment objective is to seek
investment results that correspond before fees and expenses, to
the total return of the Standard & Poor's 500 Composite Stock
Price Index.
(Bullet) Balanced Fund:
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income
securities.
3
<PAGE>
(Bullet) Bond Funds:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek current income consistent with modest
fluctuation of principal. The Fund will invest primarily in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment
objective is to seek current income by investing
primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment
objective is to seek current income
consistent with minimal fluctuation of
principal. The Fund invests primarily in
short-term investment grade fixed income
securities.
(Bullet) Nations Diversified Income Fund's investment objective is to seek
current income consistent with total return by investing primarily
in a diversified portfolio of fixed income securities.
(Bullet) Nations Strategic Fixed Income Fund's investment objective is to
seek total return by investing primarily in investment grade fixed
income securities. The Fund may invest in long-term, intermediate-term
and short-term securities.
(Bullet) Nations Global Government Income Fund's investment objective is to
maximize total return by investing primarily in high quality debt
securities issued by governments, banks and supranational entities
located throughout the world.
(Bullet) Investment Adviser: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to certain
of the Funds and Gartmore Global Partners provides sub-advisory
services to the other Funds. See "How The Funds Are Managed."
(Bullet) Dividends and Distributions: The Equity Funds and the Balanced Fund
declare and pay dividends from net investment income each calendar
quarter. The Money Market Funds and the Bond Funds declare dividends
daily and pay them monthly. Each Fund's net realized capital gains,
including net short-term capital gains are distributed at least
annually.
(Bullet) Risk Factors: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. 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 risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities, including U.S. Government
bonds, are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Funds'
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund
are designed for long-term investors seeking international
diversification and who are willing to bear the risks associated with
international investing, such as foreign currency fluctuations and
economic and political risks. For a discussion of these factors, see
"How Objectives Are Pursued -- Special Risk Considerations Relevant to
an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund."
(Bullet) Minimum Purchase: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
4
<PAGE>
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
Primary A 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 MONEY MARKET FUNDS PRIMARY A SHARES
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
<S> <C> <C>
Nations Prime Nations
Fund Treasury Fund
Sales Load Imposed on Purchases None None
Deferred Sales Load None None
<CAPTION>
Nations
Government
Money Market
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fees (After Fee Waivers)1 .14% .14%
All Other Expenses (After Expense Reimbursements)1 .16% .16%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .30% .30%
<CAPTION>
Management Fees (After Fee Waivers)1 .12%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .18%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .30%
</TABLE>
1 See page 8 for a discussion of the actual expenses absent such fee waivers and
expense reimbursements.
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations
Nations Equity Nations Emerging
Value Income International Markets
Fund Fund Equity Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Pacific
Growth
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees .75% .70% .90% 1.10%
All Other Expenses (After Expense Reimbursements)1 .21% .20% .27% 1.03%
Total Operating Expenses (After Expense Reimbursements)1 .96% .90% 1.17% 2.13%
<CAPTION>
Management Fees .90%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .86%
Total Operating Expenses (After Expense Reimbursements)1 1.76%
</TABLE>
1 See page 8 for a discussion of the actual expenses absent such expense
reimbursements.
5
<PAGE>
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
Shareholder Transaction Expenses (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Capital Emerging Disciplined Equity
Growth Growth Equity Index
Fund Fund Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Balanced
Assets
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers)1 .75% .75% .75% .10%
All Other Expenses .21% .24% .27% .25%
Total Operating Expenses (After Fee Waivers)1 .96% .99% 1.02% .35%
<CAPTION>
Management Fees (After Fee Waivers)1 .75%
<S> <C>
All Other Expenses .25%
Total Operating Expenses (After Fee Waivers)1 1.00%
</TABLE>
1 See page 8 for a discussion of the actual expenses absent such fee waivers.
NATIONS FUND BOND FUNDS PRIMARY A SHARES
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations Short- Nations Nations Short-
Intermediate Government Term Nations Nations
Government Securities Income Diversified Strategic Fixed
Fund Fund Fund Income Fund Income Fund
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
<CAPTION>
Nations
Global
Government
Income Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
Annual Fund
Operating Expenses
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C>
Management Fees (After Fee Waivers)1 .40% .50% .30% .50% .50%
All Other Expenses (After Expense
Reimbursements)1 .23% .30% .25% .27% .22%
Total Operating Expenses (After Fee Waivers
and Expense Reimbursements)1 .63% .80% .55% .77% .72%
<CAPTION>
Management Fees (After Fee Waivers)1 .70%
<S> <C>
All Other Expenses (After Expense
Reimbursements)1 .62%
Total Operating Expenses (After Fee Waivers
and Expense Reimbursements)1 1.32%
</TABLE>
1 See page 8 for a discussion of the actual expenses absent such fee waivers and
expense reimbursements.
Examples:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
[CAPTION]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nations
Government Nations Nations Nations
Nations Nations Money Nations Equity International Nations Pacific
Prime Treasury Market Value Income Equity Emerging Growth
Fund Fund Fund Fund Fund Fund Markets Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 3 $ 3 $ 3 $ 10 $ 9 $ 12 $ 22 $ 18
3 Years $10 $10 $10 $ 31 $ 29 $ 37 $ 67 $ 55
5 Years $17 $17 $17 $ 53 $ 50 $ 64 $114 $ 95
10 Years $38 $38 $38 $118 $111 $142 $246 $207
<CAPTION>
Nations Nations
Capital Emerging
Growth Growth
Fund Fund
<S> <C> <C>
1 Year $ 10 $ 10
3 Years $ 31 $ 32
5 Years $ 53 $ 55
10 Years $118 $121
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Nations Nations Short- Nations Nations Nations
Disciplined Equity Balanced Intermediate Government Short-Term Diversified
Equity Index Assets Government Securities Income Income
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 10 $ 4 $ 10 $ 6 $ 8 $ 6 $ 8
3 Years $ 32 $11 $ 32 $20 $26 $18 $25
5 Years $ 56 $20 $ 55 $35 $44 $31 $43
10 Years $125 $44 $122 $79 $99 $69 $95
<CAPTION>
Nations Nations
Strategic Global
Fixed Government
Income Income
Fund Fund
1 Year $ 7 $13
3 Years $23 $42
5 Years $40 $72
10 Years $89 $159
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. Except for Nations
Emerging Markets Fund, Nations Global Government Income Fund and Nations Pacific
Growth Fund, which fees and expenses are based on estimates, certain figures
contained in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees," "All Other
Expenses" and "Total Operating Expenses" for Primary A Shares of the indicated
Fund would have been as follows: Nations Prime Fund -- .20%, .16% and .36%,
respectively; Nations Treasury Fund -- .20%, .16% and .36%, respectively;
Nations Government Money Market Fund -- .40%, .18% and .58%, respectively.
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for Primary
A Shares of the indicated Fund would have been as follows: Nations Equity Index
Fund -- .50% and .75%, respectively; Nations Short-Intermediate Government
Fund -- .60% and .83%, respectively; Nations Government Securities Fund -- .64%
and .94%, respectively; and Nations Diversified Income Fund -- .60% and .87%,
respectively. Nations Strategic Fixed Income Fund -- .60% and .82%,
respectively; Nations Short-Term Income Fund -- .60% and .85%, respectively.
Absent expense reimbursements, "All Other Expenses" and "Total Operating
Expenses" for Primary A Shares of the indicated Fund would have been as follows:
Nations Equity Income Fund -- .22% and .92%, respectively; and Nations
International Equity Fund -- .26% and 1.16%, 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.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust, Nations Fund Inc. and Nations
Portfolios. Price Waterhouse LLP is the independent accountant to Nations Fund
Trust, Nations Fund, Inc. and Nations Portfolios. The reports of Price
Waterhouse LLP for the most recent fiscal years of Nations Fund Trust and
Nations Fund, Inc. accompany the financial statements for such periods and
are incorporated by reference in the SAIs, which are available upon request.
For more information see "Organization And History." Shareholders of a Fund
will receive unaudited semi-annual reports describing the Fund's investment
operations and annual financial statements audited by the Funds' independent
accountant.
7
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Prime Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0468 0.0519 0.0318 0.0328 0.0506
Dividends from net investment income (0.0468) (0.0519) (0.0318) (0.0328) (0.0506)
Total dividends and distributions (0.0468) (0.0519) (0.0318) (0.0328) (0.0506)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.79% 5.32% 3.22% 3.33% 5.19%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 2,472,469 $ 2,873,096 $ 2,883,762 $ 1,156,266 $ 500,476
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to average
net assets 5.62%+ 5.23% 3.20% 3.25% 5.03%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.37%+ 0.38% 0.37% 0.36% 0.42%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0463 $ 0.0511 $ 0.0311 $ 0.0322 $ 0.0494
<CAPTION>
YEAR
ENDED
Primary A Shares 5/31/91
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0749
Dividends from net investment income (0.0749)
Total dividends and distributions (0.0749)
Net asset value, end of period $ 1.00
Total return++ 7.75%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 574,993
Ratio of operating expenses to average net
assets 0.30%
Ratio of net investment income to average
net assets 7.47%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.44%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0735
</TABLE>
Nations Prime Fund (cont.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
Primary A Shares 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0855 0.0839 0.0675
Dividends from net investment income (0.0855) (0.0839) (0.0675)
Total dividends and distributions (0.0855) (0.0839) (0.0675)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.88%+++ 8.71%+++ 6.94%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 433,298 $ 115,295 $ 264,063
Ratio of operating expenses to average net assets 0.32% 0.35% 0.36%
Ratio of net investment income to average net assets 8.43% 8.11% 6.73%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.50%+++ 0.55%+++ 0.56%+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0731+++ $ 0.0819+++ $ 0.0655+++
<CAPTION>
PERIOD
ENDED
Primary A Shares 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0277
Dividends from net investment income (0.0277)
Total dividends and distributions (0.0277)
Net asset value, end of period $ 1.00
Total return++ 2.79%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 252,562
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.99%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.65%+/+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0247+++
</TABLE>
* Nations Prime Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
8
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Treasury Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0458 0.0494 0.0297 0.0307 0.0483
Dividends from net investment income (0.0458) (0.0494) (0.0297) (0.0307) (0.0483)
Distribution from net realized capital
gains (0.0000)# (0.0000)# -- -- --
Total dividends and distributions (0.0458) (0.0494) (0.0297) (0.0307) (0.0483)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.67% 5.05% 2.99% 3.12% 4.95%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 821,030 $ 2,896,868 $ 2,679,992 $ 2,956,796 $1,094,741
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.29%
Ratio of net investment income to average
net assets 5.52%+ 4.99% 2.97% 3.02% 4.82%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.37%+ 0.35% 0.36% 0.36% 0.42%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0453 $ 0.0489 $ 0.0292 $ 0.0302 $ 0.0470
<CAPTION>
YEAR
ENDED
Primary A Shares 5/31/91
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0721
Dividends from net investment income (0.0721)
Distribution from net realized capital
gains --
Total dividends and distributions (0.0721)
Net asset value, end of period $ 1.00
Total return++ 7.46%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 955,186
Ratio of operating expenses to average net
assets 0.25%
Ratio of net investment income to average
net assets 7.04%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.43%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0703
</TABLE>
Nations Treasury Fund (cont.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
Primary A Shares 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0829 0.0802 0.0630
Dividends from net investment income (0.0829) (0.0802) (0.0630)
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.0829) (0.0802) (0.0630)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.61%+++ 8.33%+++ 6.49%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 392,843 $ 90,946 $ 111,414
Ratio of operating expenses to average net assets 0.25% 0.39% 0.38%
Ratio of net investment income to average net assets 8.18% 7.93% 6.31%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.59%+++ 0.58%++++ 0.65%+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0693+++ $ 0.0783+++ $ 0.0603+++
<CAPTION>
PERIOD
ENDED
Primary A Shares 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0262
Dividends from net investment income (0.0262)
Distributions from net realized capital gains --
Total dividends and distributions (0.0262)
Net asset value, end of period $ 1.00
Total return++ 2.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 66,221
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.68%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.75%+/+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0222+++
</TABLE>
* Nations Treasury Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
9
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Money Market Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0173 0.0558 0.0375 0.0294 0.0358
Distributions:
Dividends from net investment income (0.0173) (0.0558) (0.0375) (0.0294) (0.0358)
Distributions from net realized capital
gains -- -- (0.0000)# -- --
Total dividends and distributions (0.0173) (0.0558) (0.0375) (0.0294) (0.0358)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.74% 5.72% 3.84% 2.96% 3.63%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 336,771 $ 332,895 $ 432,729 $ 475,180 $ 414,412
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.42%
Ratio of net investment income to average
net assets 5.20%+ 5.58% 3.79% 2.91% 3.55%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.59%+ 0.57% 0.59% 0.56% 0.58%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0163 $ 0.0531 $ 0.0347 $ 0.0269 $ 0.0341
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/91*
Net asset value, beginning of period $ 1.00
Net investment income 0.0571
Distributions:
Dividends from net investment income (0.0571)
Distributions from net realized capital
gains --
Total dividends and distributions (0.0571)
Net asset value, end of period $ 1.00
Total return++ 5.87%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 333,979
Ratio of operating expenses to average net
assets 0.43%+
Ratio of net investment income to average
net assets 5.49%+
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.62%+
Net investment income per share without
waivers and/or expense reimbursements $ 0.0551
</TABLE>
* Nations Government Money Market Fund Primary A Shares commenced operations
on December 3, 1990.
+ Annualized.
++ Total return represents aggregate return for the periods indicated and does
not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001 per shares.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
10
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Value Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 16.21 $ 12.98 $ 13.74
Net investment income 0.07 0.27 0.24
Net realized and unrealized gain/(loss) on investments 1.06 3.91 (0.23)
Net increase/(decrease) in net asset value from operations 1.13 4.18 0.01
Distributions:
Dividends from net investment income (0.12) (0.28) (0.23)
Distributions from net realized capital gains (0.62) (0.67) (0.54)
Total dividends and distributions (0.74) (0.95) (0.77)
Net asset value, end of period $ 16.60 $ 16.21 $ 12.98
Total return++ 7.20% 34.53% (0.08)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 998,957 $ 956,669 $ 799,743
Ratio of operating expenses to average net assets 0.96% 0.94% 0.93%
Ratio of net investment income to average net assets 1.30%+ 1.90% 1.85%
Portfolio turnover rate 12% 63% 75%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.96% 0.94% 0.93%
Net investment income per share without waivers and/or expense
reimbursements $ 0.07 $ 0.27 $ 0.24
Average commission rate paid (b) $ 0.0698 N/A N/A
<CAPTION>
YEAR
ENDED
Primary A Shares 11/30/93
Operating performance:
Net asset value, beginning of period $ 12.45
Net investment income 0.24
Net realized and unrealized gain/(loss) on investments 1.38
Net increase/(decrease) in net asset value from operations 1.62
Distributions:
Dividends from net investment income (0.24)
Distributions from net realized capital gains (0.09)
Total dividends and distributions (0.33)
Net asset value, end of period $ 13.74
Total return++ 13.19%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 707,185
Ratio of operating expenses to average net assets 0.96
Ratio of net investment income to average net assets 1.98%
Portfolio turnover rate 64%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.97%
Net investment income per share without waivers and/or expense
reimbursements $ 0.24
Average commission rate paid (b) N/A
</TABLE>
Nations Value Fund (cont.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
Primary A Shares 11/30/92 11/30/91 11/30/90
Operating performance:
Net asset value, beginning of period $ 11.16 $ 9.71 $ 10.04
Net investment income 0.28 0.34 0.35
Net realized and unrealized gain/(loss) on investments 1.57 1.47 (0.36)
Net increase/(decrease) in net asset from value operations 1.85 1.81 (0.01)
Distributions:
Dividends from net investment income (0.27) (0.36) (0.32)
Distributions from net realized capital gains (0.29) -- --
Total dividends and distributions (0.56) (0.36) (0.32)
Net asset value, end of period $ 12.45 $ 11.16 $ 9.71
Total return++ 17.00%+++ 18.79%+++ (0.16)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 282,138 $ 82,360 $ 19,769
Ratio of operating expenses to average net assets 0.90% 0.53% 0.21%
Ratio of net investment income to average net assets 2.31% 3.33% 4.19%
Portfolio turnover rate 60% 51% 24%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.97% 0.99% 1.11%
Net investment income per share without waivers and/or expense
reimbursements $ 0.27 $ 0.30 $ 0.26
Average commission rate paid (b) N/A N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/89*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.08
Net realized and unrealized gain/(loss) on investments (0.04)
Net increase/(decrease) in net asset from value operations 0.04
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.04
Total return++ 0.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,161
Ratio of operating expenses to average net assets 0.49%+
Ratio of net investment income to average net assets 4.41%+
Portfolio turnover rate --
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.41%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.06
Average commission rate paid (b) N/A
</TABLE>
* Nations Value Fund Primary A Shares commenced operations on September 19,
1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
11
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Equity Income Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 11.81 $ 11.43 $ 12.06 $ 11.41 $ 10.19
Net investment income 0.30 0.42 0.38 0.37 0.34
Net realized and unrealized gain on
investments 1.77 1.11 0.22 1.08 1.25
Net increase in net asset value from
operations 2.07 1.53 0.60 1.45 1.59
Distributions:
Dividends from net investment income (0.37) (0.42) (0.42) (0.35) (0.30)
Distributions from net realized capital
gains (0.37) (0.73) (0.81) (0.45) (0.07)
Total dividends and distributions (0.74) (1.15) (1.23) (0.80) (0.37)
Net asset value, end of period $ 13.14 $ 11.81 $ 11.43 $ 12.06 $ 11.41
Total return++ 17.98% 14.79% 5.00% 13.30% 15.91%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 283,142 $ 283,082 $ 225,740 $ 175,949 $ 18,104
Ratio of operating expenses to average net
assets 0.90%+ 0.92% 0.94% 0.92% 1.10%
Ratio of net investment income to average
net assets 2.84%+ 3.75% 3.41% 3.37% 3.15%
Portfolio turnover rate 59% 158% 116% 55% 84%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.90%+ 0.93% 0.95% 1.04% 2.21%
Net investment income/loss per share
without waivers and/or expense
reimbursements $ 0.30 $ 0.42 $ 0.38 $ 0.36 $ 0.22
Average commission rate paid (b) $ 0.0287 N/A N/A N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 5/31/91*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain on
investments 0.14
Net increase in net asset value from
operations 0.19
Distributions:
Dividends from net investment income --
Distributions from net realized capital
gains --
Total dividends and distributions --
Net asset value, end of period $ 10.19
Total return++ 1.90%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 10,194
Ratio of operating expenses to average net
assets 1.12%+
Ratio of net investment income to average
net assets 3.66%+
Portfolio turnover rate 9%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.80%+
Net investment income/loss per share
without waivers and/or expense
reimbursements $ (0.06)
Average commission rate paid (b) N/A
</TABLE>
* Nations Equity Income Fund Primary A Shares commenced operations on April
11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
12
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations International Equity Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a)# 05/31/95# 5/31/94# 5/31/93#
Operating performance:
Net asset value, beginning of period $ 11.75 $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.07 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on investments 1.80 (0.20) 1.44 0.21
Net increase/(decrease) in net asset value from
operations 1.87 (0.06) 1.53 0.30
Distributions:
Dividends from net investment income (0.06) (0.03) (0.05) (0.08)
Distributions in excess of net investment income (0.04) -- -- --
Distributions from net realized capital gains (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized capital gains -- (0.10) -- --
Total dividends and distributions (0.12) (0.25) (0.07) (0.10)
Net asset value, end of period $ 13.50 $ 11.75 $ 12.06 $ 10.60
Total return++ 16.01% (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 849,731 $ 572,940 $ 401,599 $ 118,873
Ratio of operating expenses to average net assets 1.17%+ 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to average net
assets 0.65%+ 1.17% 0.75% 1.03%
Portfolio turnover rate 26% 92% 39% 41%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.18%+ 1.04% 1.18% 1.32%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.07 $ 0.14 $ 0.08 $ 0.10
Average commission rate paid (b) 0.0272 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 5/31/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.08
Net realized and unrealized gain/(loss) on investments 0.36
Net increase/(decrease) in net asset value from
operations 0.44
Distributions:
Dividends from net investment income (0.04)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total dividends and distributions (0.04)
Net asset value, end of period $ 10.40
Total return++ 4.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 83,970
Ratio of operating expenses to average net assets 1.33%+
Ratio of net investment income/(loss) to average net
assets 1.81%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.43%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.03
Average commission rate paid (b) N/A
</TABLE>
* Nations International Equity Fund Primary A Shares commenced operations on
December 2, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly 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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
Nations Emerging Markets Fund
<TABLE>
<CAPTION>
<S> <C>
Primary A Shares
Operating performance:
Net asset value, beginning of period
Net investment income/(loss)
Net realized and unrealized gain on investments
Net increase in net asset value from operations
Distributions:
Dividends from net investment income
Distributions in excess of net investment income
Distributions from net realized capital gains
Total dividends and distributions
Net asset value, end of period
Total return++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)
Ratio of operating expenses to average net assets
Ratio of net investment income to average net assets
Portfolio turnover rate
Average commission rate paid (a)
<CAPTION>
PERIOD
ENDED
Primary A Shares 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 0.37
Net increase in net asset value from operations 0.34
Distributions:
Dividends from net investment income --
Distributions in excess of net investment income 0.00**
Distributions from net realized capital gains --
Total dividends and distributions 0.00**
Net asset value, end of period $ 10.34
Total return++ 3.42%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 47,560
Ratio of operating expenses to average net assets 2.13%+
Ratio of net investment income to average net assets (0.38)%
+
Portfolio turnover rate 17%
Average commission rate paid (a) $ 0.0004
</TABLE>
* Nations Emerging Markets Fund Primary A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period, since the use
of the undistributed income method did not accord with the results of
operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
13
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Pacific Growth Fund
<TABLE>
<CAPTION>
<S> <C>
Primary A Shares
Operating performance:
Net asset value, beginning of period
Net investment income/(loss)
Net realized and unrealized gain/(loss) on investments
Net increase/(decrease) in net asset value from operations
Distributions:
Dividends from net investment income
Total dividends and distributions
Net asset value, end of period
Total return++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)
Ratio of operating expenses to average net assets
Ratio of net investment income/(loss) to average net assets
Portfolio turnover rate
Average commission rate paid (a)
<CAPTION>
PERIOD
ENDED
Primary A Shares 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.02)
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net asset value from operations 0.27
Distributions:
Dividends from net investment income --
Total dividends and distributions (0.03)
Net asset value, end of period $ 10.24
Total return++ 2.66%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 95,210
Ratio of operating expenses to average net assets 1.76%+
Ratio of net investment income/(loss) to average net assets (0.27)%
+
Portfolio turnover rate 23%
Average commission rate paid (a) $ 0.0178
</TABLE>
* Nations Pacific Growth Fund Primary A Shares commenced operations on June 30,
1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period, since the use
of the undistributed income method did not accord with the results of
operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
<TABLE>
<CAPTION>
Nations Capital Growth Fund
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 14.24 $ 11.23 $ 11.08 $ 10.68
Net investment income/(loss) 0.02 0.09 0.09 0.09
Net realized and unrealized gain on investments 0.38 3.28 0.14 0.42
Net increase in net asset value from operations 0.40 3.37 0.23 0.51
Distributions:
Dividends from net investment income (0.02) (0.10) (0.08) (0.10)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (1.21) (0.36) (0.08) (0.11)
Net asset value, end of period $ 13.43 $ 14.24 $ 11.23 $ 11.08
Total return++ 3.14% 30.96% 2.14% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 839,300 $ 867,361 $ 717,914 $ 646,661
Ratio of operating expenses to average net assets 0.96%+ 0.98% 0.90% 0.80%
Ratio of net investment income/(loss) to average net
assets 0.38%+ 0.71% 0.85% 0.84%
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.96%+ 0.98% 0.91% 0.89%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.02 $ 0.09 $ 0.09 $ 0.08
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.02
Net realized and unrealized gain on investments 0.66#
Net increase in net asset value from operations 0.68
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.68
Total return++ 6.80%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 728,629
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income/(loss) to average net
assets 1.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.05%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.01
Average commission rate paid (c) N/A
</TABLE>
* Nations Capital Growth Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Value represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
14
<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Emerging Growth Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/96#(a) 11/30/95 11/30/94#
Operating performance:
Net asset value, beginning of period $ 14.28 $ 11.41 $ 10.87
Net investment income/(loss) (0.00)(b) 0.01 (0.03)
Net realized and unrealized gain on investments 1.26 3.26 0.71
Net increase in net asset value from operations 1.26 3.27 0.68
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14)
Total dividends and distributions (1.50) (0.40) (0.14)
Net asset value, end of period $ 14.04 $ 14.28 $ 11.41
Total return++ 9.87% 29.95% 6.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 295,764 $ 269,484 $ 182,459
Ratio of operating expenses to average net assets 0.99%+ 0.98% 1.01%
Ratio of net investment income/(loss) to average net assets (0.06)%+ 0.08% (0.29)%
Portfolio turnover rate 39% 139% 1.29%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.99%+ 0.98% 1.01%
Net investment income/(loss) per share without waivers and/or expense
reimbursements $ (0.00)(b) $ 0.01 $ (0.03)
Average commission rate paid (c) $ 0.0599 N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.01)
Net realized and unrealized gain on investments 0.89
Net increase in net asset value from operations 0.88
Distributions:
Distributions from net realized capital gains (0.01)
Total dividends and distributions (0.01)
Net asset value, end of period $ 10.87
Total return++ 8.81%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 121,281
Ratio of operating expenses to average net assets 0.80%+
Ratio of net investment income/(loss) to average net assets (0.15)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.01%+
Net investment income/(loss) per share without waivers and/or expense
reimbursements $ (0.03)
Average commission rate paid (c) N/A
</TABLE>
* Nations Emerging Growth Fund Primary A Shares commenced operations on
December 4, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
15
<PAGE>
Nations Disciplined Equity Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95 11/30/94* 04/29/94*
Operating performance:
Net asset value, beginning of period $ 17.06 $ 13.08 $ 13.31 $ 13.65
Net investment income/(loss) 0.05 0.10 0.01 (0.05)
Net realized and unrealized gain/(loss) on investments 0.35 3.96 (0.23)# 2.66
Net increase/(decrease) in net asset value from
operations 0.40 4.06 (0.22) 2.61
Distributions:
Dividends from net investment income (0.04) (0.08) (0.01) --
Distributions from net realized capital gains (0.23) -- -- (2.95)
Return of capital -- -- (0.00)(b) --
Total dividends and distributions (0.27) (0.08) (0.01) (2.95)
Net asset value, end of period $ 17.19 $ 17.06 $ 13.08 $ 13.31
Total return++ 2.44% 31.13% (1.62)% 18.79%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 116,469 $ 109,939 $ 9,947 $ 8,079
Ratio of operating expenses to average net assets 1.02%+ 1.30% 1.13%+ 1.20%+
Ratio of net investment income/(loss) to average net
assets 0.82%+ 0.85% 0.12%+ (0.60)%+
Portfolio turnover rate 47% 124% 177% 475%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.02%+ 1.30% 1.56%+ 1.53%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.05 $ 0.10 $ (0.03) $ (0.08)
Average commission rate paid (c) $ 0.0627 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 04/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain/(loss) on investments 3.74
Net increase/(decrease) in net asset value from
operations 3.71
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains (0.06)
Return of capital --
Total dividends and distributions (0.06)
Net asset value, end of period $ 13.65
Total return++ 37.13%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,638
Ratio of operating expenses to average net assets 1.20%+
Ratio of net investment income/(loss) to average net
assets (0.58)%+
Portfolio turnover rate 203%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.31%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.03)
Average commission rate paid (c) N/A
</TABLE>
* The period for Nations Disciplined Equity Fund Primary A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class A Shares, which were reorganized into Primary A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class A Shares commenced operations on October 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
16
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Equity Index Fund
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95
Operating performance:
Net asset value, beginning of period $ 12.91 $ 9.84
Net investment income 0.08 0.28
Net realized and unrealized gain/(loss) on investments 0.86 3.20
Net increase in net asset value from operations 0.94 3.48
Distributions:
Dividends from net investment income (0.13) (0.28)
Distributions from net realized capital gains (0.14) (0.13)
Total dividends and distributions (0.27) (0.41)
Net asset value, end of period $ 13.58 $ 12.91
Total return++ 7.33% 36.35%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 192,388 $ 145,021
Ratio of operating expenses to average net assets 0.35%+ 0.37%
Ratio of operating expenses to average net assets including interest expense 0.35%+ 0.38%
Ratio of net investment income to average net assets 1.99%+ 2.44%
Portfolio turnover rate 2% 18%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements $ 0.73%+ 0.78%
Net investment income per share without waivers and/or expense reimbursements $ 0.07 $ 0.23
Average commission to be paid (b) $ 0.0291 N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.24
Net realized and unrealized gain/(loss) on investments (0.21)
Net increase in net asset value from operations 0.03
Distributions:
Dividends from net investment income (0.19)
Distributions from net realized capital gains --
Total dividends and distributions (0.19)
Net asset value, end of period $ 9.84
Total return++ 0.29%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 123,147
Ratio of operating expenses to average net assets 0.35%+
Ratio of operating expenses to average net assets including interest expense --
Ratio of net investment income to average net assets 2.64%+
Portfolio turnover rate 14%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.79%+
Net investment income per share without waivers and/or expense reimbursements $ 0.20
Average commission to be paid (b) N/A
</TABLE>
* Nations Equity Index Fund Primary A Shares commenced operations on December
15, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
Nations Balanced Assets Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 12.68 $ 10.44 $ 10.87 $ 10.24
Net investment income 0.11 0.38 0.25 0.29
Net realized and unrealized gain/(loss) on investments 0.45 2.21 (0.43) 0.64
Net increase/(decrease) in net asset value from
operations 0.56 2.59 (0.18) 0.93
Distributions:
Dividends from net investment income (0.18) (1.33) (0.25) (0.03)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.59) (0.35) (0.25) (0.30)
Net asset value, end of period $ 11.65 $ 12.68 $ 10.44 $ 10.87
Total return++ 4.90% 25.27% (1.73)% 9.22%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 164,215 $ 163,198 $ 162,215 $ 178,270
Ratio of operating expenses to average net assets 1.00 %+ 0.99 % 0.98 % 0.90%
Ratio of net investment income to average net assets 2.91 %+ 3.25 % 2.31 % 2.82%
Portfolio turnover rate 83 % 174 % 156 % 50%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.00 %+ 0.99 % 0.99 % 0.97%
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.38 $ 0.25 $ 0.29
Average commission rate paid (b) $ 0.0598 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments 0.18#
Net increase/(decrease) in net asset value from
operations 0.24
Distributions:
Dividends from net investment income
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 111,953
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 3.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.05%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.05
Average commission rate paid (b) N/A
</TABLE>
* Nations Balanced Assets Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
17
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Intermediate Government Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a)# 11/30/95# 11/30/94 11/30/93 11/30/92
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17
Net investment income 0.07 0.24 0.23 0.23 0.28
Net realized and unrealized gain/(loss) on
investments (0.07) 0.21 (0.33) 0.14 (0.01)
Net increase/(decrease) in net asset value from
operations 0.00 0.45 (0.10) 0.37 0.27
Distributions:
Dividends from net investment income (0.07) (0.24) (0.23) (0.23) (0.28)
Distributions in excess of net investment income (0.00)(b) (0.00)(a) (0.00)(a) -- --
Distributions from net realized capital gains -- -- (0.02) (0.02) --
Total dividends and distributions (0.07) (0.24) (0.25) (0.25) (0.28)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16
Total return++ 0.07% 11.70% (2.23)% 9.03% 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 399,915 $ 425,200 $ 433,278 $ 443,426 $ 360,497
Ratio of operating expenses to average net assets 0.63%+ 0.60% 0.59% 0.55% 0.37%
Ratio of net investment income to average net
assets 5.32%+ 5.88% 5.76% 5.40% 6.48%
Portfolio turnover rate 189% 328% 133% 92% 25%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.86%+ 0.80% 0.80% 0.79% 0.77%
Net investment income per share without waivers
and/or expense reimbursements $ 0.06 $ 0.23 $ 0.22 $ 0.22 $ 0.26
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/91*
Operating performance:
Net asset value, beginning of period $ 4.00##
Net investment income 0.10
Net realized and unrealized gain/(loss) on
investments 0.17
Net increase/(decrease) in net asset value from
operations 0.27
Distributions:
Dividends from net investment income (0.10)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.10)
Net asset value, end of period $ 4.17
Total return++ 6.81%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 158,435
Ratio of operating expenses to average net assets 0.08%+
Ratio of net investment income to average net
assets 7.21%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.82%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.00 (a)
</TABLE>
* Nations Short-Intermediate Government Fund Primary A Shares commenced
operations on August 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share 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.
## The Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25, 1991,
the net asset value doubled as a result of the reclassification of each
outstanding share into half as many shares (reverse split).
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01.
18
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Securities Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a)# 05/31/95# 05/31/94 05/31/93#
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.36
Net investment income 0.52 0.64 0.64 0.71
Net realized and unrealized gain/(loss) on
investments (0.19) 0.06 (0.61) 0.13
Net increase/(decrease) in net asset value from
operations 0.33 0.70 0.03 0.84
Distributions:
Dividends from net investment income (0.50) (0.60) (0.58) (0.70)
Dividends in excess of net investment income (0.02) -- (0.02) --
Distributions from net realized capital gains -- -- -- --
Distributions in excess of net realized capital
gains -- -- (0.05) (0.04)
Distributions from capital -- (0.04) (0.04) --
Total dividends and distributions (0.52) (0.64) (0.69) (0.74)
Net asset value, end of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Total return++ 3.41% 7.55% 0.06% 8.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 55,962 $ 39,909 $ 44,536 $ 40,472
Ratio of operating expenses to average net assets 0.80%+ 0.76% 0.73% 0.85%
Ratio of net investment income to average net
assets 6.36%+ 6.69% 6.08% 6.67%
Portfolio turnover rate 199% 413% 56% 103%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.95%+ 0.94% 0.94% 1.00%
Net investment income per share without waivers
and/or expense reimbursements $ 0.51 $ 0.62 $ 0.61 $ 0.60
<CAPTION>
YEAR PERIOD
ENDED ENDED
Primary A Shares 05/31/92 05/31/91*
Operating performance:
Net asset value, beginning of period $ 10.05 $ 10.00
Net investment income 0.74 0.10
Net realized and unrealized gain/(loss) on
investments 0.37 0.02
Net increase/(decrease) in net asset value from
operations 1.11 0.12
Distributions:
Dividends from net investment income (0.77) (0.07)
Dividends in excess of net investment income -- --
Distributions from net realized capital gains -- --
Distributions in excess of net realized capital
gains (0.03) --
Distributions from capital -- --
Total dividends and distributions (0.80) (0.07)
Net asset value, end of period $ 10.36 $ 10.05
Total return++ 11.43%+++ 1.19%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 42,256 $ 10,047
Ratio of operating expenses to average net assets 1.06% 1.10%+
Ratio of net investment income to average net
assets 7.15% 7.18%+
Portfolio turnover rate 130% 5%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.72% 1.69%+++
Net investment income per share without waivers
and/or expense reimbursements $ 0.07 $ 0.09+++
</TABLE>
* Nations Government Securities Fund Primary A Shares commenced operations on
April 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
19
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Nations Short-Term Income Fund
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a)# 11/30/95# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.20 0.61 0.50 0.53
Net realized and unrealized gain/(loss) on investments (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value from
operations 0.12 0.97 (0.01) 0.79
Distributions:
Dividends from net investment income (0.20) (0.61) (0.48) (0.53)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.20) (0.61) (0.52) (0.53)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.19% 10.48% (0.11)% 8.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 179,957 $ 169,291 $ 176,712 $ 201,738
Ratio of operating expenses to average net assets 0.55 %+ 0.56 %+ 0.50 % 0.37%
Ratio of net investment income to average net assets 6.07 %+ 6.32 %+ 5.23 % 5.27%
Portfolio turnover rate 73 % 224 % 293 % 121%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.88 %+ 0.86 %+ 0.82 % 0.79%
Net investment income per share without waivers and/or
expense reimbursements $ 0.19 $ 0.58 $ 0.47 $ 0.48
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.09
Net realized and unrealized gain/(loss) on investments (0.25)
Net increase/(decrease) in net asset value from
operations (0.16)
Distributions:
Dividends from net investment income (0.09)
Distributions in excess of net investment income --
Distributions from capital --
Total dividends and distributions (0.09)
Net asset value, end of period $ 9.75
Total return++ (1.58)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 190,680
Ratio of operating expenses to average net assets 0.30 %+
Ratio of net investment income to average net assets 5.54 %+
Portfolio turnover rate 45 %
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.90 %+
Net investment income per share without waivers and/or
expense reimbursements $ 0.08
</TABLE>
* Nations Short-Term Income Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Nations Diversified Income Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED YEAR
Primary A Shares 03/31/96(a) 11/30/95 11/30/94# ENDED 11/30/93#
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 9.97
Net investment income 0.23 0.73 0.74 0.78
Net realized and unrealized gain/(loss) on investments (0.40) 1.15 (1.06) 0.91
Net increase/(decrease) in net asset value from
operations (0.17) 1.88 (0.32) 1.69
Distributions:
Dividends from net investment income (0.23) (0.73) (0.74) (0.78)
Distributions in excess of net investment income -- -- (0.00)(b) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.23) (0.73) (0.89) (0.78)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.59)% 20.11% (3.05)% 17.40%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 65,081 $ 64,800 $ 22,298 $ 28,553
Ratio of operating expenses to average net assets 0.77%+ 0.80% 0.74% 0.55%
Ratio of net investment income to average net assets 6.49%+ 7.03% 7.31% 7.02%
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.87%+ 0.93% 0.95% 0.95%
Net investment income per share without waivers and/or
expense reimbursements $ 0.23 $ 0.72 $ 0.72 $ 0.70
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net asset value from
operations 0.03
Distributions:
Dividends from net investment income (0.06)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.06)
Net asset value, end of period $ 9.97
Total return++ 0.32%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23,962
Ratio of operating expenses to average net assets 0.25%+
Ratio of net investment income to average net assets 7.76%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.85%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.05
</TABLE>
* Nations Diversified Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately represents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01.
20
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Strategic Fixed Income Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.19 0.59 0.53 0.56
Net realized and unrealized gain/(loss) on investments (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value from
operations (0.10) 1.49 (0.36) 1.18
Distributions:
Dividends from net investment income (0.19) (0.59) (0.51) (0.56)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.19) (0.59) (0.87) (0.57)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.04)% 16.45% (3.58)% 12.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 823,890 $ 823,098 $ 550,697 $ 545,538
Ratio of operating expenses to average net assets 0.72%+ 0.71%+ 0.68% 0.61%
Ratio of net investment income to average net assets 5.49%+ 6.05%+ 5.43% 5.40%
Portfolio turnover rate 133% 228% 307% 161%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.83%+ 0.81%+ 0.76% 0.77%
Net investment income per share without waivers and/or
expense reimbursements $ 0.19 $ 0.58 $ 0.52 $ 0.55
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain/(loss) on investments (0.06)
Net increase/(decrease) in net asset value from
operations (0.01)
Distributions:
Dividends from net investment income (0.05)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.05)
Net asset value, end of period $ 9.94
Total return++ (0.11)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 581,329
Ratio of operating expenses to average net assets 0.26%+
Ratio of net investment income to average net assets 6.15%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.86%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.04
</TABLE>
* Nations Strategic Fixed Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Nations Global Government Income Fund
<TABLE>
<CAPTION>
<S> <C>
Primary A Shares
Operating performance:
Net asset value, beginning of period
Net investment income/(loss)
Net realized and unrealized gain/(loss) on investments
Net increase in net asset value from operations
Distributions:
Dividends from net investment income
Distributions in excess of net investment income
Distributions from net realized capital gains
Total dividends and distributions
Net asset value, end of period
Total return++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)
Ratio of operating expenses to average net assets
Ratio of net investment income/(loss) to average net assets
Portfolio turnover rate
<CAPTION>
PERIOD
ENDED
Primary A Shares 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.39
Net realized and unrealized gain/(loss) on investments 0.11
Net increase in net asset value from operations 0.50
Distributions:
Dividends from net investment income (0.37)
Distributions in excess of net investment income (0.02)
Distributions from net realized capital gains (0.04)
Total dividends and distributions (0.43)
Net asset value, end of period $ 10.07
Total return++ 5.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 24,753
Ratio of operating expenses to average net assets 1.32%
+
Ratio of net investment income/(loss) to average net assets 5.17%
+
Portfolio turnover rate 213%
</TABLE>
* Nations Global Government Income Fund Primary A Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately represents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
21
<PAGE>
Objectives
Money Market Funds:
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
Nations Prime Fund: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
Nations Treasury Fund: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
Nations Government Money Market Fund: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
Equity Funds:
Nations Value Fund: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
Nations Equity Income Fund: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
Nations International Equity Fund: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
Nations Emerging Markets Fund: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
Nations Pacific Growth Fund: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
Nations Capital Growth Fund: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
Nations Emerging Growth Fund: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
Nations Disciplined Equity Fund: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
Nations Equity Index Fund: Nations Equity Index Fund's investment objective is
to seek investment results that correspond, before fees and expenses, to the
total return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index" 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 Index.
Balanced Fund:
Nations Balanced Assets Fund: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
Bond Funds:
Nations Short-Intermediate Government Fund: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Nations Government Securities Fund: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Nations Short-Term Income Fund: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities. The Fund's
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation("S&P").
22
<PAGE>
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: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities.
Nations Strategic Fixed Income Fund: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing primarily in
investment grade fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
Nations Global Government Income Fund: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
How Objectives Are Pursued
Money Market Funds:
Nations Prime Fund: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations") and other obligations issued
or guaranteed as to payment of principal and interest by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Obligations"). Some U.S.
Government Obligations 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 are supported by the right of the issuer to
borrow from the U.S. Government, such as obligations of Federal Home Loan Banks,
and some are backed only by the credit of the issuer itself, such as obligations
of the Federal National Mortgage Association ("FNMA"). U.S. Government
Obligations also include U.S. Treasury Obligations, which differ only in their
interest rates, maturities and time of issuance. The Fund also may invest in
bank and commercial instruments that may be available in the money markets, high
quality short-term taxable obligations issued by state and local governments,
their agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified First Tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and in instruments issued by trusts or certain partnerships, including
pass-through certificates representing participations in, or debt instruments
such backed by, the securities and other assets owned by trusts or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
Nations Treasury Fund: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in obligations the
principal and interest of which are backed by the full faith and credit of the
United States Government, provided that such Fund shall, under normal market
conditions, invest at least 65% of its total assets in U.S. Treasury bills,
notes and bonds and other instruments issued directly by the U.S. Government.
The Fund also may lend its portfolio securities to qualified institutional
investors. For more information concerning these instruments, see "Appendix A."
Nations Government Money Market Fund: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund may lend its
portfolio securities to qualified institutional investors. For more information
concerning these instruments, see "Appendix A."
Equity Funds:
Nations Value Fund: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 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.
23
<PAGE>
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.
The Fund invests under normal market conditions 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 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 up to 20% of its assets in foreign securities. 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 securities of domestic
companies. Obligations with the lowest investment grade rating (e.g. rated "BBB"
by Standard & Poor's Corporation ("S&P") or "Baa" by Moody's Investors Service,
Inc. ("Moody's")) have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
The Fund 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.
Nations Equity Income Fund: The investment program of the Fund is based on
several premises. First, 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. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, 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 and 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
24
<PAGE>
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such 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.
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 companies 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 companies 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 may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers and securities of foreign investment
funds or trusts. For additional information concerning the Fund's investment
practices, see "Appendix A."
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.
Emerging Markets include, but are not limited to: Argentina, Brazil, Chile,
China, Czech Republic, Colombia, Ecuador, Greece, Hong Kong, Indonesia, India,
Malaysia, Mexico, the Philippines, Poland, Portugal, Peru, Russia, Singapore,
South Africa, Thailand, Taiwan and Turkey.
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
equity securities of companies in emerging markets. A company will be considered
in a country, market or region if it conducts its principal business activities
in the country, market or region. A company will be considered to conduct its
principal business activities in a country, market or region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such country,
market or region or has at least 50% of its assets situated in such country,
market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's 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 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.
25
<PAGE>
The Fund also may invest in certain specified derivative securities, including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; and U.S. and foreign exchange-traded financial futures approved by
the Commodity Future's Trading Commission ("CFTC") and options thereon for
market exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
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 in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (e.g., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in 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 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
types of companies:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, elec-
26
<PAGE>
tronics, 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.
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 up to 20% of its total assets in 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.
Nations Emerging Growth Fund: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above-average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
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. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities.
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
27
<PAGE>
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 an NRSRO 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 up to 20% of its total assets in 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 among common stocks 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
closely 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.
The correlation between the performance of Nations Equity Index Fund and the S&P
500 Index is expected to be over 0.95 on an annual basis. A correlation of 1.00
would indicate perfect correlation, which would be achieved when the net asset
value of the Fund, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
500 Index. The Fund's ability to track the S&P 500 Index, however, may be
affected by, among other things, transaction costs, changes in either the
composition of the S&P 500 Index or the number of shares outstanding for the
components of the S&P 500 Index, and the timing and amount of shareholder
purchase and redemptions. The Fund may utilize stock index futures contracts to
minimize tracking error. In connection with engaging in futures transactions,
the Fund may hold cash, cash equivalents, and/or U.S. government securities.
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. The Fund may also invest
in warrants. 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. 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
28
<PAGE>
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. 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.
General: Each Equity Fund also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
CFTC and options thereon for market exposure risk management. Each Equity Fund
may lend its portfolio securities to qualified institutional investors. Each
Equity Fund also may invest in restricted, private placement and other illiquid
securities. Each Equity Fund (except Nations Equity Index Fund) also may invest
in real estate investment trust securities. In addition, each Equity Fund may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies. See "Appendix A" below for additional
informaton concerning the investment practices of the Funds.
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 classes in which the Fund 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. These asset classes are actively managed in
an effort to maximize total return. In general, the Adviser believes that common
stocks offer the best opportunity for long-term capital appreciation.
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. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as 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
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.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in 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 defense measure if market
conditions warrant.
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 may invest in real estate investment trust securities. The Fund also may
invest in restricted, private placement and other illiquid securities, and also
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.
29
<PAGE>
Bond Funds:
Nations Short-Intermediate Government Fund: 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. Under normal market
conditions, it is expected that the average weighted maturity of the Fund's
portfolio will be between two and seven years. Duration not to exceed 2.5 years.
The Fund also 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; 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 the Federal Home Loan Mortgage
Corporation ("FHLMC"), or of private issuers, including mortgage pass-through
certificates, collateralized mortgage obligations ("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. See "Appendix A" below for additional
information concerning the investment practices of this Fund.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 10% of its assets in foreign securities. 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. The Fund also 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; 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. Under normal market conditions, it is expected that the average
weighted maturity of the Fund's portfolio will be greater than four years.
Duration is expected to be 3.5 to six years. For a more detailed description of
the investment practices of this Fund, see "Appendix A".
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.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 10% of its assets in foreign securities. See "Appendix A" below for
additional information concerning the investment practices of this Fund.
Nations Short-Term Income Fund: In pursuing its investment objective, Nations
Short-Term Income Fund may invest in a broad range of debt obligations such as
U.S. Government Obligations; corporate convertible and non-convertible 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 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 to instruments so rated. (For more information concerning
asset-backed securities, including mortgage-backed securities, see "Appendix
A -- Asset-Backed Securities.") Under normal market conditions, it is expected
that the average weighted maturity of the Fund's portfolio will not exceed three
years. Duration not to exceed three years.
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
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<PAGE>
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 circumstances warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its assets in foreign securities. See "Appendix A" below for
additional information concerning the investment practices of this Fund.
Nations Diversified Income Fund: In pursuing its investment objective, 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; U.S.
Government Obligations; dollar-denominated and non-dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments (see "Appendix A -- Foreign Securities"); mortgage-backed securities
of governmental issuers, including GNMA, FNMA and FHLMC, or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. (For more information concerning asset-backed securities,
including mortgage-backed securities, see "Appendix A -- Asset-Backed
Securities.") Under normal market conditions, it is expected that the average
weighted maturity of the Fund's portfolio will be greater than five years. In
pursuing its investment objective, the Fund also may invest in dividend-paying
convertible and non-convertible preferred and common stocks.
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in fixed income securities, such as government, government
agency and corporate bonds. Most obligations acquired by the Fund will be issued
by companies or governmental entities located within the United States. Not less
than 65% of the debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch,
or, if unrated, determined by the Adviser to be comparable in quality to
instruments so rated. Obligations rated in the lowest of the top four investment
grade rating categories (e.g. rated "BBB" by S&P or "Baa" by Moody's) have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds." They 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 up to 25% of its assets in foreign securities. 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,
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 pur-
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<PAGE>
chase 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.") The Fund may invest in long-term
intermediate-term and short-term securities. Under normal market conditions, it
is expected that the average weighted maturity of the Fund's portfolio will be
10 years or less. 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
NationsBank 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 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 up to 25% of its assets in foreign securities. 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 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 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
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<PAGE>
"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 15 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: Each of the Bond Funds 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. Nations Short-Intermediate
Government Fund, Nations Government Securities Fund, Nations Short-Term Income
Fund, Nations Diversified Income Fund and Nations Strategic Fixed Income Fund
also may lend their portfolio securities to qualified institutional investors.
Nations Short-Intermediate Government Fund, Nations Government Securities Fund,
Nations Short-Term Income Fund, Nations Diversified Income Fund and Nations
Strategic Fixed Income Fund also may invest in restricted, private placement and
other illiquid securities and may engage in reverse repurchase agreements and
dollar roll transactions. 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. Nations Tax Exempt Fund may invest more than
40% of its portfolio in puts or other securities guaranteed by banks and other
financial institutions. Accordingly, changes in the credit quality of these
institutions could cause losses to the Fund and affect its share price. 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 and
duration of the Funds.
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
Special Risk Considerations Relevant to an Investment in 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 investing. In addition, each of
those Funds presents unique risks that investors should be aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in 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.
The same is true, but even more so, for the emerging market countries in which
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
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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.
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 those Funds, investing in securities denominated in
foreign currencies and utilization of forward foreign currency exchange
contracts and other currency hedging techniques involve certain considerations
comprising both opportunities and risks not typically associated with investing
in U.S. dollar-denominated securities. Additionally, changes in the value of
foreign currencies can significantly affect a Fund's share price. General
economic and political factors in the various world markets also can impact a
Fund's share price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund.
Portfolio Turnover (Non-Money Market Funds): Generally, the Equity Funds, the
Balanced Fund and the Bond Funds (the "Non-Money Market Funds") will purchase
portfolio securities for capital appreciation or investment income, or both, and
not for short-term trading profits. If a Fund's portfolio turnover rate exceeds
100%, it may result in higher brokerage costs and possible tax consequences for
the Fund and its shareholders. For the Funds' portfolio turnover rates, see
"Financial Highlights."
Risk Considerations: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods. The value
of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with such Funds'
investment objectives 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
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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 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 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.
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 current position and
needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
Restraints on Investments by Money Market Funds: In order for the Money Market
Funds to value their investments on the basis of amortized cost, investments
must be in accordance with the requirements of Rule 2a-7 under the 1940 Act,
some of which are described below. A Money Market Fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with a
remaining maturity of more than 397 days, provided such obligations are subject
to demand features or resets and to maintaining a dollar-weighted average
portfolio maturity of 90 days or less. Quality requirements generally limit
investments to U.S. dollar-denominated instruments determined to present minimal
credit risks and that at the time of acquisition are rated in the first or
second rating categories (known as "first tier" and "second tier" securities,
respectively) by the required number of NRSROs (at least two or, if only one
NRSRO has rated the security, that one NRSRO) or, if unrated by any NRSRO, are
(i) comparable in priority and security to a class of short-term securities of
the same issuer that has the required rating, or (ii) determined to be
comparable in quality to securities having the required rating. The
diversification requirements provide generally that a Money Market Fund may not
at the time of acquisition invest more than 5% of its assets in securities of
any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
(except for Nations Tax Exempt Fund) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Money Market Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Money
Market Fund's own restrictions will govern.
How Performance Is Shown
Money Market Funds: From time to time the Money Market Funds may advertise the
yield and effective yield on a class of shares. Yield and effective yield
figures are based on historical data and are not intended to indicate future
performance. The "yield" of a class of shares in a Fund refers to the income
generated by an investment in such class over a seven-day period identified in
the advertisement. This income is then "annualized." That
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is, the amount of income generated by the investment during that week is assumed
to be generated each week over a 52-week period and is shown as a percentage of
the investment. The "effective yield" is calculated similarly, but, when
annualized, the income earned by an investment in a class of shares in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment.
Non-Money Market Funds: From time to time the Non-Money Market 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 Non-Money Market
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 Primary A Shares, the Money Market Funds offer Primary B,
Investor A, Investor B, Investor C and Investor D Shares. In addition to Primary
A Shares, the Non-Money Market Funds offer Primary B, 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 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 an investor's Institution, as defined below.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios are managed under the direction of their Board of Trustees
and Boards of Directors, respectively. Nations Fund Trust's SAI contains the
names of and general background information concerning each Trustee of Nations
Fund Trust. Nations Fund, Inc.'s and Nations Portfolios' SAIs contain the names
of and general background information concerning each Director of Nations Fund,
Inc. and Nations Portfolios, 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. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Gartmore serves as sub-investment adviser. TradeStreet is a wholly owned
subsidiary of NationsBank. TradeStreet provides investment management services
to individuals, corporations and institutions.
Gartmore, with principal offices at One NationsBank Plaza, Charlotte, North
Carolina 28255, serves as sub-investment adviser to Nations International Equity
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Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
Global Government Income Fund pursuant to sub-advisory agreements. 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, an indirect,
wholly owned subsidiary of Gartmore plc Investment Management ("Gartmore plc"),
a UK company which is the holding company for a leading UK-based international
fund management group of companies National Westminster Bank plc and affiliated
entities (collectively, "Natwest") own 100% of the equity of Gartmore Investment
Management plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management ("Nations Gartmore"), the
predecessor to Gartmore, pursuant to sub-advisory agreements among NBAI, Nations
Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively, on behalf
of the Funds. Nations Gartmore was a joint venture structured as a general
partnership between NB Partner Corp. and Gartmore U.S. Limited. On April 10,
1996, NatWest acquired a controlling interest in Gartmore plc from Compagnie de
Suez and affiliated entities ("Compagnie de Suez") through a direct purchase
from Compagnie de Suez of its indirect subsidiary Indosuez UK Asset Management
Limited, which held 75% of Gartmore plc's outstanding voting securities (the
"Acquisition"). NatWest acquired the remaining portion of Gartmore's plc's
shares held by public shareholders through a tender offer. Gartmore is the
successor entity resulting from the Acquisition and change of control of Nations
Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in the personnel who provide services under the
new Sub-Advisory Agreements, and the Funds receive the same sub-advisory
services, provided in the same manner and at the same fee levels, as they
received under the Previous Sub-Advisory Agreements.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. 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 has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus 0.20% of the combined average daily net assets of such Funds
in excess of $250 million; 0.40% of the average daily net assets of Nations
Government Money Market Fund; 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 expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of 0.055% of Nations Prime Fund's, Nations Treasury
Fund's and Nations Government Money Market Fund's average daily net assets;
0.20% of Nations Equity Income Fund's average daily net assets; 0.10% of Nations
Equity Index Fund's average daily net assets; 0.25% of Nations Value Fund's,
Nations Balanced Assets Fund's, Nations Capital Growth Fund's, Nations Emerging
Growth Fund's and Nations Disciplined Equity Fund's average daily net assets;
0.15% of Nations Short-Intermediate Government Fund's, Nation's Government
Securities Fund's, Nations Short-Term Income Fund's, Nations Diversified
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Income Fund's, and Nations Strategic Fixed Income Fund's average daily net
assets.
For services provided and expenses assumed pursuant to the sub-advisory
agreements, Gartmore is entitled to receive from NBAI sub-advisory fees,
computed daily and paid monthly at the annual rates of 0.70% of Nations
International Equity Fund's average daily net assets. 0.85% of Nations Emerging
Markets Fund's average daily net assets; 0.70% of Nations Pacific Growth Fund's
average daily net assets and 0.54% of Nations Global Government Income Fund's
average daily net assets.
From time to time, NBAI (and/or TradeStreet and/or Gartmore) may waive or
reimburse (either voluntarily or pursuant to applicable state limitations)
advisory fees or expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; Nations Value Fund --
0.75%; Nations Capital Growth Fund -- 0.75%; Nations Emerging Growth
Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%; Nations Equity Index
Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%; Nations Short-Intermediate
Government Fund -- 0.37%; Nations Short-Term Income Fund -- 0.27%; Nations
Diversified Income Fund -- 0.50%; and Nations Strategic Fixed Income
Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; Nations Treasury Fund -- 0.18%; Nations
Equity Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and
Nations Government Securities Fund -- 0.48%.
For the fiscal period from June 30, 1995 to Decem-
ber 31, 1995, after waivers, Nations Portfolios paid NationsBank under a prior
to Investment Advisory Agreement advisory fees at the indicated rates of the
following Funds' average daily net assets: Nations Emerging Markets
Fund -- 0.25%; Nations Pacific Growth Fund -- 0.20%; and Nations Global
Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets; Nations Government Money Market Fund -- 0.12%; Nations Value
Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%; Nations Emerging Growth
Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%; Nations Equity Index
Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%; Nations Short-Intermediate
Government Fund -- 0.37%; Nations Short-Term Income Fund -- 0.27%; Nations
Diversified Income Fund -- 0.50%; and Nations Strategic Fixed Income
Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; Nations Treasury Fund -- 0.18%; Nations
Equity Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and
Nations Government Securities Fund -- 0.48%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- 0.055%; Nations Value Fund -- 0.25%; Nations
Capital Growth Fund -- 0.25%; Nations Emerging Growth Fund -- 0.25%; Nations
Disciplined Equity Fund -- 0.25%; Nations Equity Index Fund -- 0.10%; Nations
Balanced Assets Fund -- 0.25%; Nations Short-Intermediate Government
Fund -- 0.15%; Nations Short-Term Income Fund -- 0.15%; Nations Diversified
Income Fund 0.15%; Nations Strategic Fixed Income Fund -- 0.15%; Nations Prime
Fund -- 0.055%; Nations Treasury Fund -- 0.055%; Nations Equity Income Fund --
.20%; and Nations Government Securities Fund -- 0.15%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors sub-advisory fees at the indicated rates of the following
Funds average daily net assets: Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income
Fund -- 0.54%.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager
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for the Funds since 1993. Prior to assuming her position with TradeStreet, she
was Vice President and Portfolio Manager for the Investment Management Group at
NationsBank. Ms. Duck has worked in the investment community since 1980. Her
past experience includes product management and trading for Interstate/Johnson
Lane and First Charlotte Corporation. Ms. Duck graduated from King's College.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund. He has been
Portfolio Manager for Nations Equity Index Fund since 1993. Prior to assuming
his position with TradeStreet, he was Vice President and Structured Products
Manager for the Investment Management Group at NationsBank. He has worked in the
investment community since 1990. His past experience includes portfolio
management, derivatives management and quantitative analysis for the Investment
Management Group at NationsBank and Sovran Bank of Tennessee. Mr. Golden
received a B.B.A. in Finance from Belmont University. He is a Chartered
Financial Analyst candidate and a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager for Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been the
Portfolio Manager for Nations Value Fund since 1989. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Herrmann has worked for
the Investment Management Group at NationsBank since 1981 where her
responsibilities included fund management and institutional portfolio
management. She attended Virginia Wesleyan College. Ms. Herrmann holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been the Portfolio Manager for Nations Equity Income Fund since
1991. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. He has worked in the investment community since 1980. His past
experience includes fund analysis and portfolio management for National Bank of
Detroit. Mr. Williams received a B.S. in Accounting from East Carolina
University, Summa Cum Laude and an M.B.A. from Indiana University. He holds the
Chartered Financial Analyst designation, is on the Advisory Board of Indiana
University's Investment Management Academy, and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Stephen Watson has been Principal Portfolio Manager for 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 Ehrmann is Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Gartmore Emerging Markets Team. He has been Portfolio
Manager of Nations Emerging Markets Fund since 1995. 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 Principal Portfolio Manager of the Nations Pacific Growth Fund. She
has been Portfolio Manager of Nations Pacific Growth Fund since the Fund's
inception. 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.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has
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worked in the financial investment community since 1981. His past experience
includes portfolio management, equity research and financial analysis for the
Investment Management Group at NationsBank and Duke Power Company. Mr. Sanders
received a B.A. in Economics from the University of Michigan and an M.B.A. from
University of North Carolina at Charlotte. He holds the Chartered Financial
Analyst designation and is a member of the Association for Investment Management
and Research as well as the North Carolina Society of Financial Analysts, Inc.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been Portfolio Manager for Nations Emerging Growth
Fund since 1992. Prior to assuming his position with TradeStreet, he was Senior
Vice President and Senior Portfolio Manager for the Investment Management Group
at NationsBank. He has worked in the investment community since 1968. His past
experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Development for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager for Nations Disciplined Equity Fund since
1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for NationsBank. Mr. Moser has worked for
the Investment Management Group at NationsBank since 1983 where his
responsibilities included institutional portfolio management and equity
analysis. Mr. Moser graduated Phi Beta Kappa with a B.S. in Mathematics from
Wake Forest University. He holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research as well as
the North Carolina Society of Financial Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Previously she was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. She has worked in the investment
community since 1981. Her past experience includes research analysis and
portfolio management for Mercantile Safe Deposit and Trust, and National City
Bank. Ms. Hale received a B.S. in Business and Finance from Mount St. Mary's
College and an M.B.A. from Kent State University. She holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Security
Analysts, Inc. She is also a member of the National Association for Petroleum
Investment Analysts and the World Affairs Council of Washington, D.C.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager for Nations Global Government Income
Fund since the Fund's inception. 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.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Previously he was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Mr. Cobb has worked in the
investment community since 1987. His past experience includes portfolio
management of intermediate duration and insurance products for Trust Company
Bank and Barnett Bank Trust Company Inc. Mr. Cobb received a B.A. in Economics
from the University of North Carolina at Chapel Hill.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and the Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud
has been the Portfolio Manager for the Nations Diversified Income Fund since
1992. Previously he was Senior Vice President and Senior Portfolio Manager for
the Investment Management Group at NationsBank. Mr. Ahnrud has worked for the
Investment Management Group at NationsBank since 1985 where his responsibilities
initially included institutional investment management sales and later involved
high yield credit analysis. Mr. Ahnrud received a dual B.S. in Finance and
Investments from Babson College and an M.B.A. from Duke University, Fuqua School
of Business. He holds the Chartered Financial Analyst designation and is a
member of the Association for Investment Management and Research as well as the
North Carolina Society of Financial Analysts, Inc.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Govern-
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ment Fund and Nations Government Securities Fund. Mr. Swaim has been Portfolio
Manager for the Funds since 1995. Previously he was Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Swaim
has worked in the investment community since 1986. His past experience includes
derivative products manager for the NationsBank Texas Corporate Investment
Division portfolio. Mr. Swaim received a B.S. from University of North Texas and
an M.B.A. from University of Texas at Arlington.
David M. Hetherington, CFA, is Managing Director of Fixed Income Management for
TradeStreet. Mr. Hetherington is responsible for overseeing all fixed income
product management and is Senior Portfolio Manager for Nations Short-Term Income
Fund. Mr. Hetherington has been Portfolio Manager for Nations Short-Term Income
Fund since 1995. Previously he was Senior Vice President and Director of Fixed
Income for the Investment Management Group at NationsBank. Mr. Hetherington has
worked in the investment community since 1975. His past experience includes
working as a portfolio manager, a trust investment officer and a securities
analyst for First Citizens Bank and Deposit Guarantee as well as working as an
Economist for the U.S. Department of Labor in the Bureau of Labor Statistics.
Mr. Hetherington received a B.A. in Economics from Duke University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any of such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Government Money
Market Fund -- 0.09%; 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 -- 0.10%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc., paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
Nations Treasury Fund -- 0.05%; Nations Equity Income Fund -- 0.10%; Nations
International Equity Fund -- 0.10%; and Nations Government Securities
Fund -- 0.10%.
For the fiscal period from June 30, 1995 to March 31, 1996, after waivers,
Nations Portfolios paid its administrator combined fees at the rate of 0.10% of
the following Funds' average daily net assets: Nations Pacific Growth Fund,
Nations Emerging Markets Fund, and Nations Global Government 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
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services, NationsBank shall be entitled to receive a monthly fee from Stephens
based on an annual rate of 0.01% 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
Primary Shares of the Funds.
Bank of New York, 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.
First Data serves as the Transfer Agent for each of the Fund's Primary A Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, together with Bank of
New York, 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, which also serves as the sub-transfer agent for each Fund's Primary A
Shares, 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 acts 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 Primary A Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
Expenses: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
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 First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Any general expenses of Nations Fund Trust, Nations
Fund, Inc. and/or Nations Portfolios that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Fund Trust, Nations Fund, Inc. and/or Nations Portfolios or in such
other manner as the 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. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
Nations Fund Trust: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Money Market
Funds currently offer six classes of shares -- Primary A Shares, Primary 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 -- Primary A Shares, Primary 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 Primary A Shares of the
following funds of Nations Fund Trust: Nations Government Money Market Fund,
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
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earned on the assets belonging to such fund as are declared in the discretion of
Nations Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of
Trust authorizes the Board of Trustees to classify or reclassify any class of
shares into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the 1940 Act
requires voting by fund.
As of July 15, 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. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. 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
Primary A Shares of the following funds of Nations Fund, Inc.: Nations Prime
Fund, Nations Treasury Fund, 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 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 July 15, 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. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Primary A Shares of Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund of Nations Portfolios. 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
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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 July 15, 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 disclosures on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios have entered into an indemnification agreement
that creates a right of indemnification from the investment company responsible
for any such misstatement, inaccuracy or incomplete disclosure that may appear
in this Prospectus.
About Your Investment
How To Buy Shares
Primary A Shares may be sold to financial institutions (including NationsBank
and its affiliated and correspondent banks) and fee-based planners acting on
behalf of their customers, employee benefit plans, charitable foundations and
endowments. Primary A Shares may, at times, be sold to other similar categories
of investors.
Primary A Shares are sold at net asset value without the imposition of a sales
charge. Financial institutions ("Institutions") acting on behalf of their
customers ("Customers") may establish certain procedures for processing
Customers' purchase orders and may charge their Customers for services provided
to them in connection with their investments.
Purchases of the Money Market Funds may be effected on days on which the Federal
Reserve Bank of New York is open for business (a "Bank Business Day"). Purchases
of the Non-Money Market Funds may be effected on days on which the New York
Stock Exchange (the "Exchange") is open for business (a "NYSE Business Day").
Unless otherwise specified, the term Business Day in this Prospectus refers to a
Bank Business Day with respect to a Money Market Fund, and a NYSE Business Day
with respect to a Non-Money Market Fund.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund reserves the right to reject any purchase order. The issuance of
Primary A Shares is recorded on the books of the Funds, and share certificates
are not issued. It is the responsibility of Institutions, when applicable, to
record beneficial ownership of Primary A Shares and to reflect such ownership in
the account statements provided to their Customers.
Effective Time of Purchases -- Money Market Funds: Purchases will be effected
only when federal funds are available for investment on the Business Day the
purchase order is received by Stephens or by the Transfer Agent. A purchase
order must be received by Stephens or by the Transfer Agent by 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Government Money
Market Fund). A purchase order received by Stephens or the Transfer Agent after
such time will not be accepted; notice thereof will be given to the Institution
or investor placing the order, and any funds received will be returned promptly
to the sending Institution or investor. If federal funds are not available by
4:00 p.m., Eastern time, the order will be canceled. Primary A Shares are
purchased at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases by their
Customers, and delivering required funds, on a timely basis. It is Stephens'
responsibility to transmit orders it receives to Nations Fund.
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Effective Time of Purchases -- Non-Money Market Funds: Purchase orders for
Primary A Shares in the Non-Money Market Funds that 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 no 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
or investor placing the order. Payment for orders which are not received or
accepted will be returned after prompt inquiry to the sending Institution or
investor. Primary A Shares are purchased at the net asset value per share next
determined after receipt of the order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases of Primary A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
With respect to the Money Market Funds, redemption orders must be received on a
Business Day before 3:00 p.m., Eastern time (12 noon, Eastern time, with respect
to Nations Government Money Market Fund), and payment will normally be wired the
same day to the Institution or investor. Nations Fund reserves the right to wire
redemption proceeds within three Business Days after receiving the redemption
orders if, in the judgment of the Adviser, an earlier payment could adversely
impact a Fund. However, redemption proceeds for shares purchased by check may
not be remitted until at least 15 days after the date of purchase to ensure that
the check has cleared; a certified check, however, is deemed to be cleared
immediately. Redemption orders will not be accepted by Stephens or by the
Transfer Agent after 3:00 p.m., Eastern time (12 noon, Eastern time, with
respect to Nations Government Money Market Fund), for execution on that Business
Day.
With respect to the Non-Money Market Funds, redemption proceeds are normally
remitted in federal funds wired to the redeeming Institution or investor within
three Business Days following receipt of the order.
Nations Fund may redeem a shareholder's Primary A Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a Customer 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 Customer may
be obliged to redeem all or a part of his or her Primary A 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.
Institutions are responsible for transmitting redemption orders to Stephens or
to the Transfer Agent and for crediting their Customers' accounts with the
redemption proceeds on a timely basis. It is the responsibility of Stephens to
transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary A Shares and may establish additional procedures.
Information concerning any charges or procedures is available from the
Institutions. Redemption orders are effected at the net asset value per share
next determined after acceptance of the order by Stephens or by the Transfer
Agent.
How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of a Fund to
acquire Primary A Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary A Shares for Primary A Shares of another Fund is made on the basis of
the next calculated net asset value per share of each Fund after the exchange
order is received.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be
termi-
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nated 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 90 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.
If you have telephone exchange privileges, during periods of significant
economic or market change, such telephone exchanges may be difficult to
complete. In such event, shares may be exchanged by mailing your request
directly to the entity through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary A Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary A Shares were purchased
or in other cases Stephens or the Transfer Agent. Investors should consult their
Institution, Stephens or the Transfer Agent for further information regarding
exchanges. Your exchange feature may be governed by your account agreement with
your Institution.
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 Money Market Funds are valued as of 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Government Money
Market Fund), each Bank Business Day. Shares of the Non-Money Market 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
Federal Reserve Bank of New York is closed (other than weekends) are: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Thanksgiving Day and Christmas Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The assets in the Money Market Funds are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
With respect to the Non-Money Market 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
Money Market Funds: Dividends from net investment income of each of the Money
Market Funds are declared daily to shareholders at 3:00 p.m., Eastern time (12
noon, Eastern time, with respect to Nations Government Money Market Fund), on
the day of declaration. Primary A Shares begin earning dividends on the day the
purchase order is executed and continue earning dividends through and including
the day before the redemption order is executed (e.g., the settlement date).
Dividends are paid within five Business Days after the end of each month.
Dividends are paid in the form of additional Primary A Shares of the same Fund
unless the Customer or investor has elected prior to the date of distribution to
receive payment in cash. Such election, or any revocation thereof, must be made
in writing to the Fund's Transfer Agent and will become effective with respect
to dividends paid after its receipt. Dividends are paid in cash within five
Business Days after a shareholder's complete redemption of his Primary A Shares
in a Fund. To the
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extent that there are any net short-term capital gains, they will be paid at
least annually.
Non-Money Market Funds: 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 calendar 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.
Primary A 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. Primary A Shares of the Equity Funds and the Balanced Fund are
eligible to receive dividends when declared, provided, however, that the
purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
The net asset value of Primary A Shares in the Non-Money Market 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. Dividends are paid in the form of
additional Primary A Shares of the same Fund unless the Customer or investor has
elected prior to the date of distribution to receive payment in cash. Such
election, or any revocation thereof, must be made in writing to the Fund's
Transfer Agent and will become effective with respect to dividends paid after
its receipt. Dividends and distributions payable to a shareholder are paid in
cash within five Business Days after a shareholder's complete redemption of his
or her Primary A Shares in a Fund.
Tax Information: Each of the Funds 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 tax
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 tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders in the Funds 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,
Nations Emerging Markets and Nations Pacific Growth Funds may be eligible for
the dividends-received deduction on the dividends (excluding the net capital
gains dividends) paid by these Funds to the extent that each such 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 tax 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.
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
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withholding results in overpayment of tax. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
Portions of each 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.
The foregoing discussion is based on tax laws and regulations that 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 advisors 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 this 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 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
princi-
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pal invested far in advance of the maturity of the mortgages in the pool.
Foreclosures impose no risk to principal investment because of the GNMA
guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of a single-family dwelling mortgage with a 25- to 30-year maturity, the
type of mortgage which backs most GNMA Certificates, is approximately 12 years.
It is therefore customary practice to treat GNMA Certificates as 30-year
mortgage-backed securities which prepay fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
The yield which will be earned on GNMA Certificates may vary from their coupon
rates for the following reasons: (i) Certificates may be issued at a premium or
discount, rather than at par; (ii) Certificates may trade in the secondary
market at a premium or discount after issuance; (iii) interest is earned and
compounded monthly which has the effect of raising the effective yield earned on
the Certificates; and (iv) the actual yield of each Certificate is affected by
the prepayment of mortgages included in the mortgage pool underlying the
Certificates and the rate at which principal so prepaid is reinvested. In
addition, prepayment of mortgages included in the mortgage pool underlying a
GNMA Certificate purchased at a premium may result in a loss to the Fund.
Due to the large numbers of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
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.
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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. Such securities also
may include instruments issued by trusts or certain partnerships, including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such trusts or partnerships.
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.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
The Nations Prime Fund may invest up to 100% of its assets in obligations issued
by banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. The Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar obligations, Yankee dollar obligations, and other foreign obligations
involve special investment risks, including the possibility that liquidity could
be impaired because of future political and economic developments, the
obligations may be less marketable than comparable domestic obligations of
domestic issuers, a foreign jurisdiction might impose withholding taxes on
interest income payable on such obligations, deposits may be seized or
nationalized, foreign governmental restrictions such as exchange controls may be
adopted which might adversely affect the payment of principal of and interest on
such obligations, the selection of foreign obligations may be more difficult
because there may be less publicly available information concerning foreign
issuers, there may be difficulties in enforcing a judgment against a foreign
issuer or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign issuers may differ from those applicable
to domestic issuers. In addition, foreign banks are not subject to examination
by U.S. Government agencies or instrumentalities.
Borrowings: When 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
bor-
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row 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 Funds may use reverse
repurchase agreements for the purpose of investing the proceeds in tri-party
repurchase agreements. Generally, the effect of such a transaction is that a
Fund can recover all or most of the cash invested in the portfolio securities
involved during the term of the reverse repurchase agreement, while it will be
able to keep the interest income associated with those portfolio securities.
Such transactions are only advantageous if the interest cost to the Funds of the
reverse repurchase transaction is less than the cost of obtaining the cash
otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. A 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 Fund does 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 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.
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.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
Commercial Instruments: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations Prime Fund
will limit purchases of commercial instruments to instruments which: (a) if
rated by at least two 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 objective. 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
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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
U.S. 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.
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.
Foreign Securities: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
Futures, Options and Other Derivative Instruments: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market
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conditions or does not employ the appropriate strategy with respect to these
instruments, a Fund could be left in a less favorable position. Additional risks
inherent in the use of futures, options, forward contracts and swaps include:
imperfect correlation between the price of futures, options and forward
contracts and movements in the prices of the securities or currencies being
hedged; the possible absence of a liquid secondary market for any particular
instrument at any time; and the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences. A Fund may not purchase put
and call options which are traded on a national stock exchange in an amount
exceeding 5% of its net assets. Further information on the use of futures,
options and other derivative instruments, and the associated risks, is contained
in the SAIs.
Guaranteed Investment Contracts: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "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 or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
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 hold 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
hold 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, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by the Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) 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 and
Section 4(2), 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 their
portfolios 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: Nations Equity Income may invest in 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
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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 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' Boards, 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.
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, or instruments subject to demand features or resets if the remaining
maturity is more than 397 days. 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
securities. 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
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does not intend to exercise its rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in municipal securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
Other Investment Companies: Each 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
uninvested 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.
Securities Lending: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in their
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
Short-Term Trust Obligations: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by such trusts,
either from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trusts. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
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 indices, 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
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not regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
e.g., GNMA certificates; in other cases interest and principal are not
guaranteed, e.g., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law. The market value of U.S. Government
Obligations may fluctuate due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
Obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government Obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
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 and foreign 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. Certain Funds may
invest in securities with demand features where (a) the security or its issuer
has received a short-term rating from an NRSRO; and (b) the issuer of the demand
featuer, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) 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
repre-
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sents the lowest degree of speculation and B a higher degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to 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
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are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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.
For commercial paper, D&P uses the short-term debt ratings described above.
58
<PAGE>
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term 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.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess 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.
59
<PAGE>
Prospectus
PRIMARY A SHARES
JULY 31, 1996
NATIONS INTERNATIONAL
EQUITY FUND
NATIONS EMERGING MARKETS FUND
NATIONS PACIFIC GROWTH FUND
NATIONS GLOBAL GOVERNMENT
INCOME FUND
INVESTMENT ADVISER: NationsBanc Advisors, Inc.
SUB-INVESTMENT ADVISER: Gartmore Global Partners
DISTRIBUTOR: Stephens Inc.
NATIONS FUND LOGO
<PAGE>
Prospectus
PRIMARY A SHARES
JULY 31, 1996
This Prospectus describes three equity
portfolios -- NATIONS INTERNATIONAL EQUITY FUND,
NATIONS EMERGING MARKETS FUND and NATIONS PACIFIC
GROWTH FUND -- and one bond portfolio -- NATIONS
GLOBAL GOVERNMENT INCOME FUND (each, a "Fund") -- of
Nations Fund, Inc. and Nations Fund Portfolios, Inc.
("Nations Portfolios"), each an open-end management
investment company in the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes one class of shares of each
Fund -- Primary A Shares (formerly called Trust A
Shares).
This Prospectus sets forth concisely the information
about each Fund that a prospective purchaser of
Primary A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund, Inc. and Nations Portfolios is
contained in separate Statements of Additional
Information (the "SAIs"), that 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, Inc. and Nations Portfolios, each dated July
31, 1996, are incorporated by reference in their
entirety into this Prospectus. NationsBanc Advisors,
Inc. ("NBAI") is the investment adviser to the
Funds. Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the Funds. As used herein
the "Adviser" shall mean NBAI and/or Gartmore as the
context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Nations International
Equity Fund
Nations Emerging
Markets Fund
Nations Pacific
Growth Fund
Nations Global
Government Income
Fund
For Fund 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
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 8
How Objectives Are Pursued 8
How Performance Is Shown 12
How The Funds Are Managed 13
Organization And History 15
About Your
Investment
How To Buy Shares 17
How To Redeem Shares 17
How To Exchange Shares 18
How The Funds Value Their Shares 18
How Dividends And Distributions Are Made;
Tax Information 18
Appendix A -- Portfolio Securities 20
Appendix B -- Description Of Ratings 23
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations International Equity Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of non-United States companies in Europe,
Australia, the Far East and other areas, including some
developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective
is to seek long-term capital growth by investing
primarily in equity securities of companies in
emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far
East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of companies in the Pacific Basin and the Far East
(excluding Japan).
(Bullet) Nations Global Government Income Fund's investment objective
is to maximize total return by investing primarily in high
quality debt securities issued by governments, banks and
supranational entities located throughout the world.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. Gartmore
Global Partners provides sub-advisory services to the Funds. See "How
The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds declare and pay
dividends from net investment income each calendar quarter and Nations
Global Government Income Fund declares dividends daily and pays them
monthly. Each Fund's net realized capital gains, including net
short-term capital gains, are distributed at least annually.
(Bullet) RISK FACTORS: The Funds are designed for long-term investors seeking
international diversification and who are willing to bear the risks
associated with international investing, such as foreign currency
fluctuations and economic and political risks. For a discussion of
these and other factors, See "How Objectives Are Pursued -- Special
Risk Considerations Relevant to an Investment in the Funds."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
3
<PAGE>
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
Primary A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations Nations
International Emerging Pacific Growth
Equity Fund Markets Fund Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
</TABLE>
<TABLE>
<CAPTION>
Nations
Global
Government
Income
Fund
<S> <C>
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations Nations Nations
International Emerging Pacific Growth
Equity Fund Markets Fund Fund
<S> <C> <C> <C>
Management Fees .90% 1.10% .90%
All Other Expenses (After Expense Reimbursements) .27% 1.03% .86%
Total Operating Expenses (After Expense Reimbursements) 1.17% 2.13% 1.76%
</TABLE>
<TABLE>
<CAPTION>
Nations
Global
Government
Income
Fund
<S> <C>
Management Fees .70%
All Other Expenses (After Expense Reimbursements) .62%
Total Operating Expenses (After Expense Reimbursements) 1.32%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the Funds, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Nations Nations
International Emerging Pacific Growth
Equity Fund Markets Fund Fund
<S> <C> <C> <C>
1 Year $ 12 $22 $18
3 Years $ 37 $67 $55
5 Years $ 64 $114 $95
10 Years $142 $246 $207
</TABLE>
<TABLE>
<CAPTION>
Nations
Global
Government
Income
Fund
<S> <C>
1 Year $13
3 Years $42
5 Years $72
10 Years $159
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
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>
Financial Highlights
The following audited and, where indicated, unaudited financial information has
been derived from the financial statements of Nations Fund, Inc. and Nations
Portfolios. Price Waterhouse LLP is the independent accountant to Nations Fund,
Inc. and Nations Portfolios. The reports of Price Waterhouse LLP for the most
recent fiscal years of Nations Fund, Inc. and Nations Portfolios accompany the
financial statements for such periods and are incorporated by reference in the
SAIs, which are available upon request. For more information see "Organization
And History." Shareholders of a Fund will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by the Funds' independent accountant.
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a)# 5/31/95# 5/31/94# 5/31/93#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.75 $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.07 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on investments 1.80 (0.20) 1.44 0.21
Net increase/(decrease) in net asset value from operation 1.87 (0.06) 1.53 0.30
Distributions:
Dividends from net investment income (0.06) (0.03) (0.05) (0.08)
Distributions in excess of net investment income (0.04) -- -- --
Distributions from net realized capital gains (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized capital gains -- (0.10) -- --
Total dividends and distributions (0.12) (0.25) (0.07) (0.10)
Net asset value, end of period $ 13.50 $ 11.75 $ 12.06 $ 10.60
Total return++ 16.01% (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 849,731 $ 572,940 $ 401,559 $ 118,873
Ratio of operating expenses to average net assets 1.17%+ 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to average net assets 0.65%+ 1.17% 0.75% 1.03%
Portfolio turnover rate 26% 92% 39% 41%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.18%+ 1.04% 1.18% 1.32%
Net investment income (loss) per share without waivers
and/or expense reimbursements $ 0.07 $ 0.14 $ 0.08 $ 0.10
Average commission rate paid (b) $ 0.0272 -- -- --
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.08
Net realized and unrealized gain/(loss) on investments 0.36
Net increase/(decrease) in net asset value from operation 0.44
Distributions:
Dividends from net investment income (0.04)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total dividends and distributions (0.04)
Net asset value, end of period $ 10.40
Total return++ 4.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 83,970
Ratio of operating expenses to average net assets 1.33%+
Ratio of net investment income/(loss) to average net assets 1.81%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.43%+
Net investment income (loss) per share without waivers
and/or expense reimbursements $ 0.03
Average commission rate paid (b) --
</TABLE>
* Nations International Equity Fund Primary A Shares commenced operations on
December 2, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly 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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
5
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 0.37
Net increase in net asset value from operations 0.34
Dividends from net investment income --
Distributions in excess of net investment income $ 0.00**
Distributions from net realized capital gains --
Total dividends and distributions $ 0.00**
Net asset value, end of period $ 10.34
Total return++ 3.42%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 47,560
Ratio of operating expenses to average net assets 2.13%+
Ratio of net investment income to average net assets (0.38)%+
Portfolio turnover rate 17%
Average commission rate paid (a) $ 0.0004
</TABLE>
* Nations Emerging Markets Fund Primary A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly 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.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.02
Net realized and unrealized gain/(loss) on investments (0.29)
Net increase/(decrease) in net asset value from operations (0.27)
Dividends from net investment income --
Distributions in excess of net investment income $ (0.03)
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total dividends and distributions $ (0.03)
Net asset value, end of period $ 10.24
Total return++ 2.66%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 95,210
Ratio of operating expenses to average net assets 1.76%+
Ratio of net investment income/(loss) to average net assets (0.27)%+
Portfolio turnover rate 23%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursement --
Net investment income/(loss) per share without waivers and/or expense reimbursements --
Average commission rate paid (b) $ 0.0178
</TABLE>
* Nations Pacific Growth Fund Primary A Shares commenced operations on June
30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period, since the use
of the undistributed income method did not accord with the results of
operations.
6
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.39
Net realized and unrealized gain on investments 0.11
Net increase in net asset value from operations 0.50
Distributions:
Dividends from net investment income (0.37)
Distributions in excess of net investment income (0.02)
Distributions from net realized capital gains (0.04)
Total dividends and distributions (0.43)
Net asset value, end of period $ 10.07
Total return++ 5.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 24,753
Ratio of operating expenses to average net assets 1.32%+
Ratio of net investment income to average net assets 5.17%+
Portfolio turnover rate 213%
Average commission rate paid (a) --
</TABLE>
* Nations Global Government Income Fund Primary A Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately represents the per share data for the
period, since the use of the undistributed income method did not accord with
the results of operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
7
<PAGE>
Objectives
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality 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 it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Funds will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs, nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market.
How Objectives Are Pursued
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 companies 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 companies 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 may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities. For additional
information concerning the Fund's investment practices, see "Appendix A."
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return and forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures and options thereon. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in 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 the Fund.
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
equity securities of companies in emerging markets. 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.
Emerging markets include, but are not limited to: Argentina, Brazil, Chile,
China, Czech Republic,
Colom-
<PAGE>
bia, Ecuador, Greece, Hong Kong, Indonesia, India, Malaysia, Mexico, the
Philippines, Poland, Portugal, Peru, Russia, Singapore, South Africa, Thailand,
Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. A company will
be considered to conduct its principal business activities in a country, market
or region if it derives a significant portion (at least 50%) of its revenues or
profits from goods produced or sold, investments made, or services performed in
such country, market or region or has at least 50% of its assets situated in
such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("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 Funds," 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 also may invest in certain specified derivative securities, including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; 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. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
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 in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct
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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 Funds," 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. The Fund also may invest in
certain specified derivative securities, including: exchange-traded options;
over-the-counter options executed with primary dealers, including long calls and
puts and covered calls and forward foreign exchange contracts; and U.S. and
foreign exchange-traded financial futures approved by the CFTC and options
thereon for market exposure risk management. The Fund may lend its portfolio
securities to qualified institutional investors. The Fund may invest in
restricted, private placement and other illiquid securities, and also may invest
in securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
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 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 Funds," 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.
The Fund also may invest in money market instruments, forward foreign currency
exchange contracts, futures
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and options and other instruments. The Fund also may invest in securities issued
by other investment companies, consistent with the Fund's investment objective
and policies. For defensive purposes, the Fund may temporarily invest
substantially all of its assets in U.S. financial markets or in U.S.
dollar-denominated instruments. See "Appendix A" below for additional
information concerning the investment practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUNDS: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, each Fund presents unique risks that investors should be
aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in 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.
The same is true, but even more so, for the emerging market countries in which
the Nations Emerging Markets Fund invests. 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.
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 U.S. 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.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. For the Funds' portfolio turnover rates, see "Financial
Highlights." If a Fund's portfolio turnover rate exceeds 100%, it may result in
higher costs to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences.
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 a Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in each
Fund's respective SAI.
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Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of a
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.
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.
Nations International Equity Fund, Nations Emerging Markets Fund and Nations
Pacific Growth 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 such Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
Nations 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 current position and
needs.
In order to permit the sale of a Fund's shares 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 interest 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 DATA 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 a 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 also
may be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of 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 Primary A Shares, the Funds offer Primary B, 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
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a Fund's shares. Any fees charged by an institution 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, Inc. and Nations Portfolios are
managed under the direction of their respective Boards of Directors. The SAIs
for Nations Fund and Nations Portfolios contain the names of and general
background information concerning each of their respective Directors.
INVESTMENT ADVISER: NationsBanc Investment Advisors, Inc. serves as investment
adviser to the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in
turn is a wholly owned banking subsidiary of NationsBank Corporation, a bank
holding company organized as a North Carolina corporation. NBAI has its
principal offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as sub-investment adviser to the Funds
pursuant to sub-advisory agreements. 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, an indirect wholly owned subsidiary of
Gartmore Investment Management plc ("Gartmore plc"), a UK company which is the
holding company for a leading UK-based international fund management group of
companies. National Westminster Bank plc and affiliated entities (collectively,
"Natwest") own 100% of the equity of Gartmore plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management ("Nations Gartmore"), the
predecessor to Gartmore, pursuant to sub-advisory agreements among NBAI, Nations
Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively, on behalf
of the Funds. Nations Gartmore was a joint venture structured as a general
partnership between NB Partner Corp., and Gartmore U.S. Limited. On April 10,
1996, NatWest acquired a controlling interest in Gartmore plc from Compagnie de
Suez and affiliated entities ("Compagnie de Suez") through a direct purchase
from Compagnie de Suez of its indirect subisidiary Indosuez UK Asset Management
Limited, which held 75% of Gartmore plc's outstanding voting securities (the
"Acquisition"). NatWest acquired the remaining portion of Gartmore plc's shares
held by public shareholders through a tender offer. Gartmore is the successor
entity resulting from the Acquitision and change of control of Nations Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in the personnel who provide services under the
new Sub-Advisory Agreements, and the Funds receive the same sub-advisory
services, provided in the same manner and at the same fee levels, as they
received under the Previous Sub-Advisory Agreements.
Subject to the general supervision of Nations Fund, Inc.'s and Nations
Portfolios' Boards of Directors, and in accordance with each Fund's investment
policies, the Adviser formulates guidelines and lists of approved investments
for each Fund, makes decisions with respect to and places orders for each Fund's
purchases and sales of portfolio securities and maintains records relating to
such purchases and sales. The Adviser is authorized to allocate purchase and
sale orders for portfolio securities to certain financial institutions,
including, in the case of agency transactions, financial institutions which are
affiliated with it or which have sold shares in a Fund, if the Adviser believes
that the quality of the transaction and the commission are comparable to what
they would be with other qualified brokerage firms. From time to time, to the
extent consistent with its investment objective, policies and restrictions, each
Fund may invest in securities of companies with which NationsBank has a lending
relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 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 fiscal period from June 1, 1995 to December 31,
1995, after waivers, Nations Fund, Inc. paid NationsBank under a prior
Investment Advisory Agreement advisory fees at the rate of 0.22% of the average
daily net assets of Nations International Equity Fund.
For the fiscal period from June 30, 1995 to December 31, 1995, after waivers,
Nations Portfolios paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the
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following Funds' average daily net assets: Nations Emerging Markets
Fund -- 0.25%; Nations Pacific Growth Fund -- 0.20%; and Nations Global
Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.22% of the average daily net assets of Nations
International Equity Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors subadvisory fees at the indicated rates of the following
Funds' average daily net assets: Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income Fund --
0.54%.
From time to time, NBAI (and/or Gartmore) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Funds.
Stephen Watson has been Principal Portfolio Manager for 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.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager for Nations Global Government Income
Fund since the Fund's inception. 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 Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Gartmore Emerging Markets Team. He has been Portfolio
Manager for Nations Emerging Markets Fund since 1995. Prior to joining 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 Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been associated with the Gartmore Group since 1990 as the London based
manager on its Far East desk. She has been Portfolio Manager for Nations Pacific
Growth Fund since the Fund's inception. 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 NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any of such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in
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connection with the satisfaction of various regulatory requirements applicable
to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine 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 First Data are
entitled to receive a combined fee at the annual rate of up to 0.10% of each
Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% 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 Portfolios
has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Funds. Stephens may
pay service fees or commissions to Institutions which assist customers in
purchasing Primary A Shares of the Funds. For the fiscal period from June 1,
1995 to March 31, 1996, after waivers, Nations Fund, Inc. paid its administrator
combined fees at the rate of 0.10% of the average daily net assets of Nations
International Equity Fund. For the fiscal period from June 30, 1995 to March 31,
1996, after waivers, Nations Portfolios paid its administrator combined fees at
the indicated rates of the following Funds' average daily net assets: Nations
Pacific Growth Fund -- 0.10%; Nations Emerging Markets Fund -- 0.10%; and
Nations Global Government Fund -- 0.10%.
Bank of New York (the "Custodian"), Avenue des Arts, 35 1040 Brussels, Belgium,
serves as custodian for the assets of the Funds.
First Data serves as the Transfer Agent for the Funds' Primary A Shares.
NationsBank of Texas, N.A. serves as the sub-transfer agent for the Funds'
Primary A Shares. The sub-transfer agent is located at 1401 Elm Street, Dallas,
Texas 75202. In return for providing sub-transfer agency services for the
Primary A Shares of Nations Fund, NationsBank of Texas, N.A. is entitled to
receive an annual fee from First Data of $251,000.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, MA 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; fees (including fees paid to Nations Fund's 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 First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Any general expenses of Nations Fund, Inc. or Nations
Portfolios that are not readily identifiable as belonging to a particular
investment portfolio are allocated among all portfolios in the proportion that
the assets of a portfolio bears to the assets of Nations Fund, Inc. or Nations
Portfolios or in such other manner as 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. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. 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
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into series or funds each of which consists of separate classes of shares. This
Prospectus relates only to the Primary A Shares of the Nations International
Equity Fund of Nations Fund, Inc. To obtain additional information regarding the
Fund's other classes of shares which may be available to you, contact your
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 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 July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote 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. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Primary A Shares of Nations
Portfolios. 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 July 15, 1996, NationsBank and its affiliates possessed power or shared
power to dispose of or vote more than 25% of the outstanding shares of Nations
Portfolios and therefore would be considered to be a controlling person of
Nations Portfolios for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series over which Stephens possessed
power to dispose or vote as of a certain date, see the 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 disclosures on two 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, 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
Primary A Shares may be sold to financial institutions (including NationsBank
and its affiliated and correspondent banks) and fee-based planners acting on
behalf of their customers, employee benefit plans, charitable foundations and
endowments. Primary A Shares may, at times, be sold to other similar categories
of investors.
Primary A Shares are sold at net asset value without the imposition of a sales
charge. Financial institutions ("Institutions") acting on behalf of their
customers ("Customers") may establish certain procedures for processing
Customers' purchase orders and may charge their Customers for services provided
to them in connection with their investments.
Purchases may be effected on days on which the New York Stock Exchange (the
"Exchange") is open for business (a "Business Day").
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund reserves the right to reject any purchase order. The issuance of
Primary A Shares is recorded on the books of the Funds and share certificates
are not issued. It is the responsibility of Institutions, when applicable, to
record beneficial ownership of Primary A Shares and to reflect such ownership in
the account statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Primary A Shares in the Funds
that 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 a
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 or investor placing the order. Payment for
orders which are not received or accepted will be returned after prompt inquiry
to the sending Institution or investor.
Institutions are responsible for transmitting orders for purchases of Primary A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
Redemption proceeds are normally remitted in federal funds wired to the
redeeming Institution or investor within three Business Days after receipt of
the order.
Nations Fund may redeem a shareholder's Primary A Shares if the balance in such
shareholder's account with a Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a Customer 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 Customer may
be obliged to redeem all or a part of his or her Primary A Shares in the Funds
to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Portfolios 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.
Institutions are responsible for transmitting redemption orders to Stephens or
to the Transfer Agent and for crediting their Customers' accounts with the
redemption proceeds on a timely basis. It is Stephens' responsibility to
transmit orders it receives to Nations Fund, Inc. and Nations Portfolios. No
charge for wiring redemption payments is imposed by Nations Fund, although
Institutions may charge their Customer accounts for these or other services
provided in connection with the redemption of Primary A Shares and may establish
additional procedures. Information concerning any charges or procedures is
available from the Institutions. Redemption orders are effected at the net asset
value per share next determined after acceptance of the order by Stephens or by
the Transfer Agent.
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How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of a Fund to
acquire Primary A Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary A Shares for Primary A Shares of another Fund is made on the basis of
the next calculated net asset value per share of each Fund after the exchange
order is received.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
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 90 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.
If you have telephone exchange privileges, during periods of significant
economic or market change, such telephone exchanges may be difficult to
complete. In such event, shares may be exchanged by mailing your request
directly to the entity through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary A Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary A Shares were purchased
or in other cases Stephens or the Transfer Agent. Investors should consult their
Institution, Stephens or their Transfer Agent 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 are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities are valued at their fair
value following procedures approved by the respective Boards of Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid each calendar quarter by Nations International Equity Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund and are declared daily and
paid monthly by Nations Global Government Income Fund. Each Fund's net realized
capital gains (including net short-term capital gains) are distributed at least
annually. Primary A Shares of the Funds are eligible to receive dividends when
declared provided, however, that the purchase order for such shares is received
at least one day prior to the dividend declaration and such shares continue to
be eligible for dividends through and including the day before the redemption
order is executed.
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The net asset value of Primary A Shares in each Fund 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 quarter or the month to which
the dividend relates. Dividends are paid in the form of additional Primary A
Shares of the same Fund unless the Customer or investor has elected prior to the
date of distribution to receive payment in cash. Such election, or any
revocation thereof, must be made in writing to the Fund's Transfer Agent and
will become effective with respect to dividends paid after its receipt.
Dividends and distributions payable to a shareholder are paid in cash within
five Business Days after a shareholder's complete redemption of his or her
Primary A Shares in a Fund.
TAX INFORMATION: Each of the Funds 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 tax
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 tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders in the Funds may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
these Funds to the extent that a Fund's income is derived from dividends (which,
if received directly, would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the Fund shares paying the dividends upon which
the deduction is based for at least 46 days.
Substantially all of the net realized long-term capital gains of the Funds, if
any, will be distributed at least annually to the Funds' shareholders. The 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 tax as long-term capital gains, regardless of how long the
shareholders have held a Fund's shares and whether such gains are received in
cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may 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 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, a Fund is required by the Internal Revenue Service to withhold 31%
of dividends and/or redemptions (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 tax. Federal law also requires each Fund to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of each 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.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies such Fund's permissible investments, and the SAIs contain more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% or more of such Fund's total assets
at the time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations), and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When 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. Nations International Equity Fund is a party 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. 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.
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 the Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: To the extent provided
under "How Objectives Are Pursued," the Funds may invest in debt securities
convertible into or exchangeable for equity securities, preferred stocks or
warrants. Preferred stocks are securities that represent an ownership interest
in a corporation providing the owner with claims on a company's earnings and
assets before common stock owners, but after bond or other debt security owners.
Warrants are options to buy a stated number of shares of common stock at a
specified price any time during the life of the warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. dollar. A Fund enters into these
transactions either 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.
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Although these transactions tend to minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of the hedged currency
increase. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of a Fund's portfolio securities
or in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they involve the risk that anticipated currency
movements will not be accurately predicted. The Funds will generally not enter
into a forward contract with a term of greater than one year.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) 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 the Funds 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by the Funds may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued," the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect 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, such Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. A Fund will not hold more than
15% of the value of its net assets in securities that are illiquid or such lower
percentage as may be required by the states
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in which such Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, a Fund
may purchase securities that are not registered under the Securities Act of
1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by such Fund's 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 and Section 4(2),
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 their
portfolios 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: Each 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 such 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 such Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause 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.
SECURITIES LENDING: To increase return on portfolio securities, a Fund may lend
its portfolio securities to broker/dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to
22
<PAGE>
at least the market value of the securities loaned. There may be risks of delay
in receiving additional collateral or in recovering the securities loaned or
even a loss of rights in the collateral should the borrower of the securities
fail financially. However, loans are made only to borrowers deemed by the
Adviser to be of good standing and when, in its judgment, the income to be
earned from the loan justifies the attendant risks. The aggregate of all
outstanding loans of a Fund may not exceed 30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. These contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of 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 a
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contact terms.
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 takes 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.
23
<PAGE>
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by Duff & Phelps Credit
Rating Co. ("D&P") for bonds, each of which denotes that the securities are
investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may 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 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
24
<PAGE>
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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
25
<PAGE>
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1, but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
Thomson BankWatch Inc. ("BankWatch") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries. BankWatch ratings do not
constitute a recommendation to buy or sell securities of any of these companies.
Further, BankWatch does not suggest specific investment criteria for individual
clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA Limited
and its affiliate, IBCA (collectively "IBCA"):
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess 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.
26
<PAGE>
Prospectus
PRIMARY B SHARES
JULY 31, 1996
Money Market
Funds
INVESTMENT ADVISER: NationsBanc Advisors, Inc.
SUB-INVESTMENT ADVISER: TradeStreet Investment Associates, Inc.
DISTRIBUTOR: Stephens Inc.
Nations Fund Logo
<PAGE>
Prospectus
PRIMARY B SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund" and
collectively the "Money Market Funds"), of Nations
Fund Trust and Nations Fund, Inc., each an open-end
management investment company in the Nations Fund
Family ("Nations Fund" or "Nations Fund Family").
This Prospectus describes one class of shares of
each Fund -- Primary B Shares (formerly called Trust
B Shares).
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET ASSET
VALUE OF $1.00 PER SHARE. INVESTMENTS IN THE MONEY
MARKET FUNDS ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE
THAT THE MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information
about the Funds that a prospective purchaser of
Primary B Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust and Nations Fund, Inc. is
contained in separate Statements of Additional
Information (the "SAIs"), that 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 bear the same
date as this Prospectus and 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 the Funds. As used herein the
"Adviser" shall mean NBAI and/or TradeStreet 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.
NATIONBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Nations Prime Fund
Nations Treasury Fund
Nations Government
Money Market Fund
Nations Tax Exempt
Fund
For Fund information call:
1-800-626-2275
or write:
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 7
How Objectives Are Pursued 7
How Performance Is Shown 9
How The Funds Are Managed 10
Organization And History 12
About Your Investment
How To Buy Shares 14
Shareholder Servicing Plan 14
How To Redeem Shares 15
How To Exchange Shares 15
How The Funds Value Their Shares 16
How Dividends And Distributions Are Made; Tax
Information 16
Appendix A -- Portfolio Securities 17
Appendix B -- Description Of Ratings 23
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent
with the preservation of capital and the maintenance of
liquidity.
(Bullet) Nations Government Money Market Fund's investment objective
is to seek as high a level of current income as is consistent
with liquidity and stability of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to seek as
high a level of current interest income exempt from Federal
income taxes as is consistent with liquidity and stability of
principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Primary B Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
PRIMARY B SHARES*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Nations Prime Nations Treasury Government Money
Fund Fund Market Fund
</TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<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>
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .14% .14% .12%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .16% .16% .18%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) .55% .55% .55%
<CAPTION>
Nations Tax
Exempt Fund
Sales Load Imposed on Purchases None
<S> <C>
Deferred Sales Load None
Management Fees (After Fee Waivers) .13%
<S> <C>
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .17%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) .55%
</TABLE>
* Primary 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 the accounts of their customers
for services provided in connection with the purchase or redemption of shares.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary B Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<S> <C> <C>
Nations Treasury
Nations Prime Fund Fund
1 Year $ 6 $ 6
3 Years $ 18 $ 18
5 Years $ 31 $ 31
10 Years $ 69 $ 69
<CAPTION>
Nations Government Nations Tax Exempt
Money Market Fund Fund
1 Year $ 6 $ 6
3 Years $ 18 $ 18
5 Years $ 31 $ 31
10 Years $ 69 $ 69
</TABLE>
4
<PAGE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in
Primary B Shares will bear either directly or indirectly. The "Other Expenses"
figures contained in the above table are based on estimated amounts for each
Fund's current fiscal year and reflect anticipated fee waivers and
reimbursements. There is no assurance that these fee waivers and reimbursements
will continue beyond the current fiscal year. If fee waivers and/or
reimbursements are discontinued, the amounts contained in the "Examples" above
may increase. For more complete descriptions of the Funds' operating expenses,
see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees", "Other
Expenses" and "Total Operating Expenses" for Primary B Shares of the indicated
Fund would have been as follows: Nations Prime Fund -- .20%, .16% and .61%,
respectively; Nations Treasury Fund -- .20%, .16% and .61%, respectively;
Nations Government Money Market Fund -- .40%, .18% and .83%, respectively; and
Nations Tax Exempt Fund -- .40%, .17% and .82%, 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.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS PRIME FUND
<TABLE>
<S> <C>
PERIOD
ENDED
PRIMARY B SHARES 03/31/96(a)
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0447
Dividends from net investment income (0.0447)
Total dividends and distributions (0.0447)
Net asset value, end of period $ 1.00
Total return++ 4.57%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 96,305
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 5.37%+
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.62%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0442
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 5/31/95*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0474
Dividends from net investment income (0.0474)
Total dividends and distributions (0.0474)
Net asset value, end of period $ 1.00
Total return++ 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 126,120
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 4.98%+
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.63%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0466
</TABLE>
* Nations Prime Fund Primary B Shares commenced operations on June 16, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<S> <C>
PERIOD
ENDED
PRIMARY B SHARES 03/31/96(a)
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0437
Dividends from net investment income (0.0437)
Distributions from net realized capital gains (0.0000)#
Total dividends and distributions (0.0437)
Net asset value, end of period $ 1.00
Total return++ 4.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 47,488
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 5.27%+
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.62%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0432
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 05/31/95*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0449
Dividends from net investment income (0.0449)
Distributions from net realized capital gains (0.0000)#
Total dividends and distributions (0.0449)
Net asset value, end of period $ 1.00
Total return++ 4.56%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 56,815
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 4.74%+
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.60%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0444
</TABLE>
* Nations Treasury Fund Primary B Shares commenced operations on June 16,
1994.
# 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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY B SHARES 03/31/96(a) 11/30/95
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0165 0.0533
Distributions:
Dividends from net investment income (0.0165) (0.0533)
Distributions from net realized capital gains -- --
Total dividends and distributions (0.0165) (0.0533)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 1.66% 5.45%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 31,581 $ 27,122
Ratio of operating expenses to average net assets 0.55%+ 0.55%
Ratio of net investment income to average net assets 4.95%+ 5.33%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.84%+ 0.82%
Net investment income per share without waivers and/or expense
reimbursements $ 0.0155 $ 0.0506
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0200
Distributions:
Dividends from net investment income (0.0200)
Distributions from net realized capital gains (0.0000)#
Total dividends and distributions (0.0200)
Net asset value, end of period $ 1.00
Total return++ 2.02%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 72,747
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 3.54%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.84%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0186
</TABLE>
* Nations Government Money Market Fund Primary B Shares commenced operations on
June 16, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Value represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
6
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TAX EXEMPT FUND
<TABLE>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY B SHARES 03/31/96(a) 11/30/95
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0104 0.0335
Dividends from net investment income (0.0104) (0.0335)
Total dividends and distributions (0.0104) (0.0335)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 1.04% 3.39%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 9,370 $ 11,666
Ratio of operating expenses to average net assets 0.55%+ 0.55%
Ratio of net investment income to average net assets 3.10%+ 3.37%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.83%+ 0.82%
Net investment income per share without waivers and/or expense
reimbursements $ 0.0095 $ 0.0309
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0116
Dividends from net investment income (0.0116)
Total dividends and distributions (0.0116)
Net asset value, end of period $ 1.00
Total return++ 1.17%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18,207
Ratio of operating expenses to average net assets 0.52%+
Ratio of net investment income to average net assets 2.34%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.84%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0102
</TABLE>
* Nations Tax Exempt Fund Shares commenced operations on June 16, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations"), other obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Obligations"), bank and
commercial instruments that may be available in the money markets, high quality
short-term taxable obligations issued by state and local governments, their
agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified First Tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and in instruments issued by trusts or certain partnerships, including
pass-through certificates representing participation in, or debt instruments
backed by, the securities and other assets owned by such trusts or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations
7
<PAGE>
and repurchase agreements secured by such obligations. The Fund also may
purchase securities issued by other investment companies, consistent with the
Fund's investment objective and policies, and may engage in reverse repurchase
agreements. The Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that such Fund shall, under normal market conditions,
invest at least 65% of its total assets in U.S. Treasury bills, notes and bonds
and other instruments issued directly by the U.S. Government. In addition, the
Fund may lend its portfolio securities to qualified institutional investors. For
more information concerning these instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. In addition, the Fund
may lend its portfolio securities to qualified institutional investors. For more
information concerning these instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: In pursuing its investment objective, the Fund invests
in a diversified portfolio of obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel to the issuer or bond counsel, is
exempt from regular Federal income tax ("Municipal Securities"). The Fund will
not knowingly purchase securities the interest on which is subject to such tax.
A portion of the Fund's assets, however, may be invested in private activity
bonds, the interest on which may be treated as a specific tax preference item
under the Federal alternative minimum tax. See "How Dividends and Distributions
Are Made; Tax Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation
("S&P"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"), or
Thomson BankWatch, Inc. ("BankWatch") or Aa or higher by Moody's Investors
Service, Inc. ("Moody's"), in the case of bonds; rated "A" or higher by D&P,
Fitch, S&P, IBCA, BankWatch or Moody's in the case of certain bonds which are
unrated securities (I.E. lacking a short-term rating from the requiste number of
nationally recognized statistical rating organizations; rated "D-1" or higher by
D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or "MIG-1" by Moody's in the case
of notes; rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1" by S&P,
or "VMIG-1" by Moody's in the case of variable-rate demand notes; or rated "D-1"
or higher by D&P, "F-1" or higher by Fitch, "A-1" or higher by S&P or "Prime-1"
by Moody's in the case of tax-exempt commercial paper. D&P, Fitch, S&P, Moody's,
IBCA and BankWatch are the six nationally recognized statistical rating
organizations (collectively, "NRSROs"). Securities that are unrated at the time
of purchase will be determined to be of comparable quality by the Adviser
pursuant to guidelines approved by Nations Fund Trust's Board of Trustees. The
applicable Municipal Securities ratings are described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by trusts or certain partnerships, including pass-through certificates
representing participations in, or debt instruments backed by, the securities
and other assets owned by such trusts or partnerships. For more information
concerning the Fund's investments, see "Appendix A."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds'
invest-
<PAGE>
ment 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 with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments 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. 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.
In addition, as a matter of non-fundamental policy, the Nations Tax Exempt Fund
may not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations.
The investment objective and policies of the Funds, unless otherwise specified,
may be changed without a vote of 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 current position and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost, investments must be in
accordance with the requirements of Rule 2a-7 under the Investment Company Act
of 1940, as amended ("1940 Act"), some of which are described below. A Money
Market Fund is limited to acquiring obligations with a remaining maturity of 397
days or less, or obligations with a remaining maturity of more than 397 days,
provided such obligations are subject to demand features or resets and to
maintaining a dollar-weighted average portfolio maturity of 90 days or less.
Quality requirements generally limit investments to U.S. dollar-denominated
instruments determined to present minimal credit risks and that at the time of
acquisition are rated in the first or second rating categories (known as "first
tier" and "second tier" securities, respectively) by the required number of
NRSROs (at least two or, if only one NRSRO has rated the security, that one
NRSRO) or, if unrated by any NRSRO, are (i) comparable in priority and security
to a class of short-term securities of the same issuer that has the required
rating, or (ii) determined to be comparable in quality to securities having the
required rating. The diversification requirements provide generally that a Money
Market Fund may not at the time of acquisition invest more than 5% of its assets
in securities of any one issuer except that up to 25% of total assets may be
invested in the first tier securities of a single issuer for three business
days. Additionally, (except for Nations Tax Exempt Fund) no more than 5% of
total assets may be invested, at the time of acquisition, in second tier
securities in the aggregate, and any investment in second tier securities of one
issuer is limited to the greater of 1% of total assets or one million dollars.
Securities issued by the U.S. Government, its agencies, authorities or
instrumentalities are exempt from the quality requirements, other than minimal
credit risk. In the event that a Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Fund's
own restrictions will govern.
9
<PAGE>
How Performance Is Shown
From time to time the Money Market Funds may advertise the yield and effective
yield on a class of shares and the Nations Tax Exempt Fund also may advertise
the tax-equivalent yield of a class of shares. YIELD, EFFECTIVE YIELD AND
TAX-EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE. The "yield" of a class of shares in a Fund
refers to the income generated by an investment in such class over a seven-day
period identified in the advertisement. This income is then "annualized." That
is, the amount of income generated by the investment during that week is assumed
to be generated each week over a 52-week period and is shown as a percentage of
the investment. The "effective yield" is calculated similarly, but, when
annualized, the income earned by an investment in a class of shares in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of each class of shares in Nations Tax Exempt Fund shows
the level of taxable yield needed to produce an after-tax equivalent to such
class's tax-free yield. This is done by increasing the class's yield (calculated
as above) by the amount necessary to reflect the payment of Federal income tax
at a stated tax rate.
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 Primary B Shares, the Funds offer Primary A, Investor A, Investor
B, Investor C and Investor D Shares. Each class of shares may bear different
sales charges, shareholder servicing fees 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 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 each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Trustees and Directors, respectively.
Nations Fund Trust's SAI contains the names of and general background
information concerning each Trustee of Nations Fund Trust. Nations Fund, Inc.'s
SAI contains the names of and general background information concerning each
Director of Nations Fund, Inc.
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 subsidiary of NationsBank Corporation, a bank holding company
organized as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board 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 Nations Tax Exempt
Fund, 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
10
<PAGE>
Adviser or which have sold shares in such Fund, if the Adviser believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms. From time to time, to the extent
consistent with its investment objective, policies and restrictions, each Fund
may invest in securities of companies with which NationsBank has a lending
relationship. For the services provided and expenses assumed pursuant to various
Investment Advisory Agreements, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: 0.25% of the first $250
million of the combined average daily net assets of both Nations Prime Fund and
Nations Treasury Fund, plus 0.20% of the combined average daily net assets of
such Funds in excess of $250 million; and 0.40% of the average daily net assets
of each of Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
asets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Fund's average daily net
assets: Nations Prime Fund -- 0.18%; and Nations Treasury Fund -- 0.18%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; and Nations Treasury Fund -- 0.18%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- 0.055%; Nations Tax Exempt Fund -- 0.055%;
Nations Prime Fund -- 0.055%; and Nations Treasury Fund -- 0.055%.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. She has worked in the
investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysts.
Sandra L. Duck is Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager for Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state stat-
11
<PAGE>
utes, including the Glass-Steagall Act, and regulations relating to the
permissible activities of banks and their subsidiaries or affiliates, as well as
future changes in such statutes, regulations and judicial or administrative
decisions or interpretations, could prevent such entities from continuing to
perform, in whole or in part, such services. If any such entity were prohibited
from performing any of such services, it is expected that new agreements would
be proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations 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.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the indicated rates of the
following Funds' average daily net assets: Nations Government Money Market Fund
and Nations Tax Exempt Fund -- 0.09%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
and Nations Treasury Fund -- 0.05%.
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 0.01% 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 that 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
Primary B Shares of the Funds.
First Data serves as the Transfer Agent for each Fund's Primary Shares.
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the assets
of each Fund. The Custodian, which also serves as the sub-transfer agent for
each Fund's Primary B Shares, is located at 1401 Elm Street, Dallas, Texas
75202, and is a wholly owned subsidiary of NationsBank Corporation. In return
for providing custodial services, the Custodian is entitled to receive, in
addition to out-of-pocket expenses, fees payable monthly (i) at the rate of
1.25% of 1% of the average daily net assets of each Fund, (ii) $10.00 per
repurchase collateral transaction by the Funds, and (iii) $15.00 per purchase,
sale and maturity transaction involving the Funds. In return for providing
sub-transfer agency services for the Primary B Shares of Nations Fund, the
Transfer Agent is entitled to receive an annual fee from First Data of $251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
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 Custodian and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, NationsBank, Stephens
or First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Primary B Shares also bear certain shareholder servicing
costs. Any general expenses of Nations Fund Trust and/or Nations Fund, Inc. that
are not readily identifiable as belonging to a particular investment portfolio
are allocated among all portfolios in the proportion that the assets of a
portfolio bears to the assets of Nations Fund Trust and/or Nations Fund, Inc. or
in such other manner as the Board of Trustees or Board of Directors determines
is fair and equitable.
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Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor B Shares, Investor C Shares and Investor D Shares. This
Prospectus relates only to the Primary B Shares of Nations Government Money
Market Fund and Nations Tax Exempt Fund of Nations Fund Trust. 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 July 15, 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. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. 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
Primary B Shares of Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. 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 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 July 15, 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 may be considered to be a controlling person of
Nations Fund, Inc. for purposes of the 1940 Act. For more detailed information
concerning the
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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.
Because this Prospectus combines disclosure on two 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 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 this
Prospectus.
About Your Investment
How To Buy Shares
Primary B Shares may be purchased through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank)
("Institutions") that have entered into selling agreements with Stephens.
Primary 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 the accounts of their customers'
("Customers") accounts for services provided in connection with the purchase of
shares. Purchases may be effected on days on which the Federal Reserve Bank of
New York is open for business (a "Business Day").
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
The Institutions have entered into Servicing Agreements whereby they will
provide various shareholder services for their Customers that own Primary 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
Primary B Shares is recorded on the books of the Funds, and share certificates
are not issued. It is the responsibility of Institutions to record beneficial
ownership of Primary B Shares and to reflect such ownership in the account
statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12:00 noon,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund). A purchase order received by Stephens or the Transfer Agent
after such time will not be accepted; notice thereof will be given to the
Institution placing the order, and any funds received will be returned promptly
to the sending Institution. If federal funds are not available by 4:00 p.m.,
Eastern time, the order will be canceled. Primary B Shares are purchased at the
net asset value per share next determined after receipt of the order by Stephens
or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases by their
Customers, and delivering required funds, on a timely basis. It is Stephens'
responsibility to transmit orders it receives to Nations Fund.
Shareholder Servicing Plan
The Funds have adopted a Shareholder Servicing Plan (the "Servicing Plan")
pursuant to which Primary B Shares are sold through Institutions which enter
into Servicing Agreements with Nations Fund. The Servicing Agreements require
Institutions to provide shareholder services to their Customers who from time to
time beneficially own Primary B Shares in return for payment by the Fund at a
rate not exceeding 0.25% (on an annualized basis) of the average daily net asset
value of the Primary B Shares beneficially owned by Customers with whom the
Institutions have a servicing relationship. Holders of Primary B Shares will
bear all fees paid to Institutions under the Servicing Plan. The Servicing Plan
does not cover, and the fees thereunder are not payable, to Institutions with
respect to Primary A Shares.
Such shareholder services supplement the services provided by Stephens, TSSG and
the Transfer Agent to shareholders of record. The shareholder services
pro-
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vided by Institutions may include general shareholder liaison services;
processing purchase, exchange, and redemption requests from Customers and
placing orders with Stephens or the Transfer Agent; processing dividend and
distribution payments from the Funds on behalf of Customers; providing
information periodically to Customers showing their positions in Primary B
Shares; providing sub-accounting with respect to Primary B Shares beneficially
owned by Customers or the information necessary for sub-accounting; responding
to inquiries from Customers concerning their investment in Primary B Shares;
arranging for bank wires; and providing such other similar services as may be
reasonably requested.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreement between Institutions
and Nations Fund. See the SAIs for more details on the Servicing Plan.
Nations Fund understands that Institutions may charge fees to their Customers
who are the owners of Primary 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 Servicing Agreement with Nations Fund. The Servicing
Agreements require an Institution to disclose to its Customers any compensation
payable to the Institution by Nations Fund and any other compensation payable by
Customers in connection with the investment of their assets in Primary 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 Primary 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 Primary B Shares.
How To Redeem Shares
Customers may redeem all or part of their Primary 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 Stephens' responsibility to
transmit orders 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 Primary 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.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), and payment will normally be wired the
same day to the Institutions. Nations Fund reserves the right to wire redemption
proceeds within three Business Days after receiving a redemption order if, in
the judgment of NationsBank, an earlier payment could adversely impact a Fund.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Redemption orders will not be accepted by Stephens or by the Transfer Agent
after 3:00 p.m., Eastern time (12:00 noon, Eastern time, with respect to Nations
Tax Exempt Fund and Nations Government Money Market Fund), for execution on that
Business Day.
Nations Fund may redeem a shareholder's Primary B Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. 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 Primary B Shares in a Fund
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.
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How To Exchange Shares
The exchange feature enables a shareholder of Primary B Shares of a Fund to
acquire Primary B Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary B Shares for Primary 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 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
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.
Provided your Institution allows telephone exchanges, during periods of
significant economic or market change, such 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.
Primary B Shares may be exchanged by directing a request directly to the
Institution through which the original Primary 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 are valued as of 3:00 p.m., Eastern time (1:00 p.m., Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund), on each Business Day. Currently, the days on which the Federal
Reserve Bank of New York is closed (other than weekends) are: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Thanksgiving Day and Christmas Day.
The assets in the Money Market Funds are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of each of the
Money Market Funds are declared daily to shareholders at 3:00 p.m., Eastern time
(1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), on the day of declaration. Primary B Shares begin
earning dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Primary B
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Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Transfer Agent and will become effective
with respect to dividends paid after its receipt. Dividends are paid in cash
within five Business Days after a shareholder's complete redemption of his or
her Primary B Shares in a Fund. To the extent that there are any net short-term
capital gains, they will be paid at least annually.
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 tax
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. Distributions by
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an
Individual Retirement Account are generally deferred under the Code.) These
distributions will not qualify for the dividends received deduction for
corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
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 also may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by 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
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, the Nations Tax
Exempt Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
Federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund may be taxable to investors under state or local law even though a
substantial portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income tax.
If the Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax
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considerations generally affecting the Funds and their shareholders. It is not
intended as a substitute for careful tax planning; investors should consult
their tax advisors with respect to their specific tax situations as well as with
respect to state and local taxes. Further tax information is contained in the
SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specified call dates. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the SAIs.
Non-mortgage asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
The Nations Prime Fund may invest up to 100% of its assets in obligations issued
by banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. The Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar obligations, Yankee dollar obligations and other foreign obligations
involve special investment risks, including the possibility that liquidity could
be impaired because of future political and economic developments, the
obligations may be less marketable than comparable domestic obligations of
domestic issuers, a foreign jurisdiction might impose withholding taxes on
interest income payable on such obligations, deposits may be seized or
nationalized, foreign governmental restrictions such as exchange controls may be
adopted which might adversely affect the payment of principal of and interest on
such obligations, the selection of foreign obligations may be more difficult
because there may be less publicly available information concerning foreign
issuers, there may be difficulties in enforcing a judgment against a foreign
issuer or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign issuers may differ from those applicable
to domestic issuers. In addition, foreign banks are not subject to examination
by U.S. Government agencies or instrumentalities.
BORROWINGS: When 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
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meeting of redemption requests that otherwise might require the untimely
disposition of securities.
Reverse repurchase agreements 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 Funds may use reverse repurchase agreements
for the purpose of investing the proceeds in tri-party repurchase agreements.
Generally, the effect of such a transaction is that a Fund can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while it will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. 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. A 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 a Fund does not establish and maintain
a segregated account (as described above). Under the requirements of the 1940
Act, a Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, a Fund's asset coverage and other factors at the time of a reverse
repurchase, a Fund may not establish a segregated account when the Adviser
believes it is not in the best interests of the Fund to do so. In this case,
such reverse repurchase agreements will be considered borrowings subject to the
asset coverage described above.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations Prime Fund
will limit purchases of commercial instruments to instruments that: (a) if rated
by at least two 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 objective. 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.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
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Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly-rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers that, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
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 hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lesser percentages as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice and illiquid restricted securities are subject to the limitation on
illiquid securities. In addition, interests in privately arranged loans acquired
by the Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities which are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by the Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), 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 their
portfolios 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.
MONEY MARKET INSTRUMENTS: With respect to the Money Market Funds, the term
"money market instruments" refers to instruments with remaining maturities
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of 397 days or less, or instruments subject to demand features or resets if the
remaining maturity is more than 397 days. Money market instruments include,
among other instruments, 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 municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these quidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. 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.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the
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underlying security. The purpose of engaging in transactions involving puts is
to maintain flexibility and liquidity to permit the Fund to meet redemptions and
remain as fully invested as possible in municipal securities. The Funds will
limit their put transactions to institutions which the Adviser believes present
minimal credit risk, pursuant to guidelines adopted by the Boards. Nations Tax
Exempt Fund may invest more than 40% of its portfolio in puts or other
securities guaranteed by banks and other financial institutions. Accordingly,
changes in the credit quality of these institutions could cause losses to the
Fund and affect its share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in Municipal Securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if its assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested 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.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
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-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., GNMA certificates; in other cases interest and principal are not
guaranteed, E.G., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law. The market value of U.S. Government
Obligations may fluctuate due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
Obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government Obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
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issuers, and certain debt instruments issued by domestic and foreign 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. The Funds will invest
in securities with demand features where (a) the security or its issuer has
received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.)
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 take
place at a future date. Because actual payment for and delivery of such
securities generally takes 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 three ratings used by S&P for corporate and
municipal bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. 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 and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
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 mod-
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est, 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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
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 two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below risk-
free U.S. Treasury short-term obligations." D-1 indicates very high certainty of
timely payment. Liquidity factors are excellent and supported by good
fundamental protection factors. Risk factors are considered to be minor. D-1-
indicates high certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2 indicates good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
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+.
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
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characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest 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.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
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.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess 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.
25
<PAGE>
Prospectus
PRIMARY B SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund") of
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios"), each
an open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations Fund
Family"). This Prospectus describes one class of
shares of each Fund -- Primary B Shares (formerly
called Trust B Shares).
This Prospectus sets forth concisely the information
about Nations Fund that a prospective purchaser of
Primary 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
Portfolios is contained in separate Statements of
Additional Information ("SAIs"), that 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 each dated July 31, 1996, 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
Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the other Funds. As used
herein the "Adviser" shall mean NBAI, TradeStreet
and/or 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 Fund information call:
1-800-621-2192
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Objectives 7
How Objectives Are Pursued 8
How Performance Is Shown 19
How The Funds Are Managed 20
Organization And History 26
About Your
Investment
How To Buy Shares 27
Shareholder Administration Arrangements 28
How To Redeem Shares 29
How To Exchange Shares 29
How The Funds Value Their Shares 30
How Dividends And Distributions Are Made; Tax
Information 30
Appendix A -- Portfolio Securities 31
Appendix B -- Description Of Ratings 39
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) EQUITY FUNDS:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is to seek
current income and growth of capital by investing primarily
in companies with above average dividend yields.
(Bullet) Nations International Equity Fund's investment objective is
to seek long-term capital growth by investing primarily in
equity securities of non-United States companies in Europe,
Australia, the Far East and other areas, including some
developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as
those in Latin America, Eastern Europe, the Pacific Basin,
the Far East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity
securities of companies in the Pacific Basin and the Far East
(excluding Japan).
(Bullet) Nations Capital Growth Fund's investment objective is to
seek growth of capital by investing in companies that
are believed to have superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment objective is
to seek capital appreciation by investing in emerging
growth companies that are believed to have superior
long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective
is to seek growth of capital by investing in companies
that are expected to produce significant increases in
earnings per share.
(Bullet) Nations Equity Index Fund's investment objective is to
seek investment results that correspond, before fees
and expenses, to the total return of the Standard &
Poor's 500 Composite Stock Price Index.
(Bullet) BALANCED FUND:
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income
securities.
(Bullet) BOND FUNDS:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek current income consistent with modest
fluctuation of principal. The Fund will invest primarily in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment
objective is to seek current income by investing
primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment objective
is to seek current income consistent with minimal
fluctuation of principal. The Fund invests primarily
in short-term investment grade fixed income
securities.
3
<PAGE>
(Bullet) Nations Diversified Income Fund's investment objective
is to seek current income consistent with total return
by investing primarily in a diversified portfolio of
fixed income securities.
(Bullet) Nations Strategic Fixed Income Fund's investment
objective is to seek total return by investing
primarily in investment grade fixed income securities.
The Fund may invest in long-term, intermediate-term
and short-term securities.
(Bullet) Nations Global Government Income Fund's investment
objective is to maximize total return by investing
primarily in high quality debt securities issued by
governments, banks and supranational entities located
throughout the world.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to certain
of the Funds and Gartmore Global Partners provides sub-advisory
services to the other Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Equity Funds and the Balanced Fund
declare and pay dividends from net investment income each calendar
quarter. The Bond Funds declare dividends daily and pay them monthly.
Each Fund's net realized capital gains, including net short-term
capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. 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 risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities, including U.S. Government
Obligations, are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not not
be able to pay principal and/or interest when due. Certain of the
Funds' investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund
are designed for long-term investors seeking international
diversification and who are willing to bear the risks associated with
international investing, such as foreign currency fluctuations and
economic and political risks. For a discussion of these factors, see
"How Objectives Are Pursued -- Special Risk Considerations Relevant to
an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
4
<PAGE>
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
Primary 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 PRIMARY B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<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
Purchases1 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
Purchases1 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 Fees
(After Fee Waivers) .75% .70% .90% 1.10% .90% .75% .75%
Other Expenses
(After Expense
Reimbursements) .71% .70% .52% 1.28% 1.11% .71% .74%
Total Operating Expenses
(After Fee Waivers
and Expense
Reimbursements) 1.46% 1.40% 1.42% 2.38% 2.01% 1.46% 1.49%
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Disciplined Equity Nations
Equity Index Balanced
Fund Fund Assets Fund
<S> <C> <C> <C>
Management Fees
(After Fee Waivers) .75% .10% .75%
Other Expenses
(After Expense
Reimbursements) .77% .75% .75%
Total Operating Expenses
(After Fee Waivers
and Expense
Reimbursements) 1.52% .85% 1.50%
</TABLE>
1 Primary 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 the accounts of their customers
for services provided in connection with the purchase or redemption of shares.
NATIONS FUND BOND FUNDS PRIMARY 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 Purchases1 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 Purchases1 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 Fees (After Fee Waivers) .40% .50% .30% .50%
Other Expenses (After Expense Reimbursements) .58% .80% .60% .77%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .98% 1.30% .90% 1.27%
</TABLE>
<TABLE>
<CAPTION>
Nations
Strategic Nations
Fixed Global
Income Government
Fund Income Fund
<S> <C> <C>
Management Fees (After Fee Waivers) .50% 0.70%
Other Expenses (After Expense Reimbursements) .72% .87%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) 1.22% 1.57%
</TABLE>
1 Primary 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 the accounts of their customers
for services provided in connection with the purchase or redemption of shares.
5
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary 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 $ 15 $ 14 $ 14 $ 24 $ 20
3 Years $ 46 $ 44 $ 45 $ 74 $ 63
</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 $ 10 $ 13
3 Years $ 48 $ 27 $ 47 $ 31 $ 41
</TABLE>
<TABLE>
<CAPTION>
Nations Strategic Nations Global
Fixed Income Government Income
Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 12 $ 16
3 Years $ 39 $ 50
</TABLE>
<TABLE>
<CAPTION>
Nations
Capital Nations Emerging
Growth Fund Growth Fund
<S> <C> <C>
1 Year $ 15 $ 15
3 Years $ 46 $ 47
</TABLE>
<TABLE>
<CAPTION>
Nations
Short-Term Income Nations Diversified
Fund Income Fund
<S> <C> <C>
1 Year $ 9 $ 13
3 Years $ 29 $ 40
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary 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 of 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 expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" for Primary B Shares of the indicated
Fund would have been as follows: Nations Value Fund -- .75%, .81% and 1.56%,
respectively; Nations Equity Income Fund -- .70%, .80% and 1.50%, respectively;
Nations International Equity Fund -- .90%, .87% and 1.77%, 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%, .81% and 1.56%, respectively; Nations Emerging Growth
Fund -- .75%, 84% and 1.59%, respectively; Nations Disciplined Equity
Fund -- .75%, .87% and 1.62%, respectively; Nations Equity Index Fund -- .50%,
.85% and 1.35%, respectively; Nations Balanced Assets Fund -- .75%, .85% and
1.60%, respectively; Nations Short-Intermediate Government Fund -- .60%, .83%
and 1.43%, respectively; Nations Government Securities Fund -- .64%, .90% and
1.54%, respectively; Nations Short-Term Income Fund -- .60%, .85% and 1.45%,
respectively; Nations Diversified Income Fund -- .60%, .87% and 1.47%,
respectively; Nations Strategic Fixed Income Fund -- .60%, .82% and 1.42%,
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.
6
<PAGE>
Objectives
EQUITY FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
NATIONS EQUITY INDEX FUND: Nations Equity Index Fund's investment objective is
to seek investment results that correspond, before fees and expenses, to the
total return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index" 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
1 "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
"passive" or "indexing" investment approach, attempts to duplicate the
performance of the S&P 500 Index.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing primarily in
investment grade fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality 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 it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Funds will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs, nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market.
7
<PAGE>
How Objectives Are Pursued
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 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-to-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.
The Fund invests under normal market conditions 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 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 up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities ("U.S. Government
Obligations"), and investment grade securities of domestic companies.
Obligations with the lowest investment grade rating (E.G. rated "BBB" by
Standard & Poor's Corporation ("S&P") or "Baa" by Moody's Investors Service,
Inc. ("Moody's"), have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, 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.
Second, diversifying equity holdings in a manner that includes every major
economic sector contributes to reduced volatility, without a commensurate
reduction in expected investment return. Finally, investing in dividend paying
stocks in all the economic sectors can provide greater income than the Standard
& Poor's 500 Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, 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.
8
<PAGE>
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate and government 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." They 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 up to 20%
of its total assets in foreign securities. 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.
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 companies 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 companies in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that the
Adviser believes have potential for growth of capital. The Fund also may invest
up to 35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities. For additional
information concerning the Fund's investment practices, see "Appendix A."
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return and forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures and options thereon. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
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
equity securities of companies in emerging markets.
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.
Emerging markets include, but are not limited to: Argentina, Brazil, Chile,
China, Czech Republic, Colombia, Ecuador, Greece, Hong Kong, Indonesia, India,
Malaysia, Mexico, the Philippines, Poland, Portugal, Peru, Russia, Singapore,
South Africa, Thailand, Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. A company will
be considered to conduct its principal business activities in a country, market
or region if it derives a significant portion (at least 50%) of its revenues or
profits from goods produced or sold, investments made, or services performed in
such country, market or region or has at least 50% of its assets situated in
such country, market or region.
9
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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 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 also may invest in certain specified derivative securities, including:
exchage-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; 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. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
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 in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in 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 Nations International Equity Fund, Nations Emerging
Markets Fund,
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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.
The Fund also may invest in certain specified derivative securities, including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; and U.S. and foreign exchange-traded financial futures approved by
the CFTC and options thereon for market exposure risk management. The Fund may
lend its portfolio securities to qualified institutional investors. The Fund may
invest in restricted, private placement and other illiquid securities, and also
may invest in securities issued by other investment companies, consistent with
the Fund's investment objective and policies.
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
types of companies:
(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.
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 up to 20% of its total assets in 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.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund
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<PAGE>
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. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its assets in foreign securities.
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-to-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 an NRSRO 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 up to 20% of its total assets in 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 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
closely 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.
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The correlation between the performance of Nations Equity Index Fund and the S&P
500 Index is expected to be over 0.95 on an annual basis. A correlation of 1.00
would indicate perfect correlation, which would be achieved when the net asset
value of the Fund, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
500 Index. The Fund's ability to track the S&P 500 Index, however, may be
affected by, among other things, transaction costs, changes in either the
composition of the S&P 500 Index or the number of shares outstanding for the
components of the S&P 500 Index, and the timing and amount of shareholder
purchase and redemptions. The Fund may utilize stock index futures contracts to
minimize tracking error. In connection with engaging in futures transactions,
the Fund may hold cash, cash equivalents, and/or U.S. government securities.
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. 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. 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.
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
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 classes 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. These asset classes
are actively managed in an effort to maximize total return. In general, the
Adviser believes that common stocks offer the best opportunity for long-term
capital appreciation.
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. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under the normal circumstances, at least 25% of the total value of the Fund's
assets will be invested in fixed income securities. The Fund may invest in
government, corporate and municipal securities, as well as 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
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,
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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.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in 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.
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 may invest in real estate investment trust securities. 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.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will not exceed seven years
and the duration will not exceed five years. Some U.S. Government Obligations
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 are supported by the right of the issuer to borrow from the U.S.
Government, such as obligations of Federal Home Loan Banks, and some are backed
only by the credit of the issuer itself, such as obligations of the Federal
National Mortgage Association ("FNMA"). U.S. Government Obligations also include
U.S. Treasury Obligations, which differ only in their interest rates, maturities
and times of issuance. 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.
The Fund also 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; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers, 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 and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will be greater than four
years and the Fund's duration is expected to be in a range of 3.5 to 6 years.
The Fund also 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; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers, or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating
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<PAGE>
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 Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity and duration of the Fund's portfolio will not exceed three
years.
The Fund may invest in corporate convertible and non-convertible 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; and
mortgage-related securities of governmental issuers, or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed and municipal 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.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
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 invest in "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.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity of the Fund's portfolio will be greater than five years.
The Fund may invest in 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; mortgage-backed
securities of governmental issuers, or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSRO's, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
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." They 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.
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.
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The Fund may hold or invest in "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.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade debt obligations. It is expected that
the average weighted maturity of the Fund's portfolio will be ten years or less
and under no circumstances will it exceed 15 years.
The 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; mortgage-backed securities of
governmental issuers, or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund also may invest in dividend paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities. As noted above, the Fund will invest
in investment grade debt obligations.
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 invest in "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.
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 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 countries and currencies will vary in accordance with the
Adviser's assessment of the relative yield and appreciation of such securities.
Fundamental economic strength, credit quality and interest rate trends are the
principal factors considered by the Adviser in determining whether to increase
or decrease the emphasis placed upon a particular country or particular type of
security within the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by the Adviser. The Fund also may invest in securities rated
"Baa" by Moody's or "BBB" by S&P, but does not, as a general matter, intend to
invest more than 10% of its total assets in such securi-
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ties. 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 15 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.
The Fund also may invest in money market instruments, forward foreign currency
exchange contracts, futures and options and other instruments. The Fund also may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
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. For more information concerning these and other
instruments in which the Funds may invest and their investment practices, see
"Appendix A."
GENERAL: Each of the Bond Funds 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 the Funds also may
lend its portfolio securities to qualified institutional investors and may
invest in restricted, private placement and other illiquid securities. Each of
the 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. Certain securities that have variable or
floating interest rates or demand, put or prepayment features may be deemed to
have remaining maturities shorter than their nominal maturities for purposes of
determining the average weighted maturity and duration of the Funds.
For more information concerning these and other instruments in which the Funds
may invest and their investment practices, see "Appendix A."
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN 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 investing. In addition, each of
these Funds presents unique risks that investors should be aware of.
Investors in 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 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.
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
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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.
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, 1995, 1994 and 1993 were
as follows: Nations Value Fund -- 63%, 75% and 64%, respectively; Nations
Capital Growth Fund -- 80%, 56% and 81%, respectively; Nations Balanced Assets
Fund -- 174%, 156% and 50%, respectively; Nations Short-Intermediate Government
Fund -- 328%, 133% and 92%, respectively; Nations Short-Term Income
Fund -- 224%, 293% and 121%, respectively; Nations Diversified Income
Fund -- 96%, 144% and 86%, respectively; and Nations Strategic Fixed Income
Fund -- 228%, 307% and 161%, respectively. The portfolio turnover rates for
Nations Disciplined Equity Fund for the periods ended November 30, 1995 and 1994
were 124% and 177%, respectively. The portfolio turnover rates for Nations
Emerging Growth Fund for the fiscal year ended November 30, 1995, 1994 and the
period from commencement of operations to November 30, 1993 were 139%, 129% and
159%, respectively. The portfolio turnover rate for Nations Equity Index Fund
for the fiscal year ended November 30, 1995 and for the period from commencement
of operations to November 30, 1994 was 18% and 14%, respectively. The portfolio
turnover rates for the indicated Funds 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 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, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not
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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 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.
Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest 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 DATA 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.
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"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 Primary B Shares, the Money Market Funds offer Primary A,
Investor A, Investor B, Investor C and Investor D Shares. In addition to Primary
B Shares, the Non-Money Market Funds offer Primary 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 an Investor's Institution, as
defined below.
How The Funds Are Managed
The business and affairs of each 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. TradeStreet is a wholly owned
subsidiary of NationsBank. TradeStreet provides investment management services
to individuals, corporations and institutions.
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 sub-advisory agreements. 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, an indirect,
wholly owned subsidiary of Gartmore Investment Management plc ("Gartmore plc"),
a UK company, which is the holding company for a leading UK-based international
fund management group of companies. National Westminster Bank plc and affiliated
entities (collectively, "Natwest") own 100% of the equity of Gartmore Investment
Management plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management ("Nations Gartmore", the
predecessor to Gartmore), pursuant to sub-advisory agreements among NBAI,
Nations Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively, on
behalf of the Funds. Nations Gartmore was a joint venture structured as a
general partnership between NB Partner Corp., and Gartmore U.S. Limited. On
April 10, 1996, NatWest acquired a controlling interest in Gartmore plc from
Compagnie de Suez and affiliated entities ("Compagnie de Suez") through a direct
purchase from Compagnie de Suez of its indirect subsidiary Indosuez UK Asset
Management Limited, which held 75% of Gartmore plc's outstanding voting
securities (the "Acquisition"). NatWest acquired the remaining portion
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of Gartmore plc's shares held by public shareholders through a tender offer.
Gartmore is the successor entity resulting from the Acquisition and change of
control of Nations Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in the personnel who provide services under the
new Sub-Advisory Agreements, and the Funds receive the same sub-advisory
services, provided in the same manner and at the same fee levels, as they
received under the Previous Sub-Advisory Agreements.
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 has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
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
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 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 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: 0.10% of the average daily net asset of
Nations Equity Index Fund; 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 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 Gartmore sub-advisory fees, computed daily and paid monthly, at
the annual rates of: 0.70% of Nations International Equity Fund's average daily
net assets; 0.85% of Nations Emerging Markets Fund's average daily net assets;
0.70% of Nations Pacific Growth Fund's average daily net assets; and 0.54% of
Nations Global Government Income Fund's average 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 daily net assets.
From time to time, NBAI (and/or TradeStreet and/or Nations Gartmore) may waive
or reimburse (either voluntarily or pursuant to applicable state limitations)
advisory or sub-advisory fees and/or expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
Nations Equity Index Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%;
Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term Income
Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations Strategic
Fixed Income Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid
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NationsBank under a prior Investment Advisory Agreement advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations Equity
Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and Nations
Government Securities Fund -- 0.48%.
For the fiscal period from June 30, 1995 to December 31, 1995, after waivers,
Nations Portfolios paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth Fund --
0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Fund's average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
Nations Equity Index Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%;
Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term Income
Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations Strategic
Fixed Income Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Equity Income Fund -- 0.67%; Nations International Equity
Fund -- 0.22%; and Nations Government Securities Fund -- 0.48%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations Emerging
Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations Equity
Index Fund -- 0.10%; Nations Balanced Assets Fund -- 0.25%; Nations
Short-Intermediate Government Fund -- 0.15%; Nations Short-Term Income
Fund -- 0.15%; Nations Diversified Income Fund -- 0.15%; Nations Strategic Fixed
Income Fund -- 0.15%; Nations Equity Income Fund -- 0.20%; and Nations
Government Securities Fund -- 0.15%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors sub-advisory fees at the indicated rates of the following
Funds' average daily net assets; Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income
Fund -- 0.54%.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been the
Portfolio Manager for Nations Value Fund since 1989. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Herrmann has worked for
the Investment Management Group at NationsBank since 1981 where her
responsibilities included fund management and institutional portfolio
management. She attended Virginia Wesleyan College. Ms. Herrmann holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been Portfolio Manager for Nations Equity Income Fund since 1991.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the investment Management Group at NationsBank.
He has worked in the investment community since 1980. His past experience
includes fund analysis and portfolio management for National Bank of Detroit.
Mr. Williams received a B.S. in Accounting from East Carolina University, Summa
Cum Laude and an M.B.A. from Indiana University. He holds the Chartered
Financial Analyst designation, is on the Advisory Board of Indiana University's
Investment Management Academy, and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Stephen Watson has been Principal Portfolio Manager of the Nations International
Equity Fund since February, 1995. He has been Portfolio Manager for Nations
International Equity Fund since 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
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he was with the investment division at Samuel Montagu. Mr. Watson is currently a
member of the Securities Institute.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has worked in the financial investment community since 1981. His
past experience includes portfolio management, equity research and financial
analysis for the Investment Management Group at NationsBank and Duke Power
Company. Mr. Sanders received a B.A. in Economics from the University of
Michigan and an M.B.A. from University of North Carolina at Charlotte. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been the Portfolio Manager for Nations Emerging
Growth Fund since 1992. Prior to assuming his position with TradeStreet, he was
Senior Vice President and Senior Portfolio Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1968. His
past experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager of the Nations Disciplined Equity Fund
since 1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from Mount St. Mary's College and an M.B.A. from Kent State University. She
holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Security Analysts, Inc. She is also a member of the National
Association for Petroleum Investment Analysts and the World Affairs Council of
Washington, D.C.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
David M. Hetherington, CFA, is a Director of TradeStreet and Managing Director
of Fixed Income Management. Mr. Hetherington is responsible for overseeing all
fixed income product management and is Senior Portfolio Manager for Nations
Short-Term Income Fund. Mr. Hetherington has been Portfolio Manager for Nations
Short-Term Income Fund since 1995. Prior to assuming his position with
TradeStreet, he was Senior Vice President and Director of Fixed Income for the
Investment Management Group at NationsBank. Mr. Hetherington has worked in the
investment community since 1975. His past experience includes working as a
portfolio manager, a trust investment officer and a securities analyst for First
Citizens Bank and Deposit Guarantee as well as working as an Economist for the
U.S. Department of Labor in the Bureau of Labor Statistics. Mr. Hetherington
received a B.A. in Economics from Duke University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and the Senior Portfolio
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Manager for Nations Diversified Income Fund. Mr. Ahnrud has been Portfolio
Manager for Nations Diversified Income Fund since 1992. Prior to assuming his
position with TradeStreet, he was Senior Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. Mr. Ahnrud has
worked for the Investment Management Group at NationsBank since 1985 where his
responsibilities initially included institutional investment management sales
and later involved high yield credit analysis. Mr. Ahnrud received a dual B.S.
in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager of Nations Global Government Income
Fund since 1995. 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 Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Gartmore Emerging Markets Team. He has been Portfolio
Manager for Nations Emerging Markets Fund since the Fund's inception. Prior to
joining 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 Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been Portfolio Manager for Nations Pacific Growth Fund since the Fund's
inception. 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 NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements, and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations 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.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
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.
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<PAGE>
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the rate of 0.10% 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 and Nations Strategic Fixed Income Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the following Funds' average daily net assets: Nations Equity Income Fund,
Nations International Equity Fund and Nations Government Securities Fund.
For the fiscal period from June 30, 1995 to March 31, 1996, after waivers,
Nations Portfolios paid its administrator combined fees at the rate of 0.10% of
the following Funds' average daily net assets: Nations Pacific Growth Fund,
Nations Emerging Markets Fund and Nations Global Government 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 0.01% 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
Primary Shares of the Funds.
Bank of New York, 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.
First Data serves as the Transfer Agent for each of the Fund's Primary B Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas", together with Bank of New
York, 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 Primary B 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 Primary B Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountants to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Primary 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 First Data;
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 First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Primary 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 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.
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Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional
Reserves. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Money Market
Funds currently offer six classes of shares -- Primary A Shares, Primary 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 -- Primary A Shares, Primary 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 Primary 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
1-800-621-2192.
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 July 15, 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. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. 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
Primary 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 1-800-621-2192.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of
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Nations Fund, Inc.'s shares. Nations Fund, Inc.'s shares, when issued, will be
fully paid and non-assessable.
As of July 15, 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. Nations Portfolios' fiscal year end is March 31. 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 Primary 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 1-800-621-2192.
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 July 15, 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.
About Your Investment
How To Buy Shares
Primary B Shares may be purchased through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank)
("Institutions") that have entered into selling agreements with Stephens.
Primary 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 the accounts of their customers
("Customers") 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 Primary B
Shares. From time to time, Nations Fund may voluntarily reduce the maximum fees
payable for shareholder services.
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Nations Fund reserves the right to reject any purchase order. The issuance of
Primary B Shares is recorded on the books of the Funds, and share certificates
are not issued.
Purchase orders for Primary 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 no 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 Primary 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 Primary 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
Primary 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 Primary B Shares
of a Fund. Holders of Primary B Shares will bear all fees paid to Institutions
under the Administration Plan.
Such shareholder services supplement the services provided by Stephens, First
Data 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 Primary 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 Primary 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
showing their positions in Primary B Shares; (v) arranging for bank wires; (vi)
responding to Customers' inquiries concerning their investment in Primary B
Shares; (vii) providing sub-accounting with respect to Primary B Shares
beneficially owned by Customers or the information necessary for sub-accounting;
(viii) if required by law, forwarding shareholder communications (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to Customers; (ix) forwarding to
Customers proxy statements and proxies containing any proposals regarding the
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 Primary 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 Primary 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 Primary B Shares. Institutions, including banks regu-
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lated 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 Primary B Shares.
How To Redeem Shares
Customers may redeem all or part of their Primary 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 Primary 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 Primary 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 Primary 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 Primary B Shares of a Fund to
acquire Primary B Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary B Shares for Primary 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 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
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.
Provided your Institution allows telephone exchanges, during periods of
significant economic or market change, such 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.
Primary B Shares may be exchanged by directing a request directly to the
Institution through which the original Primary 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.
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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 calendar 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.
Primary 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. Primary 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
including the day before the redemption order is executed.
The net asset value of Primary 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 Primary 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
Primary B Shares in a Fund. Each Fund's net investment income available for
distribution to the holders of Primary 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 tax
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 tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders in the Funds 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 each such
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
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from Federal income tax 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
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
The foregoing discussion is based on tax laws and regulations that 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 advisors 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 this 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 may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon the rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, other economic and demographic
factors. For example, falling interest rates generally result in an increase in
the rate of prepayments of mortgage loans while rising interest rates generally
decrease the rate of prepayments. An acceleration in prepayments in response to
sharply falling interest rates will shorten the security's average maturity and
limit the potential appreciation in the security's value relative to a
conventional debt security. Consequently, asset-backed securities may not be as
effective in locking in high, long-term yields. Conversely, in periods of
sharply rising rates, prepayments are generally slow, increasing the security's
average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
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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.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
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, gen-
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eral economic conditions, the location and age of the mortgage and other social
and demographic conditions. Such prepayments are passed through to the
registered holder with the regular monthly payments of principal and interest
and have the effect of reducing future payments. Estimated average life will be
determined by the Adviser and used for the purpose of determining the average
weighted maturity and duration of the Funds. For additional information
concerning mortgage-backed securities, see the related SAI.
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. Such securities also
may include instruments issued by trusts or certain partnerships, including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such trusts or partnerships.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder.
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.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When 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
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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 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 objective. 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.
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FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
United States Dollar. A Fund either enters into these transactions on a spot
(I.E., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when 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.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by 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;
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the possible absence of a liquid secondary market for any particular instrument
at any time; and the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences. A Fund may not purchase put and call options
which are traded on a national stock exchange in an amount exceeding 5% of its
net assets. Further information on the use of futures, options and other
derivative instruments, and the associated risks, is contained in the SAIs.
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 separate accounts. The insurance company then
credits to a Fund guaranteed interest. The insurance company may assess periodic
charges against a GIC for expense and service costs allocable to it, and the
charges will be deducted from the value of the deposit fund. The purchase price
paid for a GIC becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less. 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 hold 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
hold 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, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) 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 and
Section 4(2), 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: Certain of the Funds may invest in 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 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 avail-
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able, 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.
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
securities. 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 does not
intend to exercise its 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.
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OTHER INVESTMENT COMPANIES: Each 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.
SECURITIES LENDING: To increase return on portfolio securities, 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: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts, and therefore backed by the full faith and
credit 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
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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. The market value of U.S. Government
Obligations may fluctuate due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
Obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government Obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
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 takes 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 D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
41
<PAGE>
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 four 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.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess 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.
42
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Money Market Funds") of
Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Money Market Fund -- Investor A
Shares.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET
ASSET VALUE OF $1.00 PER SHARE. INVESTMENTS IN THE
MONEY MARKET FUNDS ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE
NO ASSURANCE THAT THE MONEY MARKET FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that 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 bear the same date as this
Prospectus and 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
the Funds. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Prime Fund
Nations Treasury Fund
Nations Government Money
Market Fund
Nations Tax Exempt Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 8
How Objectives Are Pursued 9
How Performance Is Shown 12
How the Funds Are Managed 13
Organization And History 16
About Your Investment
How To Buy Shares 18
How To Redeem Shares 20
How To Exchange Shares 22
Shareholder Servicing And Distribution Plans 23
How The Funds Value Their Shares 24
How Dividends And Distributions Are Made; Tax
Information 25
Appendix A -- Portfolio Securities 27
Appendix B -- Description Of Ratings 34
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment objective
is to seek as high a level of current income as is consistent
with liquidity and stability of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to seek as
high a level of current interest income exempt from Federal
income taxes as is consistent with liquidity and stability of
principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
Nations
Nations Prime Nations Treasury Government Money
SHAREHOLDER TRANSACTION EXPENSES Fund Fund Market Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge None None None
</TABLE>
<TABLE>
<CAPTION>
Nations Tax
SHAREHOLDER TRANSACTION EXPENSES Exempt Fund
<S> <C>
Sales Load Imposed on Purchases None
Deferred Sales Charge None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Nations Prime Nations Treasury Government Money
Fund Fund Market Fund
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .14% .14% .12%
Rule 12b-1 Fees (After Fee Waivers) .10% .10% .10%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .16% .16% .18%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .65% .65% .65%
</TABLE>
<TABLE>
<CAPTION>
Nations Tax
Exempt Fund
<S> <C>
Management Fees (After Fee Waivers) .13%
Rule 12b-1 Fees (After Fee Waivers) .0%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .17%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .55%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations Treasury Nations Government
Nations Prime Fund Fund Money Market Fund
<S> <C> <C> <C>
1 Year $ 7 $ 7 $ 7
3 Years $ 21 $ 21 $ 21
5 Years $ 36 $ 36 $ 36
10 Years $ 81 $ 81 $ 81
</TABLE>
<TABLE>
<CAPTION>
Nations Tax Exempt
Fund
<S> <C>
1 Year $ 6
3 Years $ 18
5 Years $ 31
10 Years $ 69
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in each
Fund will bear either directly or indirectly. Certain figures in the above table
are based on amounts incurred during each Fund's most recent fiscal year and
have been restated as necessary to reflect current service provider fees. There
is no assurance that any fee waivers and reimbursements will continue beyond the
current fiscal year. If fee waivers and/or reimbursements are discontinued, the
amounts contained in the "Examples" above may increase. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" for Investor A Shares of the indicated
Fund would be as follows: Nations Prime Fund -- .20%, .16% and .71%,
respectively; Nations Treasury Fund -- .20% .16% and .71%, respectively; Nations
Government Money Market Fund -- .40%, .18% and .93%, respectively. Absent fee
waivers and expense reimbursements, "Management Fees," "12b-1 Fees", "Other
Expenses" and "Total Operating Expenses" for Nations Tax Exempt Fund would have
been .40%, .10%, .17% and .92%, respectively.
4
<PAGE>
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. Shareholders of the Funds will receive unaudited
semi-annual reports describing the Funds' investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92 5/31/91*
<S> <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
Net investment income 0.0438 0.0475 0.0283 0.0293 0.0470 0.0617
Dividends from net
investment income (0.0438) (0.0475) (0.0283) (0.0293) (0.0470) (0.0617)
Total dividends and
distributions (0.0438) (0.0475) (0.0283) (0.0293) (0.0470) (0.0617)
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.48% 4.85% 2.86% 2.97% 4.81%+++ 7.31%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 1,099,490 $ 698,358 $ 511,833 $ 306,376 $ 281,101 $ 144,202
Ratio of operating
expenses to average
net assets 0.65%+ 0.75% 0.65% 0.65% 0.65% 0.65%+
Ratio of net investment
income to average net
assets 5.27%+ 4.78% 2.85% 2.90% 4.67% 6.69%+
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 0.72%+ 0.83% 0.72% 0.71% 0.77% 0.79%+
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.0433 $ 0.0467 $ 0.0276 $ 0.0287 $ 0.0458 $ 0.0603
</TABLE>
* Nations Prime Fund Investor A Shares commenced operations on July 16, 1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92 5/31/91*
<S> <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
Net investment income 0.0429 0.0457 0.0262 0.0272 0.0448 0.0592
Dividends from net
investment income (0.0429) (0.0457) (0.0262) (0.0272) (0.0448) (0.0592)
Distributions from net
realized capital gains (0.0000)# (0.0000)# -- -- -- --
Total dividends and
distributions (0.0429) (0.0457) (0.0262) (0.0272) (0.0448) (0.0592)
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.36 % 4.65 % 2.67 % 2.77 % 4.57 +++ 6.98%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 89,584 $ 107,475 $ 74,195 $ 105,828 $ 90,917 $ 37,265
Ratio of operating
expenses to average
net assets 0.65 %+ 0.67 % 0.65 % 0.65 % 0.64 % 0.61 %+
Ratio of net investment
income to average net
assets 5.17 %+ 4.62 % 2.62 % 2.67 % 4.47 % 6.53 %+
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 0.72 %+ 0.72 % 0.71 % 0.71 % 0.76 % 0.83 %+
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.0424 $ 0.0452 $ 0.0257 $ 0.0266 $ 0.0435 $ 0.0570
</TABLE>
* Nations Treasury Fund Investor A Shares commenced operations on July 16,
1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001.
6
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91*
<S> <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
Net investment income 0.0162 0.0522 0.0340 0.0256 0.0358 0.0571
Distributions:
Dividends from net investment income (0.0162) (0.0522) (0.0340) (0.0256) (0.0358) (0.0571)
Dividends from net realized capital
gains -- -- (0.0000)# -- -- --
Total dividends and distributions (0.0162) (0.0522) (0.0340) (0.0256) (0.0358) (0.0571)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.62% 5.34% 3.45% 2.60% 3.63%+++ 5.86%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 48,742 $ 26,175 $ 20,173 $ 10,499 $ 13,851 $ 8,949
Ratio of operating expenses to
average net assets 0.65%+ 0.65% 0.65% 0.61% 0.42% 0.43%+
Ratio of net investment income to
average net assets 4.85%+ 5.23% 3.44% 2.60% 3.55% 5.49%+
Ratio of operating expenses to
average net assets without waivers 0.94%+ 0.92% 0.94% 0.87% 0.58% 0.62% +
Net investment income per share
without waivers and/or expense
reimbursements $ 0.0152 $ 0.0495 $ 0.0311 $ 0.0231 $ 0.0341 $ 0.0551
</TABLE>
* Nations Government Money Market Fund Investor A Shares commenced operations
on February 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91*
<S> <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
Net investment income 0.0104 0.0335 0.0231 0.0198 0.0266 0.0422
Dividends from net
investment income (0.0104) (0.0335) (0.0231) (0.0198) (0.0266) (0.0422)
Total dividends and
distributions (0.0104) (0.0335) (0.0231) (0.0198) (0.0266) (0.0422)
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.04% 3.40% 2.36% 2.00% 2.68%+++ 4.30%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 128,414 $ 126,207 $ 151,714 $ 119,552 $ 80,158 $ 1,690
Ratio of operating
expenses to average
net assets 0.55%+ 0.55% 0.52% 0.48% 0.55% 0.42%+
Ratio of net investment
income to average net
assets 3.10%+ 3.37% 2.34% 1.98% 2.50% 4.23%+
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 0.83%+ 0.82% 0.84% 0.84% 0.72% 0.60%+
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.0095 $ 0.0309 $ 0.0199 $ 0.0162 $ 0.0248 $ 0.0404
</TABLE>
* Nations Tax Exempt Fund Investor A Shares commenced operations on April 5,
1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization
8
<PAGE>
of current income to the extent consistent with the preservation of capital and
the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations"), other obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Obligations"), bank and
commercial instruments that may be available in the money markets, high quality
short-term taxable obligations issued by state and local governments, their
agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified First Tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and in instruments issued by trusts or certain partnerships, including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such trusts or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in obligations the
principal and interest of which are backed by the full faith and credit of the
United States Government, provided that such Fund shall, under normal market
conditions, invest at least 65% of its total assets in U.S. Treasury bills,
notes and bonds and other instruments issued directly by the U.S. Government.
The Fund may lend its portfolio securities to qualified institutional investors.
For more information concerning these instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund may lend its
portfolio securities to qualified institutional investors. For more information
concerning these instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: In pursuing its investment objective, the Fund invests
in a diversified portfolio of obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in
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the opinion of counsel to the issuer or bond counsel, is exempt from regular
Federal income tax ("Municipal Securities"). The Fund will not knowingly
purchase securities the interest on which is subject to such tax. A portion of
the Fund's assets, however, may be invested in private activity bonds, the
interest on which may be treated as a specific tax preference item under the
Federal alternative minimum tax. See "How Dividends And Distributions Are Made;
Tax Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation
("S&P"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA") or
Thomson BankWatch, Inc. ("BankWatch") or Aa or higher by Moody's Investors
Service, Inc. ("Moody's"), in the case of bonds; rated "A" or higher by D&P,
Fitch, S&P, IBCA, BankWatch or Moody's in the case of certain bonds which are
unrated securities (I.E., lacking a short-term rating from the requisite number
of nationally recognized statistical rating organizations); rated "D-1" or
higher by D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or "MIG-1" by Moody's in
the case of notes; rated "D-1" or higher by D&P, "F-1" or higher by Fitch, or
"VMIG-1" by Moody's in the case of variable rate demand notes; or rated "D-1" or
higher by D&P, "F-1" or higher by Fitch, "A-1" or higher by S&P, or "Prime-1" by
Moody's in the case of tax-exempt commercial paper. D&P, Fitch, S&P, Moody's,
IBCA and BankWatch are the six nationally recognized statistical rating
organizations (collectively, "NRSROs"). Securities that are unrated at the time
of purchase will be determined to be of comparable quality by the Adviser
pursuant to guidelines approved by Nations Fund Trust's Board of Trustees. The
applicable Municipal Securities ratings are described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by trusts or certain partnerships, including pass-through certificates
representing participations in, or debt instruments backed by, the securities
and other assets owned by such trusts or partnerships. For more information
concerning the Fund's investments, see "Appendix A."
RISK CONSIDERATIONS: Although the Adviser seeks 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
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for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds' investment in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments 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 are privately
placed), may enter into repurchase agreements and may lend portfolio securities
in accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of such 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.
In addition, as a matter of non-fundamental policy, the Nations Tax Exempt Fund
may not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations. The investment objectives and policies of the Funds, unless
otherwise specified, may be changed without shareholder approval. If the
investment objective or policies of a Fund change, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current position and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in its best interests, it may consider terminating sales
of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost (see "How The Funds Value Their
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the Investment Company Act of 1940, as amended (the "1940 Act"), some of
which are described below. A Money Market Fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with a
remaining maturity of more than 397 days, provided such obligations are subject
to demand features or resets and to maintaining a dollar-weighted average
portfolio maturity of 90 days or less. Quality requirements generally limit
investments to U.S. dollar denominated instruments determined to present minimal
credit risks and that, at the time of acquisition, are rated in the first or
second rating categories (known as "first tier" and "second tier" securities,
respectively) by the required
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number of NRSROs (at least two or, if only one NRSRO has rated the security,
that one NRSRO) or, if unrated by any NRSRO, are (i) comparable in priority and
security to a class of short-term securities of the same issuer that has the
required rating, or (ii) determined to be comparable in quality to securities
having the required rating. The diversification requirements provide generally
that a Money Market Fund may not at the time of acquisition invest more than 5%
of its assets in securities of any one issuer except that up to 25% of total
assets may be invested in the first tier securities of a single issuer for three
business days. Additionally, (except for Nations Tax Exempt Fund) no more than
5% of total assets may be invested, at the time of acquisition, in second tier
securities in the aggregate, and any investment in second tier securities of one
issuer is limited to the greater of 1% of total assets or one million dollars.
Securities issued by the U.S. Government, its agencies, authorities or
instrumentalities are exempt from the quality requirements, other than minimal
credit risk. In the event that a Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Fund's
own restrictions will govern.
How Performance Is Shown
From time to time, a Fund may advertise the "yield" and "effective yield" of a
class of shares, and Nations Tax Exempt Fund may advertise the "tax equivalent
yield" of a class of shares. YIELD, EFFECTIVE YIELD AND TAX-EQUIVALENT YIELD
FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in such class over a seven-day period identified in the
advertisement. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares in a Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of each class of shares in Nations Tax Exempt Fund shows
the level of taxable yield needed to produce an after-tax equivalent to such
class's tax-free yield. This is done by increasing the class's yield (calculated
as above) by the amount necessary to reflect the payment of Federal income tax
at a stated tax rate. The tax-equivalent yield will always be higher than the
"yield" of a class of shares in Nations Tax Exempt Fund.
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. Any fees charged by selling agents and/or
servicing agents to their customers' accounts for automatic investment or other
cash management services will not be included in calculations of yield.
In addition to Investor A Shares, the Funds offer Primary A, Primary B, Investor
B, Investor C and Investor D Shares. Each class of shares may bear different
sales charges, shareholder servicing fees 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 the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's selling agent.
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How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
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.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
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 subsidiary of NationsBank Corporation, a bank holding company
organized as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board 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 Nations Tax Exempt
Fund, 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 Fund, if the Adviser believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms. From time to time, to the extent
consistent with its investment objective, policies and restrictions, each Fund
may invest in securities of companies with which NationsBank has a lending
relationship. For the services provided and expenses assumed pursuant to various
Investment Advisory Agreements, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: 0.25% of the first $250
million of the combined average daily net assets of both Nations Prime Fund and
Nations Treasury Fund, plus 0.20% of the combined average daily net assets of
such Funds in excess of $250 million; and 0.40% of the average daily net assets
of each of Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advi-
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sory fees and/or expenses payable by a Fund. In addition, the Adviser may from
time to time compensate Agents, as defined below, for providing certain services
to customers.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; and Nations Treasury Fund -- 0.18%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; and Nations Treasury Fund -- 0.18%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- 0.055%; Nations Tax Exempt Fund -- 0.055%;
Nations Prime Fund -- 0.055%; and Nations Treasury Fund -- 0.055%.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. She has worked in the
investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager for Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for Wil-
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liam Lowry & Associates. Ms. Sherman received a B.S. in Business Administration
from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations 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.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to Co-Administration
Agreements. Under the Co-Administration Agreements, First Data provides various
administrative and accounting services to the Funds, including performing
calculations necessary to determine net asset values and dividends, preparing
tax returns and financial statements and maintaining the portfolio records and
certain general accounting records for the Funds. For the services rendered
pursuant to the Administration and Co-Administration Agreements, Stephens and
First Data 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 period from
December 1, 1995 to March 31, 1996, after waivers, Nations Fund Trust paid its
administrators combined fees at the indicated rate of the following Funds'
average daily net assets: Nations Government Money Market Fund, and Nations Tax
Exempt Fund -- 0.09%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
and Nations Treasury Fund -- 0.05%.
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 0.01% 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
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Fund has entered into a distribution agreement with Stephens that provides that
Stephens has the exclusive right to distribute shares of the Funds. Stephens may
pay service fees or commissions to selling agents that assist customers in
purchasing Investor A Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A., serves as each Fund's custodian (the "Custodian").
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of each Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
Directors' or Trustees' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor A Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and distribution costs. Any general expenses of
Nations Fund Trust and/or of Nations Fund, Inc. that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund Trust or of Nations Fund, Inc. or in such other
manner as the Board of Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor B Shares, Investor C Shares and Investor D Shares. This
Prospectus relates only to the Investor A Shares of Nations Government Money
Market Fund and Nations Tax Exempt Fund of Nations Fund Trust. To obtain
additional information regarding the Funds' other classes of shares which may be
available to
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you, contact your Selling Agent (as defined below) or Nations Fund at
1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of a 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 instances
where the 1940 Act requires voting by fund.
As of July 15, 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. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. 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 portfolios, each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor A Shares of Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To obtain additional information regarding the Funds' other classes
of shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of Directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of
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10% or more of Nations Fund, Inc.'s outstanding shares. 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 July 15, 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, except when required by
the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two 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 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 this
Prospectus.
About Your Investment
How To Buy Shares
The Fund has established various procedures for purchasing Investor A Shares in
order to accommodate different investors. Purchase orders may be placed directly
with a Fund or through banks, broker/dealers or other financial institutions
(including certain affiliates of NationsBank) that have entered into a
shareholder servicing agreement ("Servicing Agreement") with Nations Fund
("Servicing Agents") and/or a sales support agreement ("Sales Support
Agreement") with Stephens ("Selling Agents"). Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents".
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
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(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares of the Money Market Funds are purchased at net asset value per
share without the imposition of a sales charge. Purchases may be effected only
on days on which the Federal Reserve Bank of New York is open for business (a
"Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH A FUND: Investors may open a regular
(non-retirement) account directly with a Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services at 1-800-982-2271 for an
account number and use the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund with a
reinvestment slip to the address set forth above. To purchase additional shares
by wire, follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund). Absent prior arrangement with Stephens or the Transfer Agent,
purchase orders received after such time on any given day will not be accepted;
notice thereof will be given to the Selling Agent transmitting the order, and
any funds received will be returned promptly to the sending Selling Agent. Any
late purchase orders that are not rejected pursuant to such a prior arrangement
will be executed on the following Business Day.
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If federal funds are not available by 4:00 p.m., Eastern time, the order will be
canceled. Investor A Shares are purchased at the net asset value per share next
determined after receipt of the order by Stephens or by the Transfer Agent.
The Selling Agents are responsible for transmitting orders for purchases by
their Customers and delivering required funds on a timely basis. Stephens is
responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Selling Agent.
TELEPHONE TRANSACTIONS: An investor may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
For shareholders who purchased their shares through an Agent, redemption orders
should be transmitted by telephone or in writing through the same Agent.
Redemption orders are effected at the net asset value per share next determined
after receipt of the order by the Fund, Stephens, or the Transfer Agent, as the
case may be.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), and payment will normally be wired the same day.
Nations Fund reserves the right to wire redemption proceeds within three
Business Days after receiving the redemption order if, in the judgment of NBAI,
an earlier payment could adversely impact a Fund. However, redemption proceeds
for shares purchased by check may not be remitted until at least 15 days after
the date of purchase to ensure that the check has cleared; a certified check,
however, is deemed to be cleared immediately. Redemption orders received by
Stephens, the Fund or by the
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Transfer Agent after 3:00 p.m., Eastern time (12 noon, Eastern time, with
respect to Nations Tax Exempt Fund and Nations Government Money Market Fund),
will be processed on the next Business Day.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of the Funds involuntarily or
make payment for redemption in readily marketable securities or other property
under certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
Free checkwriting is available with respect to Investor A Shares of the Funds.
With this service, a shareholder may write checks in the amount of $250 or more.
To obtain checks, a shareholder must complete the signature section included
within the Account Application Form. To establish this checkwriting service
after opening an account in one of the Funds, the shareholder must contact
his/her Selling Agent by telephone or mail to obtain an Application Form. A
shareholder will receive the dividends and distributions declared on the shares
to be redeemed up to the day that a check is presented to the Custodian for
payment. Upon 30 days' prior written notice to shareholders, the checkwriting
privilege may be modified or terminated. An investor cannot close an account in
the Funds by writing a check.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of a Fund if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings account
in a stated amount of not less than $25 on or about the 10th or 25th day of the
applicable month of withdrawal. Investor A Shares will be redeemed as necessary
to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling Agent or by Nations Fund at any time.
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How To Exchange Shares
SHARES PURCHASED DIRECTLY THROUGH THE FUNDS, A SELLING AGENT, STEPHENS OR THE
TRANSFER AGENT: The exchange feature enables a shareholder of Investor A Shares
of a Money Market Fund to acquire Investor A Shares of another Fund when that
shareholder believes that a shift between Funds is an appropriate investment
decision.
For shareholders who maintain an account directly with the Fund, exchange
requests should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
An investor who owns his or her shares through a Nations Fund IRA that initially
invests in Investor A Shares of a Money Market Fund may exchange those shares
for Investor N Shares of a non-money market fund offered by Nations Fund.
Additionally, Investor N Shares of a non-money market fund acquired through such
an exchange prior to January 1, 1996, will, upon redemption, be subject to the
contingent deferred sales charge ("CDSC") schedule applicable to the acquired
shares. For purposes of determining the applicable rate of the CDSC, the date of
the exchange will be deemed to be the date of purchase of the Investor A or
Investor N Shares.
SHARES ACQUIRED THROUGH THE NATIONS FUND AUTOMATIC EXCHANGE FEATURE: An investor
who is participating in the Nations Fund Automatic Exchange Feature ("AEF") may
acquire Investor A or Investor C Shares of a non-money market fund offered by
Nations Fund. In addition, Investor C Shares of a non-money market fund acquired
through such exchange will, upon redemption, be subject to the CDSC schedule
applicable to the acquired shares. For purposes of determining the applicable
rate of the CDSC, the date of the exchange will be deemed to be the date of the
purchase of the Investor C Shares. The AEF requires a minimum exchange amount of
$25 on a monthly or quarterly basis. Exchanges will occur on or about the 15th
or 30th day of the applicable month. The AEF may be established by directing a
request to the Transfer Agent by telephone or in writing. For more information
concerning the AEF, an investor should contact his/her Selling Agent.
GENERAL: An exchange of Investor A Shares for 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(s) 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
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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, shareholders should consider
communicating their exchange requests by mail.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and Directors have
approved a Shareholder Servicing and Distribution Plan (the "Investor A Plan")
with respect to Investor A Shares of the Funds. Pursuant to the Investor A Plan,
the Funds may pay Stephens (or any other person) for distribution-related
expenses and Selling Agents for sales support expenses incurred in connection
with Investor A Shares. Payments under the Investor A Plan will be calculated
daily and paid monthly at a rate or rates set from time to time by the Trustees
or Directors provided that the annual rate may not exceed 0.10% of the average
daily net asset value of Investor A Shares of the Funds. Payments to Stephens
under the Investor A Plan may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including expenses
of organizing and conducting sales seminars, printing prospectuses, statements
of additional information (and supplements thereto) and reports for other than
existing shareholders, preparation and distribution of advertising material and
sales literature and the costs of administering the Investor A Plan. The fees
payable to Selling Agents are used primarily to compensate Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
advertising provided by Nations Fund to Customers. The Funds may not pay for
shareholder servicing activities under the Investor A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan. Any such additional
consideration or incentive program may be terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at
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any time, and payments are subject to the continuation of the Investor A Plan
described above and the terms of the Sales Support Agreement between Selling
Agents and Stephens. See the SAIs for more information on the Investor A Plan.
In addition, the Trustees and Directors have approved a shareholder servicing
plan (the "Servicing Plan") with respect to Investor A Shares of the Funds.
Pursuant to the Servicing Plan, the Funds may pay Servicing Agents that have
entered into a Servicing Agreement with Nations Fund for certain shareholder
support services that are provided by the Servicing Agents. Payments under the
Funds' Servicing Plan are calculated daily and paid monthly at a rate or rates
set from time to time by the Funds, provided that the annual rate may not exceed
0.25% of the average daily net asset value of each Fund's Investor A Shares. The
shareholder services provided by Servicing Agents may include general
shareholder liaison services; processing purchase, exchange, and redemption
requests from Customers and placing orders with Stephens or the Transfer Agent;
processing dividend and distribution payments from a Fund on behalf of
Customers; providing information periodically to Customers, including
information showing their position in Investor A Shares; providing
sub-accounting with respect to Investor A Shares beneficially owned by Customers
or the information necessary for sub-accounting; responding to inquiries from
Customers concerning their investment in Investor A Shares; arranging for bank
wires; and providing such other similar services as may be reasonably requested.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of a Fund's Investor A Shares for various services provided in
connection with a Customer's account. These fees would be in addition to any
amounts received by a Selling Agent under its Sales Support Agreement with
Stephens or by a Servicing Agent under its Servicing Agreement with Nations
Fund. The Sales Support Agreements and Servicing Agreements require Agents to
disclose to their Customers any compensation payable to the Agent by Stephens or
Nations Fund and any other compensation payable by the Customers for various
services provided in connection with their accounts. Customers should read this
Prospectus in light of the terms governing their accounts with their Agents.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), on each Business Day. Currently, the
days on which the Federal Reserve Bank of New York is closed (other than
weekends) are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Memorial Day (observed), Independence Day, Labor Day, Columbus Day, Thanksgiving
Day and Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Fund seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of the Funds
are declared daily to shareholders at 3:00 p.m., Eastern time (1:00 p.m.,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund), on the day of declaration. Investor A Shares begin earning
dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Investor A
Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Transfer Agent and will become effective
with respect to dividends paid after its receipt. Your dividend election may be
governed by your account agreement with your Selling Agent. Dividends are paid
in cash within five Business Days after a shareholder's complete redemption of
his/her Investor A Shares in a Fund. To the extent that there are any net
short-term capital gains, they will be paid at least annually.
Each Fund's net investment income available for distribution to the holders of
Investor A Shares will be reduced by the amount of sales support and shareholder
servicing fees paid to Selling Agents and Servicing Agents, respectively. Each
Fund's net investment income available for distribution to the holders of
Investor A Shares will be reduced by the amount of retail transfer agency fees
payable to the Transfer Agent applicable to the Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income tax on amounts
distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an IRA
are generally deferred under the Code.) These distributions will not qualify for
the dividends received deduction for corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends (and capital gains, if applicable) paid during the prior year.
Such dividends (and capital gains) also may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
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Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, Nations Tax Exempt
Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund may be taxable to investors under state or local law even though a
substantial portion of such distribution may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income tax.
If Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. To the extent, if any, dividends paid to
shareholders are derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from Federal income tax and
also may be subject to state and local tax.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specified call dates. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the related SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Prime Fund may invest up to 100% of its assets in obligations issued by
banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and eco-
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nomic 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. Reverse
repurchase agreements may be considered to be borrowings. 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 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 Funds may use reverse repurchase agreements
for the purpose of investing the proceeds in tri-party repurchase agreements.
Generally, the effect of such a transaction is that a Fund can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while it will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund 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 Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. 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
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative
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techniques involving leverage, and are subject to asset coverage requirements if
a Fund does not establish and maintain a segregated account (as described
above). Under the requirements of the 1940 Act, a Fund is required to maintain
an asset coverage (including the proceeds of the borrowings) of at least 300% of
all borrowings. Depending on market conditions, a Fund's asset coverage and
other factors at the time of a reverse repurchase, a Fund may not establish a
segregated account when the Adviser believes it is not in the best interests of
the Fund to do so. In this case, such reverse repurchase agreements will be
considered borrowings subject to the asset coverage described above.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instru-
ments consist of short-term U.S. dollar-denominated obligations issued by
domestic corporations or foreign corporations and domestic and foreign
commercial banks. The Nations Prime Fund will limit purchases of commercial
instruments to instruments which: (a) if rated by at least two 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 objective. 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.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar and non-dollar denominated) 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on for-
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eign securities exchanges are generally higher than the negotiated commissions
on U.S. exchanges, and there is generally less government supervision and
regulation of foreign securities exchanges, brokers, and companies than in the
United States. With respect to certain foreign countries, there is a possibility
of expropriation or confiscatory taxation, limitations on the removal of funds
or other assets, or diplomatic developments that could affect investments within
those countries. Because of these and other factors, securities of foreign
companies acquired by a Fund may be subject to greater fluctuation in price than
securities of domestic companies.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
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 hold 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. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by the Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by the Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), 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 their
portfolios 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 com-
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mitments 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less, or instruments
subject to demand features or resets if the remaining maturity is more than 397
days. 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 instru-
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ments rated "high quality" by any major rating service. 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 also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. 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 without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
municipal securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Tax Exempt Fund may invest more than
40% of its portfolio in puts or other securities guaranteed by banks and other
financial institutions. Accordingly, changes in the credit quality of these
institutions could cause losses to the Fund and affect its share price.
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Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Fund's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested 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.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
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-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
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.
Gov-
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ernment agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
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 and foreign 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. The Funds will invest
in securities with demand features where (a) the security or its issuer has
received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) 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 takes 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 three ratings used by S&P for corporate and
municipal bonds:
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.
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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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. 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 and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
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
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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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
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 two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
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+.
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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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
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
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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.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
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Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND AND NATIONS DISCIPLINED EQUITY FUND
(the "Funds") of Nations Fund Trust and Nations
Fund, Inc., each an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of the
Funds -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that 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 and
Nations Fund, Inc., each dated July 31, 1996, 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 the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
GROWTH AND INCOME FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Balanced Assets
Fund
GROWTH FUNDS:
Nations Capital Growth Fund
Nations Emerging Growth
Fund
Nations Disciplined Equity
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 7
Objectives 12
How Objectives Are Pursued 13
How Performance Is Shown 19
How The Funds Are Managed 20
Organization And History 24
About Your Investment
How To Buy Shares 26
How To Redeem Shares 27
How To Exchange Shares 29
Shareholder Servicing And Distribution Plans 30
How The Funds Value Their Shares 31
How Dividends And Distributions Are Made;
Tax Information 32
Appendix A -- Portfolio Securities 33
Appendix B -- Description Of Ratings 40
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.
3
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by
investing primarily in companies with above average
dividend yields.
(Bullet) Nations Balanced Assets Fund's investment objective is to
seek total return by investing in equity and fixed income
securities.
(Bullet) Nations Capital Growth Fund's investment objective is to seek
growth of capital by investing in companies that are
believed to have superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment objective is to seek
capital appreciation by investing in emerging growth companies
that are believed to have superior long-term earnings growth
prospects.
(Bullet) Nations Disciplined Equity Fund's investment obective is to
seek growth of capital by investing in companies that
are expected to produce significant increases in earnings per
share.
(Bullet) INVESTMENT ADVISER: NBAI serves as the investment adviser to the Funds.
NationsBanc Advisors, Inc. provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare and pay dividends from
net investment income each calendar quarter. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. 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 risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. 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 which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities.
Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. For a discussion of these and other factors, see "How
Objectives Are Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
3
<PAGE>
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Value Equity Balanced Capital Emerging
Fund Income Fund Assets Fund Growth Fund Growth Fund
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None None None None None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees .75% .70% .75% .75% .75%
Rule 12b-1 Fees (including
shareholder servicing fees) .25% .25% .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .21% .20% .25% .21% .24%
Total Operating Expenses (After
Expense Reimbursements) 1.21% 1.15% 1.25% 1.21% 1.24%
</TABLE>
<TABLE>
<CAPTION>
Nations
Disciplined
Equity Fund
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees .75%
Rule 12b-1 Fees (including
shareholder servicing fees) .25%
Other Expenses (After Expense
Reimbursements) .27%
Total Operating Expenses (After
Expense Reimbursements) 1.27%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
5
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Equity Balanced Capital Growth Emerging Growth
Value Fund Income Fund Assets Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 12 $ 12 $ 13 $ 12 $ 13
3 Years $ 38 $ 37 $ 40 $ 38 $ 39
5 Years $ 66 $ 63 $ 69 $ 66 $ 68
10 Years $ 147 $ 140 $ 151 $ 147 $ 150
</TABLE>
<TABLE>
<CAPTION>
Nations
Disciplined
Equity Fund
<S> <C>
1 Year $ 13
3 Years $ 40
5 Years $ 70
10 Years $ 153
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares of the Funds will bear either directly or indirectly. The
figures in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed." For a more complete description of
the Rule 12b-1 and shareholder servicing fees payable by the Funds, see
"Shareholder Servicing And Distribution Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 16.21 $ 12.98 $ 13.72 $ 12.45 $ 11.16 $ 9.71
Net investment income 0.05 0.23 0.20 0.22 0.26 0.34
Net realized and unrealized
gain/(loss) on investments 1.06 3.92 (0.20) 1.35 1.59 1.47
Net increase/(decrease) in net
asset value from operations 1.11 4.15 0.00 1.57 1.85 1.81
Distributions:
Dividends from net investment
income (0.10) (0.25) (0.20) (0.21) (0.27) (0.36)
Distributions from net realized
capital gains (0.62) (0.67) (0.54) (0.09) (0.29) --
Total dividends and
distributions (0.72) (0.92) (0.74) (0.30) (0.56) (0.36)
Net asset value, end of period $ 16.60 $ 16.21 $ 12.98 $ 13.72 $ 12.45 $ 11.16
Total return++ 7.07% 34.22% (0.17)% 12.80% 16.96%+++ 18.79%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 54,341 $ 48,440 $ 35,445 $ 32,607 $ 24,536 $ 13,514
Ratio of operating expenses to
average net assets 1.21%+ 1.19% 1.18% 1.21% 1.06% 0.53%
Ratio of net investment income
to average net assets 1.05%+ 1.65% 1.60% 1.73% 2.15% 3.33%
Portfolio turnover rate 12% 63% 75% 64% 60% 51%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.21%+ 1.19% 1.18% 1.22% 1.15% 0.99%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.05 $ 0.23 $ 0.21 $ 0.22 $ 0.25 $ 0.30
Average commission rate paid (b) $ 0.0648 N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/90*
<S> <C>
Operating performance:
Net asset value, beginning of
period $ 10.04
Net investment income 0.35
Net realized and unrealized
gain/(loss) on investments (0.36)
Net increase/(decrease) in net
asset value from operations (0.01)
Distributions:
Dividends from net investment
income (0.32)
Distributions from net realized
capital gains --
Total dividends and
distributions (0.32)
Net asset value, end of period $ 9.71
Total return++ (0.16)%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 7,020
Ratio of operating expenses to
average net assets 0.21%+
Ratio of net investment income
to average net assets 4.19%+
Portfolio turnover rate 24%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.11%+
Net investment income per share
without waivers and/or expense
reimbursements $ 0.26
Average commission rate paid (b) N/A
</TABLE>
* Nations Value Fund Investor A Shares commenced operations on December 6,
1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96 (a) 05/31/95 05/31/94 05/31/93 05/31/92
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 11.78 $ 11.41 $ 12.02 $ 11.40 $ 10.19
Net investment income 0.27 0.40 0.37 0.34 0.29
Net realized and
unrealized gain on
investments 1.77 1.10 0.21 1.05 1.27
Net increase in net
asset value from
operations 2.04 1.50 0.58 1.39 1.56
Distributions:
Dividends from net
investment income (0.34) (0.40) (0.38) (0.32) (0.28)
Distributions from net
realized capital gains (0.37) (0.73) (0.81) (0.45) (0.07)
Total dividends and
distributions (0.71) (1.13) (1.19) (0.77) (0.35)
Net asset value, end of
period $ 13.11 $ 11.78 $ 11.41 $ 12.02 $ 11.40
Total return++ 17.75% 14.53% 4.74% 12.78% 15.59%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 42,606 $ 35,538 $ 33,691 $ 32,760 $ 3,418
Ratio of operating
expenses to average
net assets 1.15%+ 1.17% 1.19% 1.17% 1.35%
Ratio of net investment
income to average net
assets 2.59%+ 3.50% 3.16% 3.12% 2.90%
Portfolio turnover rate 59% 158% 116% 55% 84%
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 1.15%+ 1.18%+ 1.20% 1.29% 2.46%
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.27 $ 0.40 $ 0.37 $ 0.33 $ 0.18
Average commission rate
paid (b) $ 0.0287 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/91*
<S> <C>
Operating performance:
Net asset value,
beginning of period $ 10.04
Net investment income 0.05
Net realized and
unrealized gain on
investments 0.10
Net increase in net
asset value from
operations 0.15
Distributions:
Dividends from net
investment income --
Distributions from net
realized capital gains --
Total dividends and
distributions --
Net asset value, end of
period $ 10.19
Total return++ 1.49%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 497
Ratio of operating
expenses to average
net assets 1.37%+
Ratio of net investment
income to average net
assets 3.40%+
Portfolio turnover rate 9%
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 15.09%+
Net investment income
per share without
waivers and/or expense
reimbursements $ (1.30)
Average commission rate
paid (b) N/A
</TABLE>
* Nations Equity Income Fund Investor A Shares commenced operations on April
16, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
8
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.66 $ 10.42 $ 10.86 $ 10.24
Net investment income 0.11 0.34 0.22 0.29
Net realized and unrealized gain/(loss) on
investments 0.45 2.23 (0.44) 0.62
Net increase/(decrease) in net asset value from
operations 0.56 2.57 (0.22) 0.91
Distributions:
Dividends from net investment income (0.17) (0.31) (0.22) (0.29)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.58) (0.33) (0.22) (0.29)
Net asset value, end of period $ 11.64 $ 12.66 $ 10.42 $ 10.86
Total return++ 4.86% 25.01% (2.02)% 8.93%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,261 $ 5,276 $ 4,881 $ 5,191
Ratio of operating expenses to average net
assets 1.25%+ 1.24% 1.23% 1.15%
Ratio of net investment income to average net
assets 2.66%+ 3.00% 2.06% 2.57%
Portfolio turnover rate 83% 174% 156% 50%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.25%+ 1.24% 1.24% 1.22%
Net investment income per share without waivers
and/or expense reimbursements $ 0.11 $ 0.34 $ 0.22 $ 0.28
Average commission rate paid (b) $ 0.0598 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.01
Net realized and unrealized gain/(loss) on
investments 0.23#
Net increase/(decrease) in net asset value from
operations 0.24
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 547
Ratio of operating expenses to average net
assets 0.55%+
Ratio of net investment income to average net
assets 3.60%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.30%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.01
Average commission rate paid (b) N/A
</TABLE>
* Nations Balanced Assets Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
9
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.22 $ 11.21 $ 11.06 $ 10.67
Net investment income/(loss) 0.01 0.06 0.07 0.07
Net realized and unrealized gain on investments 0.38 3.28 0.14 0.41
Net increase in net asset value from operations 0.39 3.34 0.21 0.48
Distributions:
Dividends from net investment income (0.01) (0.07) (0.06) (0.08)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (1.20) (0.33) (0.06) (0.09)
Net asset value, end of period $ 13.41 $ 14.22 $ 11.21 $ 11.06
Total return++ 3.02% 30.70% 1.93% 4.56%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18,311 $ 16,770 $ 11,038 $ 11,182
Ratio of operating expenses to average net
assets 1.21%+ 1.23% 1.15% 1.05%
Ratio of net investment income/(loss) to
average net assets 0.13%+ 0.46% 0.60% 0.59%
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.21%+ 1.23% 1.16% 1.14%
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.01 $ 0.06 $ 0.07 $ 0.06
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.01
Net realized and unrealized gain on investments 0.66#
Net increase in net asset value from operations 0.67
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.67
Total return++ 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,225
Ratio of operating expenses to average net
assets 0.55%+
Ratio of net investment income/(loss) to
average net assets 1.08%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.30%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.00(b)
Average commission rate paid (c) N/A
</TABLE>
* Nations Capital Growth Fund Investor A Shares commenced operations on October
2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
10
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96#(a) 11/30/95 11/30/94#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.17 $ 11.35 $ 10.85
Net investment income/(loss) (0.01) (0.01) (0.06)
Net realized and unrealized gain on investments 1.25 3.23 0.70
Net increase in net asset value from operations 1.24 3.22 0.64
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14)
Total dividends and distributions (1.50) (0.40) (0.14)
Net asset value, end of period $ 13.91 $ 14.17 $ 11.35
Total return++ 9.80% 29.65% 5.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7,802 $ 5,765 $ 3,234
Ratio of operating expenses to average net assets 1.24%+ 1.23% 1.26%
Ratio of net investment income/(loss) to average net assets (0.31)%+ (0.17)% (0.54)%
Portfolio turnover rate 39% 139% 129%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursement 1.24%+ 1.23% 1.26%
Net investment income/(loss) per share without waivers
and/or expense reimbursement $ (0.01) $ (0.01) $ (0.05)
Average commission rate paid (b) $ 0.0599 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.87
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 1.02
Net increase in net asset value from operations 0.99
Distributions:
Distributions from net realized capital gains (0.01)
Total dividends and distributions (0.01)
Net asset value, end of period $ 10.85
Total return++ 9.99%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,095
Ratio of operating expenses to average net assets 1.05%+
Ratio of net investment income/(loss) to average net assets (0.40)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursement 1.26%+
Net investment income/(loss) per share without waivers
and/or expense reimbursement $ (0.04)
Average commission rate paid (b) N/A
</TABLE>
* Nations Emerging Growth Fund Investor A Shares commenced operations on
December 10, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
11
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.04 $ 13.06 $ 13.30
Net investment income/(loss) 0.04 0.09 0.00(b)
Net realized and unrealized gain/(loss) on investments 0.35 3.96 (0.23)#
Net increase/(decrease) in net asset value from operations 0.39 4.05 (0.23)
Distributions:
Dividends from net investment income (0.04) (0.07) (0.01)
Distributions from net realized capital gains (0.23) -- --
Return of capital -- -- (0.00)(b)
Total dividends and distributions: (0.27) (0.07) (0.01)
Net asset value, end of period $ 17.16 $ 17.04 $ 13.06
Total return++ 2.35% 31.05% (1.71)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,722 $ 3,234 $ 252
Ratio of operating expenses to average net assets 1.12%+ 1.40% 1.23%+
Ratio of net investment income/(loss) to average net assets 0.72%+ 0.75% 0.02%+
Portfolio turnover rate 47% 124% 177%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.12%+ 1.40% 1.66%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.04 $ 0.09 $ (0.07)
Average commission rate paid (c) $ 0.0627 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 04/29/94*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 14.94
Net investment income/(loss) (0.04)
Net realized and unrealized gain/(loss) on investments 1.35
Net increase/(decrease) in net asset value from operations 1.31
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains (2.95)
Return of capital --
Total dividends and distributions: (2.95)
Net asset value, end of period $ 13.30
Total return++ 8.31%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 165
Ratio of operating expenses to average net assets 1.30%+
Ratio of net investment income/(loss) to average net assets (0.62)%+
Portfolio turnover rate 475%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.74%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.07)
Average commission rate paid (c) N/A
</TABLE>
* The period for Nations Disciplined Equity Investor A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class B Shares, which were reorganized into Investor A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class B Shares commenced operations on July 26, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
Objectives
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
12
<PAGE>
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
How Objectives Are Pursued
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 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-to-
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.
The Fund invests under normal market conditions 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 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 up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in obligations issued or guaranteed as to
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade
securities of domestic companies. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by
Moody's Investors Service, Inc. ("Moody's")) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. Subsequent to its purchase by the Fund,
an issue of securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. The Adviser will consider
such an event in
13
<PAGE>
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.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, 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. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, 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 and government 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." They 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 up to 20%
of its total assets in foreign securities. 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.
14
<PAGE>
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 classes 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. These asset classes
are actively managed in an effort to maximize total return. In general, the
Adviser believes that common stocks offer the best opportunity for long-term
capital appreciation.
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. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as 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
S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"),
or Thomson BankWatch, Inc. ("BankWatch") or, if unrated, determined by the
Adviser to be comparable in quality to instruments so rated. Obligations with
the lowest investment grade rating (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. Unrated obligations may be acquired by the Fund
if they are determined by the Adviser to be of comparable quality at the time of
purchase to rated obligations that may be acquired.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in 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.
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above-average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
15
<PAGE>
In addition, the Fund's investment program enables it to invest in the following
types of companies:
(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.
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 up to 20% of its total assets in 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.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above-average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
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. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities.
16
<PAGE>
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 up to 20% of its total assets in 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.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ( the "CFTC") and options thereon for
market exposure risk management. Nations Balanced Assets Fund also may engage in
dollar roll transactions. Each Fund may lend its portfolio securities to
qualified institutional investors. Each Fund also may invest in restricted,
private placement and other illiquid securities and securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. Each Fund may invest in real estate investment trust securities. For
more information concerning these and other instruments in which the Funds may
invest and their investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. For the Funds' port-
17
<PAGE>
folio turnover rate, see "Financial Highlights." If a Fund's annual portfolio
turnover rate exceeds 100%, it may result in higher costs to the Fund, including
brokerage commissions or dealer markups and other transaction costs on the sale
of securities and the reinvestment in other securities. Portfolio turnover also
can generate short-term capital gains tax consequences.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods. The value
of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the Fund's investment objective and do not unduly increase the
Fund's exposure to market or other risks. For additional risk information
regarding the Funds' investments in particular instruments, see "Appendix
A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider
18
<PAGE>
whether the Fund remains an appropriate investment in light of their then
current position and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of a Fund (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment (reflecting the deduction of any
applicable contingent deferred sales charge ("CDSC")), assuming the reinvestment
of all dividend and capital gains distributions. Aggregate total return reflects
the total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Funds offer Primary A, Primary B, Investor
C and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected.
Any fees charged by a selling agent and/or servicing agent directly to its
customers' accounts in connection with investments in the Funds will not be
included in calculations of total return or yield. Each Fund's annual report
contains additional performance information and is available upon request
without charge from the Funds' distributor or an investor's selling agent.
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How The Funds Are Managed
The business and affairs of Nations Fund Trust and Nations Fund, Inc. are
managed under the direction of their 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.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
the Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.75% of the average daily net assets of each
of Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets Fund;
and 0.75% of the first $100 million of 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.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.25% of Nations Value Fund's, Nations Balanced
Assets Fund's, Nations Capital Growth Fund's, Nations Emerging Growth Fund's and
Nations Disciplined Equity Fund's average daily net assets; and 0.20% of Nations
Equity Income Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund. In addition, the Adviser may from time to time
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compensate Agents, as defined below, for providing certain services to
Customers.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations Emerging
Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations Balanced
Assets Fund -- 0.25%; and Nations Equity Income Fund -- 0.20%.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been Portfolio
Manager for Nations Value Fund since 1989. Prior to assuming her position with
TradeStreet, she was Senior Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. Ms. Herrmann has worked for the
Investment Management Group at NationsBank since 1981 where her responsibilities
included fund management and institutional portfolio management. She attended
Virginia Wesleyan College. Ms. Herrmann holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has worked in the investment community since 1981. His past
experience includes portfolio management, equity research and financial analysis
for the Investment Management Group at NationsBank and Duke Power Company. Mr.
Sanders received a B.A. in Economics from the University of Michigan and an
M.B.A. from University of North Carolina at Charlotte. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and
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National City Bank. Ms. Hale received a B.S. in Business and Finance from Mount
St. Mary's College and an M.B.A. from Kent State University. She holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the North Carolina Society of
Security Analysts, Inc. She is also a member of the National Association for
Petroleum Investment Analysts and the World Affairs Council of Washington, D.C.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been Portfolio Manager for Nations Emerging Growth
Fund since 1992. Prior to assuming his position with TradeStreet, he was Senior
Vice President and Senior Portfolio Manager for the Investment Management Group
at NationsBank. He has worked in the investment community since 1968. His past
experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager for Nations Disciplined Equity Fund since
1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and is Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been Portfolio Manager for Nations Equity Income Fund since 1991.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
He has worked in the investment community since 1980. His past experience
includes fund analysis and portfolio management for National Bank of Detroit.
Mr. Williams received a B.S. in Accounting from East Carolina University, Summa
Cum Laude and an M.B.A. from Indiana University. He holds the Chartered
Financial Analyst designation, is on the Advisory Board of Indiana University's
Investment Management Academy, and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank, that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus, without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
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<PAGE>
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
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 First Data 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 period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the indicated rate of the
following Funds' average daily net assets: Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund, and
Nations Balanced Assets Fund -- 0.10%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Equity Income 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 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A. ("NationsBank of Texas" or the "Custodian") serves as
custodian for the assets of each Fund. NationsBank of Texas is located at 1401
Elm Street, Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of each Fund for
which it serves as custodian, (ii) $10.00 per repurchase collateral transaction
by such Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving such Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Inves-
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tor A Shares, are deducted from accrued income before dividends are declared.
The Funds' expenses include, but are not limited to: fees paid to the Adviser,
NationsBank, Stephens and First Data; interest; trustees' and directors' fees;
federal and state securities registration and qualification fees; brokerage fees
and commissions; cost of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the
Custodians and Transfer Agent; certain insurance premiums; outside auditing and
legal expenses; costs of shareholder reports and shareholder meetings, other
expenses which are not expressly assumed by the Adviser, NationsBank, Stephens
or First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Investor A Shares may bear certain class specific retail
transfer agency expenses and also bear certain additional shareholder service
and/or sales support costs. Any general expenses of Nations Fund Trust and/or
Nations Fund, Inc. that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust and Nations Fund, Inc. or in such other manner as the relevant Board of
Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. This Prospectus relates only to
the Investor A Shares of Nations Capital Growth Fund, Nations Emerging Growth
Fund, Nations Disciplined Equity Fund, Nations Value Fund and Nations Balanced
Assets Fund of Nations Fund Trust. To obtain additional information regarding
the Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 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 pos-
24
<PAGE>
sessed 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. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor A Shares of Nations Equity Income Fund of Nations Fund, Inc. To obtain
additional information regarding the Fund's other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 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.
Because this Prospectus combines disclosure on two 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 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 this
Prospectus.
25
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About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor A Shares
in order to accommodate different investors. Purchase orders for Investor A
Shares may be placed directly with a Fund or through banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and/or a sales support agreement ("Sales
Support Agreement") with Stephens ("Selling Agents"). Servicing Agents and
Selling Agents are sometimes referred to hereafter as "Agents".
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI, (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI, to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH A FUND: Investors may open a regular
(non-retirement) account directly with a Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services for an account number and use
the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
26
<PAGE>
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund with a
reinvestment slip to the address set forth above. To purchase additional shares
by wire, follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent or Investor Services.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within three Business
Days after receipt of the order by the Fund. For shareholders who purchased
their
27
<PAGE>
shares through an Agent, redemption orders should be transmitted by telephone or
in writing through the same Agent. Redemption proceeds are normally wired to the
redeeming Agent within three Business Days after receipt of the order by
Stephens or by the Transfer Agent. Redemption orders are effected at the net
asset value per share next determined after receipt of the order by the Fund,
Stephens, or the Transfer Agent, as the case may be. The Agents are responsible
for transmitting redemption orders to Stephens or to the Transfer Agent and for
crediting their Customer's account with the redemption proceeds on a timely
basis. Redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately. No
charge for wiring redemption payments is imposed by Nations Fund. There is no
redemption charge.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that were purchased prior to January 1, 1996 in
amounts of $1 million or more or through the Nations Fund Personal Investment
Planner may be subject to a CDSC equal to 1.00% of the lesser of the net asset
value or the purchase price of the shares being redeemed if such shares are
redeemed within one year of purchase, declining to 0.50% in the second year
after purchase and eliminated thereafter. No CDSC is imposed on increases in net
asset value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor A shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account.
Shareholders are respon-
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sible for providing evidence sufficient to establish that they are eligible for
any waiver of the CDSC.
Within 120 days after a redemption of Investor A Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor A Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor A
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor A Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor A Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor A Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with the Fund, exchange
requests should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on
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which the shareholder may realize a capital gain or loss. And, the ability to
deduct capital losses on an exchange may be limited in situations where there is
an exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange request. Only
shares that may legally be sold in the state of the shareholder's residence may
be acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. In such
event, shareholders should consider communicating their exchange requests by
mail.
If Investor A Shares of the Funds purchased prior to January 1, 1996 are
exchanged for shares of the same class of another fund, any CDSC applicable to
the original shares purchased will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of a Fund.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or 30th day of the
applicable month. The shareholder must have an existing position in both Funds
in order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, a shareholder should contact his/her Selling Agent or Investor
Services.
Shareholder Servicing And
Distribution Plans
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits the Funds to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Aggregate payments under the Investor A Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Funds, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor A Shares of the Funds.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Funds
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
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advertising provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan or upon receipt of a CDSC.
Any such additional consideration or incentive program may be terminated at any
time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAIs for more details on the Investor A Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Funds distribute any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Investor A Shares of the
Funds are eligible to receive dividends when declared, provided, however, that
the purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
Distributions paid by the Funds with respect to one class of shares may be
greater or less than those paid with respect to another class of shares due to
the different expenses of the different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor A Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds may be entitled to the dividends-received
deduction on all or a portion of such Funds' dividends to the extent that a
Fund's income is derived from dividends (which, if received directly, would
qualify for such deduction) received from domestic corporations. In order to
qualify for the dividends-received deduction, a corporate shareholder must hold
the fund shares paying the dividends upon which the deduction is based for at
least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certi-
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fied correct Taxpayer Identification Number and has not certified that
withholding does not apply, or if the Internal Revenue Service has notified
Nations Fund that the Taxpayer Identification Number listed on a shareholder
account is incorrect according to its records, or that the shareholder is
subject to backup withholding. Amounts withheld are applied to the shareholder's
Federal tax liability, and a refund may be obtained from the Internal Revenue
Service if withholding results in overpayment of taxes. Federal law also
requires the Funds to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisers with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage and non-mortgage-backed securities.
Interests in pools of these assets differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specified call dates. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage-backed securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), parallel pay CMOs, planned
amortization class CMOs ("PAC Bonds") and stripped mortgage-backed securities
("SMBS"), including interest-only and principal-only SMBS. SMBS may be more
volatile than other debt securities. For additional information concerning
mortgage-backed securities, see the related SAI.
Non-mortgage asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may
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be less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under 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
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage described above. 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.
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
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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 objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the United States Dollar. A Fund either
enters into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies. A forward foreign currency exchange
contract is an obligation by a Fund to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract.
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.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) 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
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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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold 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, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933 (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A and Section 4(2) under the 1933 Act. Any
such security will not be considered illiquid so long as it is determined by a
Fund's Board of Trustees or Board of Directors or the Adviser, acting under
guidelines approved and monitored by the Fund's Board,
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<PAGE>
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 and
Section 4(2), 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 their
portfolios 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: Nations Equity Income Fund may invest in
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 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 Fund's 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
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Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax-exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
security. To the extent that municipal participation interests are considered to
be "illiquid securities," such instruments are subject to each Fund's limitation
on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified municipal securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, a Fund
may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in municipal securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if its assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each 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.
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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.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, 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.
Gov-
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ernment agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government Obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government Obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
Obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
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
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payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is
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unlikely to be affected by reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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
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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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and inter-
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est 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 four 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.
BB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
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Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes NATIONS SHORT-TERM INCOME
FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND,
NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND AND NATIONS DIVERSIFIED
INCOME FUND (the "Funds") of Nations Fund Trust and
Nations Fund, Inc., each an open-end management
investment company in the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes one class of shares of the
Funds -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc., is contained in separate
Statements of Additional Information (the "SAIs"),
that 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 and
Nations Fund, Inc., each dated July 31, 1996, 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 the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Short-Term Income
Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations Strategic Fixed
Income Fund
Nations Diversified Income
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 6
Objectives 11
How Objectives Are Pursued 12
How Performance Is Shown 16
How The Funds Are Managed 17
Organization And History 21
About Your Investment
How To Buy Shares 22
How To Redeem Shares 24
How To Exchange Shares 26
Shareholder Servicing And Distribution Plans 27
How The Funds Value Their Shares 29
How Dividends And Distributions Are Made;
Tax Information 29
Appendix A -- Portfolio Securities 30
Appendix B -- Description Of Ratings 40
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest
primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment objective is to
seek current income by investing primarily in securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment objective is to
seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment
grade fixed income securities.
(Bullet) Nations Diversified Income Fund's investment objective is to
seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income
securities.
(Bullet) Nations Strategic Fixed Income Fund's investment objective is
to seek total return by investing primarily in investment grade
fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
(Bullet) INVESTMENT ADVISER: NBAI serves as the investment adviser to the Funds.
NationsBanc Advisors, Inc. provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities, including U.S. Government
Obligations are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Funds'
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
3
<PAGE>
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor A Shares of the
indicated Fund over specified periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
SHAREHOLDER TRANSACTION EXPENSES Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price) None None None None
Maximum Deferred Sales Charge (as a percentage
of the lower of the original purchase price
or redemption proceeds)1 None None None None
<CAPTION>
Nations
Diversified
SHAREHOLDER TRANSACTION EXPENSES Income Fund
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage
of the lower of the original purchase price
or redemption proceeds)1 None
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
net assets)
<TABLE>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .30% .40% .50% .50%
Rule 12b-1 Fees (including shareholder
servicing fees) (After Fee Waivers) .20%2 .20% .25% .20%
Other Expenses (After Expense Reimbursements) .25% .23% .30% .22%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) .75% .83% 1.05% .92%
<CAPTION>
Management Fees (After Fee Waivers) .50%
Nations
Diversified
Income Fund
<S> <C>
Rule 12b-1 Fees (including shareholder
servicing fees) (After Fee Waivers) .25%
Other Expenses (After Expense Reimbursements) .27%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) 1.02%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
2 Shareholder servicing fees for Nations Short-Term Income Fund are paid
pursuant to a separate Shareholder Servicing Plan. See "Shareholder Servicing
And Distribution Plans."
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Short- Nations
Nations Short-Term Intermediate Government Nations Strategic
Income Fund Government Fund Securities Fund Fixed Income Fund
1 Year $ 8 $ 8 $ 11 $ 9
3 Years $ 24 $ 26 $ 33 $ 29
5 Years $ 42 $ 46 $ 58 $ 51
10 Years $ 94 $ 103 $ 128 $ 113
<CAPTION>
Nations
Diversified
Income Fund
1 Year $ 11
3 Years $ 33
5 Years $ 58
10 Years $ 128
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares of the Funds will bear either
5
<PAGE>
directly or indirectly. Certain figures contained in the above tables are based
on amounts incurred during each Fund's most recent fiscal year and have been
adjusted as necessary to reflect current service provider fees. There is no
assurance that any fee waivers and reimbursements will continue beyond the
current fiscal year. If fees waivers and/or reimbursements are discontinued, the
amounts contained in the "Examples" above may increase. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
For a more complete description of the Rule 12b-1 and shareholder servicing fees
payable by the Funds, see "Shareholder Servicing And Distribution Plans."
Absent fee waivers and expense reimbursements, "Management Fees," "Rule 12b-1
Fees" and "Total Operating Expenses" for Investor A Shares of the indicated Fund
would have been as follows: Nations Short-Term Income Fund -- .60%, .25% and
1.10%, respectively; Nations Short-Intermediate Government Fund -- .60%, .25%
and 1.08%, respectively; and Nations Strategic Fixed Income Fund -- .60%, .25%
and 1.07%; respectively. Absent fee waivers and expense reimbursements,
"Management Fees," "Other Expenses" and "Total Operating Expenses" would have
been as follows: Nations Government Securities Fund -- .64%, .30% and 1.19%,
respectively; and Nations Diversified Income Fund -- .60%, .27% and 1.12%,
respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of a Fund will receive unaudited semi-annual reports describing the
Fund's investment operations and financial statements audited by the Funds'
independent accountant.
6
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.19 0.59 0.48 0.51
Net realized and unrealized gain/(loss) on
investments (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value from
operations 0.11 0.95 (0.03) 0.77
Distributions:
Dividends from net investment income (0.19) (0.59) (0.46) (0.51)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.19) (0.59) (0.50) (0.51)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.13% 10.29% (0.33)% 8.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,810 $ 2,969 $ 2,490 $ 11,205
Ratio of operating expenses to average net assets 0.75%+ 0.76% 0.71% 0.57%
Ratio of net investment income to average net
assets 5.87%+ 6.12% 5.02% 5.07%
Portfolio turnover rate 73% 224% 293% 121%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.08% 1.06% 1.03% 0.99%
Net investment income per share without waivers
and/or expense reimbursements $ 0.18 $ 0.56 $ 0.45 $ 0.48
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.08
Net realized and unrealized gain/(loss) on
investments (0.26)
Net increase/(decrease) in net asset value from
operations (0.18)
Distributions:
Dividends from net investment income (0.07)
Distributions in excess of net investment income --
Distributions from capital --
Total dividends and distributions (0.07)
Net asset value, end of period $ 9.75
Total return++ (1.81)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 254
Ratio of operating expenses to average net assets 0.45%+
Ratio of net investment income to average net
assets 5.39%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.05%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.07
</TABLE>
* Nations Short-Term Income Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b)# 11/30/95# 11/30/94 11/30/93 11/30/92 11/30/91*
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17 $ 4.00##
Net investment income 0.07 0.23 0.22 0.22 0.27 0.10
Net realized and unrealized
gain/(loss) on investments (0.07) 0.21 (0.33) 0.14 (0.01) 0.17
Net increase/(decrease) in net
asset value from operations 0.00 0.44 (0.11) 0.36 0.26 0.27
Distributions:
Dividends from net investment
income (0.07) (0.23) (0.22) (0.22) (0.27) (0.10)
Distributions in excess of net
investment income (0.00)(a) (0.00)(a) (0.00)(a) -- -- --
Distributions from net
realized capital gains -- -- (0.02) (0.02) -- --
Total dividends and
distributions (0.07) (0.23) (0.24) (0.24) (0.27) (0.10)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17
Total return++ 0.007%### 11.48% (2.41)% 8.85% 6.61%+++ 6.81%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 57,381 $ 64,848 $ 77,128 $ 173,449 $ 188,624 $ 53,874
Ratio of operating expenses to
average net assets 0.83%+ 0.80% 0.77% 0.70% 0.48% 0.08%+
Ratio of net investment income
to average net assets 5.12%+ 5.68% 5.58% 5.25% 6.34% 7.21%+
Portfolio turnover rate 189% 328% 133% 92% 25% 11%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.06%+ 1.00% 0.98% 0.94% 0.88% 0.82%+
Net investment income per
share without waivers and/or
expense reimbursements $ 0.06 $ 0.22 $ 0.21 $ 0.21 $ 0.25 $ 0.00(a)
</TABLE>
* Nations Short-Intermediate Government Fund Investor A Shares commenced
operations on August 5, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
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.
## The Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25, 1991,
the net asset value doubled as a result of the reclassification of each
outstanding share into half as many shares (reverse split).
### Amount represents less than 0.01%.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
8
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b)# 05/31/95# 05/31/94 05/31/93# 05/31/92
<CAPTION>
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.36 $ 10.05
Net investment income 0.50 0.61 0.62 0.66 0.71
Net realized and
unrealized gain/(loss)
on investments (0.19) 0.06 (0.61) 0.16 0.38
Net increase/(decrease)
in net asset value
from operations 0.31 0.67 0.01 0.82 1.09
Distributions:
Dividends from net
investment income (0.48) (0.57) (0.56) (0.68) (0.75)
Distributions in excess
of net investment
income (0.02) -- (0.02) -- --
Distributions from net
realized capital gains -- -- -- -- --
Distributions in excess
of net realized
capital gains -- -- (0.05) (0.04) (0.03)
Distributions from
capital -- (0.04) (0.04) -- --
Total dividends and
distributions (0.50) (0.61) (0.67) (0.72) (0.78)
Net asset value, end of
period $ 9.67 $ 9.86 $ 9.80 $ 10.46 $ 10.36
Total return++ 3.20% 7.29% (0.11)% 8.18% 11.18%+++
Ratios to average net
assets/
supplemental data:
Net assets, end of
period (in 000's) $ 11,662 $ 10,928 $ 14,044 $ 15,354 $ 3,326
Ratio of operating
expenses to average
net assets 1.05%+ 1.01% 0.90% 1.00% 1.31%
Ratio of net investment
income to average net
assets 6.11%+ 6.44% 5.91% 6.52% 6.90%
Portfolio turnover rate 199% 413% 56% 103% 130%
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 1.20%+ 1.19% 1.11% 1.15% 1.97%
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.49 $ 0.59 $ 0.59 $ 0.55 $ 0.07
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/91*
<S> <C>
Operating performance:
Net asset value,
beginning of period $ 10.01
Net investment income 0.09
Net realized and
unrealized gain/(loss)
on investments 0.02
Net increase/(decrease)
in net asset value
from operations 0.11
Distributions:
Dividends from net
investment income (0.07)
Distributions in excess
of net investment
income --
Distributions from net
realized capital gains --
Distributions in excess
of net realized
capital gains --
Distributions from
capital --
Total dividends and
distributions (0.07)
Net asset value, end of
period $ 10.05
Total return++ 1.07%+++
Ratios to average net
assets/
supplemental data:
Net assets, end of
period (in 000's) $ 661
Ratio of operating
expenses to average
net assets 1.35%+
Ratio of net investment
income to average net
assets 7.22%+
Portfolio turnover rate 5%
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 1.94%+++
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.08+++
</TABLE>
* Nations Government Securities Fund Investor A Shares commenced operations on
April 17, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not acccord with the
results of operations.
(b) Fiscal year ended changed to March 31. Prior to this, the fiscal year ended
was May 31.
9
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.18 0.57 0.51 0.54
Net realized and unrealized gain/(loss) on
investments (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value from
operations (0.11) 1.47 (0.38) 1.16
Distributions:
Dividends from net investment income (0.18) (0.57) (0.49) (0.54)
Distributions in excess of net investment
income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.18) (0.57) (0.85) (0.55)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.11)% 16.22% (3.76)% 11.88%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,440 $ 6,662 $ 967 $ 1,138
Ratio of operating expenses to average net
assets 0.92%+ 0.91% 0.86% 0.76%
Ratio of net investment income to average net
assets 5.29%+ 5.85% 5.25% 5.25%
Portfolio turnover rate 133% 228% 307% 161%
Ratio of operating expenses to average net
assets without waivers
and/or expense reimbursements 1.03%+ 1.01% 0.94% 0.92%
Net investment income per share without waivers
and/or expense reimbursements $ 0.18 $ 0.56 $ 0.50 $ 0.53
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 9.99
Net investment income 0.01
Net realized and unrealized gain/(loss) on
investments (0.06)
Net increase/(decrease) in net asset value from
operations (0.05)
Distributions:
Dividends from net investment income --
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 9.94
Total return++ (0.49)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 113
Ratio of operating expenses to average net
assets 0.40%+
Ratio of net investment income to average net
assets 6.00%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net
assets without waivers
and/or expense reimbursements 1.00%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.01
</TABLE>
* Nations Strategic Fixed Income Fund Investor A Shares commenced operations on
November 19, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
10
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94# 11/30/93#
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 9.96
Net investment income 0.22 0.71 0.72 0.76
Net realized and unrealized gain/(loss) on
investments (0.40) 1.15 (1.06) 0.92
Net increase/(decrease) in net asset value from
operations (0.18) 1.86 (0.34) 1.68
Distributions:
Dividends from net investment income (0.22) (0.71) (0.72) (0.76)
Distributions in excess of net investment
income -- -- (0.00)(a) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.22) (0.71) (0.87) (0.76)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.67)% 19.82% (3.26)% 17.32%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,332 $ 13,150 $ 10,819 $ 13,291
Ratio of operating expenses to average net
assets 1.02%+ 1.05% 0.96% 0.70%
Ratio of net investment income to average net
assets 6.24%+ 6.78% 7.09% 6.87%
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.12%+ 1.18% 1.17% 1.10%
Net investment income per share without waivers
and/or expense reimbursements $ 0.22 $ 0.70 $ 0.70 $ 0.70
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.02
Net investment income 0.01
Net realized and unrealized gain/(loss) on
investments (0.06)
Net increase/(decrease) in net asset value from
operations (0.05)
Distributions:
Dividends from net investment income (0.01)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.01)
Net asset value, end of period $ 9.96
Total return++ (0.49)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18
Ratio of operating expenses to average net
assets 0.40%+
Ratio of net investment income to average net
assets 7.61%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.00%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.01
</TABLE>
* Nations Diversified Income Fund Investor A Shares commenced operations on
November 25, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Amount represents less than $0.01 per share.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by invest-
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ing primarily in investment grade fixed income securities. The Fund may invest
in long-term, intermediate-term and short-term securities.
NATIONS DIVSERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities.
How Objectives Are Pursued
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity and duration of the Fund's portfolio will not exceed three
years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the following six nationally recognized statistical rating organizations,
Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service, Inc.
("Fitch"), Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), IBCA Limited or its affiliate, IBCA Inc. (collectively,
"IBCA") or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs"), or,
if not so rated, determined by the Adviser to be of comparable quality to
instruments so rated; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments; and mortgage-related
securities of governmental issuers 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
and municipal 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.
The Fund may also invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
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 invest in "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.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will not exceed seven years
and the duration will not
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<PAGE>
exceed five years. 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.
The Fund also 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; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will be greater than four
years and the Fund's duration is expected to be in a range of 3.5 to 6 years.
The Fund also 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; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade debt obligations. It is expected that
the average weighted maturity of the Fund's portfolio will be ten years or less
and under no circumstances will it exceed 15 years.
The 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; mortgage-backed securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund also may invest in dividend-paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade
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<PAGE>
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 invest in "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.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity of the Fund's portfolio will be greater than five years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed-and-variable rate bonds; U.S. Government Obligations;
dollar-denominated and non-dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
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." They 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.
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 "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.
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<PAGE>
GENERAL: Each of the Funds may invest in certain specified derivative
securities, including: interest rate swaps, caps and floors for hedging
purposes; exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures and options
thereon approved by the Commodity Futures Trading Commission ("CFTC") for market
exposure risk-management. Each of the Funds may lend its portfolio securities to
qualified institutional investors and may invest in restricted, private
placement and other illiquid securities. Each of the Funds may engage in reverse
repurchase agreements and dollar roll transactions. Additionally, each Fund may
purchase securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity and duration of the Funds.
For more information concerning these and other instruments in which the Funds
may invest and their investment practices, see "Appendix A".
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
The value of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
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.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the Fund's investment objective and do not unduly increase the
Fund's exposure to market or other risks. For additional risk information
regarding the Funds' investments in particular instruments, see "Appendix
A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
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<PAGE>
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 to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund 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 investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time a Fund may advertise the total return and yield on a class of
shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares may be calculated on an average annual total return basis or an aggregate
total return basis. The "total return" of a class of shares refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gains distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and a Fund's operating
expenses. Investment performance also often reflects the risks associated with
such Fund's investment objective and poli-
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<PAGE>
cies. These factors should be considered when comparing a Fund's investment
results to those of other mutual funds and other investment vehicles. Since
yields fluctuate, yield data cannot necessarily be used to compare an investment
in a Fund with bank deposits, savings accounts, and similar investment
alternatives which often provide an agreed-upon or guaranteed fixed yield for a
stated period of time.
In addition to Investor A Shares, the Funds offer Primary A, Primary B, Investor
C and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in a Fund will not be included in calculations of
yield and total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or an investor's selling agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of Directors,
respectively. The SAI for Nations Fund Trust contains the names of and general
background information concerning the Trustees of Nations Fund Trust. The SAI
for Nations Fund, Inc. contains the names of and general background information
concerning the Directors of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations, and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with the Funds'
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
a Fund, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a
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lending relationship. For the services provided and expenses assumed pursuant to
an Investment Advisory Agreements, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rate of 0.60% of the average
daily net assets of each of Nations Short-Term Income Fund, Nations Diversified
Income Fund, Nations Strategic Fixed Income Fund, and Nations Short-Intermediate
Government Fund; and 0.65% of the first $100 million of 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.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.15% of Nations Short-Term Income Fund's,
Nations Short-Intermediate Government Fund's, Nations Government Securities
Fund's, Nations Strategic Fixed Income Fund's and Nations Diversified Income
Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund. In addition, the Adviser may from time to time
compensate Agents, as defined below, for providing certain services to
Customers.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 1996, after waivers, NBAI
paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees at
the rate of 0.15% of the following Funds' average daily net assets: Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund and Nations
Government Securities Fund.
David M. Hetherington, CFA, is a Director of TradeStreet and Managing Director
of Fixed Income Management. Mr. Hetherington is responsible for overseeing all
fixed income product management and is Senior Portfolio Manager for Nations
Short-Term Income Fund. Mr. Hetherington has been Portfolio Manager for Nations
Short-Term Income Fund since 1995. Prior to assuming his position with
TradeStreet, he was Senior Vice President and Director of Fixed Income for the
Investment Management Group at NationsBank. Mr. Hetherington has worked in the
investment community since 1975. His past experience includes working as a
portfolio manager, a trust investment officer and a securities analyst for First
Citizens Bank and Deposit Guarantee as well as working as an Economist for the
U.S. Department of Labor in the Bureau of Labor Statistics. Mr. Hetherington
received a B.A. in Economics from Duke University. He holds the Chartered
Financial Analyst designation and is a member of the
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Association for Investment Management and Research.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud has
been Portfolio Manager for Nations Diversified Income Fund since 1992. Prior to
assuming his position with TradeStreet, he was Senior Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Ahnrud
has worked for the Investment Management Group at NationsBank since 1985 where
his responsibilities initially included institutional investment management
sales and later involved high yield credit analysis. Mr. Ahnrud received a dual
B.S. in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company, Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109,
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serves as the co-administrator of the Funds pursuant to a Co-Administration
Agreements. Under the terms of the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds, including
performing the calculations necessary to determine net asset values and
dividends, preparing tax returns and financial statements, maintaining the
portfolio records and certain general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data 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 period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the rate of 0.10% of the
following Funds' average daily net assets: Nations Short-Intermediate Government
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund and
Nations Strategic Fixed Income Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of 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 0.01% 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 a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor A Shares. See "Shareholder Servicing And Distribution
Plans."
NationsBank of Texas, N.A., ("NationsBank of Texas" or the "Custodian"), serves
as the Funds' custodian. NationsBank of Texas is located at 1401 Elm Street,
Dallas, Texas 75202 and is a wholly owned subsidiary of NationsBank Corporation.
In return for providing custodial services, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees payable monthly (i) at the
rate of 1.25% of 1% of the average daily net assets of each Fund, (ii) $10.00
per repurchase collateral transaction by the Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachuetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. Each Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor A Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and sales support costs. Any general expenses of
Nations Fund Trust and/or Nations Fund, Inc. that are not readily identifi-
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able as belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bear to the assets
of Nations Fund Trust or Nations Fund, Inc. or in such other manner as the Board
of Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Investor A, Investor C, Investor N, Primary A
and Primary B Shares. This Prospectus relates only to the Investor A Shares of
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund and Nations Short-Intermediate Government Fund of
Nations Fund Trust. To obtain additional information regarding the Funds' other
classes of shares which may be available to you, contact your Selling Agent (as
defined below) or Nations Fund at 1-800-321-7854.
Each share is without par value, represents an equal proportionate interest in
the related fund with other shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such fund as are declared in the discretion of Nations Fund Trust's Board of
Trustees. Nations Fund Trust's Declaration of Trust authorizes the Board of
Trustees to classify or reclassify any class of shares into one or more series
of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the 1940 Act
requires voting by fund.
As of July 15, 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 related SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. 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
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Investor A Shares of Nations Government Securities Fund of Nations Fund, Inc. To
obtain additional information regarding the Fund's other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 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.
Because this Prospectus combines disclosure on two 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 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 this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor A Shares
in order to accommodate different investors. Purchase orders for Investor A
Shares may be placed directly with a Fund or through banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and/or a sales support agreement ("Sales
Support Agreement") with Stephens ("Selling Agents"). Servicing Agents and
Selling Agents are sometimes referred to hereafter as "Agents."
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
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Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
(Bullet) $500 IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH A FUND: Investors may open a regular
(non-retirement) account directly with a Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services at 1-800-982-2271 for an
account number and use the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund which
identifies the name of the Fund and class of shares and include a reinvestment
slip to the address set forth above. To purchase additional shares by wire,
follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately
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available funds in payment of the purchase price are received by the Funds'
Custodian. Such payment must be received not later than 4:00 p.m., Eastern time,
by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within three Business
Days after receipt of the order by the Fund. For shareholders who purchased
their shares through an Agent, redemption orders should be transmitted by
telephone or in writing through the same Agent. Redemption proceeds are normally
wired to the redeeming Agent within three Business Days after receipt of the
order by Stephens or by the Transfer Agent. Redemption orders are effected at
the net asset value per share next determined after receipt of the order by the
Fund, Stephens, or the Transfer Agent, as the case may be. The Agents are
responsible for transmitting redemption orders to Stephens or to the Transfer
Agent and for crediting their Customer's account with the redemption proceeds on
a timely basis. Redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately. No charge for wiring redemption payments is imposed by Nations
Fund. There is no redemption charge.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of
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an Agent pursuant to arrangements between the Agent and its Customers. Nations
Fund also may redeem shares of a Fund involuntarily or make payment for
redemption in readily marketable securities or other property under certain
circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor Shares represented by certificates,
the Transfer Agent must have received such certificates at its principal office.
All such certificates must be endorsed by the redeeming shareholder or
accompanied by a signed stock power, in each instance with the signature
guaranteed by a commercial bank or a member of a major stock exchange, unless
other arrangements satisfactory to Nations Fund have previously been made.
Nations Fund may require any additional information reasonably necessary to
evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that were purchased prior to January 1, 1996 in
amounts of $1 million or more or through the Nations Fund Personal Investment
Planner may be subject to a CDSC equal to 1.00% of the lesser of the net asset
value or the purchase price of the shares being redeemed if such shares are
redeemed within one year of purchase, declining to 0.50% in the second year
after purchase and eliminated thereafter. No CDSC is imposed on increases in net
asset value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
retirement plans, (except in cases of plan level terminations); (b)
distributions from an IRA following attainment of age 59 1/2; (c) a tax-free
return of an excess contribution to an IRA, and (d) distributions from a
qualified retirement plan that are not subject to the 10% additional Federal
withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected pursuant
to Nations Fund's right to liquidate a shareholder's account, including
instances where the aggregate net asset value of the Investor A Shares held in
the account is less than the minimum account size, (iv) in connection with the
combination of Nations Fund with any other registered investment company by
merger, acquisition of assets or by any other transaction, and (v) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor A Shares in the account. Shareholders are responsible for providing
evidence sufficient to establish that they are eligible for any waiver of the
CDSC.
Within 120 days after a redemption of Investor A Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor A Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor A
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
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AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of a Fund if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor A Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor A Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer or to a checking or savings account in a stated amount of
not less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor A Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling or Servicing Agent or by Nations Fund at any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with the Fund, exchange
requests should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For investors who purchased their shares through
an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. And, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange request. Only
shares that may legally be sold in the state of the shareholder's residence may
be acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. In such
event, shareholders should consider communicating their exchange requests by
mail.
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If Investor A Shares of the Funds purchased prior to January 1, 1996 are
exchanged for shares of the same class of another fund, any CDSC applicable to
the original shares purchased will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of a Fund.
Investor A Shares of Nations Short-Term Income Fund acquired directly or
indirectly through an exchange from Investor N Shares of another non-money
market fund may be re-exchanged only for Investor N Shares of another non-money
market fund, Investor C Shares of a Nations Fund money market fund or Investor A
Shares of Nations Short-Term Municipal Income Fund. Such shares (and any
Investor A or Investor C Shares acquired through the exchange of such shares)
will remain subject to the CDSC schedule applicable to the Investor N Shares
originally purchased. The holding period (for the purpose of determining the
applicable rate of the CDSC) does not accrue while the shares owned are Investor
A Shares of Nations Short-Term Municipal Income Fund or Nations Short-Term
Income Fund or Investor C Shares of a Nations Fund money market fund. The CDSC
that is ultimately charged upon redemption is based upon the total period of
time the shareholder holds Investor N Shares of any fund that charges a CDSC.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or 30th day of the
applicable month. The shareholder must have an existing position in both Funds
in order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, a shareholder should contact his/her Selling Agent or Investor
Services.
Shareholder Servicing And Distribution
Plans
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits each Fund to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Nations Short-Term Income Fund, however, may not pay for shareholder servicing
activities under the Investor A Plan. Aggregate payments under the Funds'
Investor A Plan are calculated daily and paid monthly at a rate or rates set
from time to time by each Fund, provided that the annual rate may not exceed
0.25% of the average daily net asset value of the Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A
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Shares; (v) arranging for bank wires; and (vi) providing general shareholder
liaison services. The fees payable to Selling Agents are used primarily to
compensate Selling Agents for providing sales support assistance in connection
with the sale of Investor A Shares to Customers, which may include forwarding
sales literature and advertising provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which if
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan or upon receipt of a CDSC.
Any such additional consideration or incentive program may be terminated at any
time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the relevant SAI for more details on the Investor A Plan.
In addition, the Trustees have approved a Shareholder Servicing Plan ("Servicing
Plan") for the Investor A Shares of Nations Short-Term Income Fund. The
Servicing Plan permits Nations Short-Term Income Fund to compensate Servicing
Agents for services provided to their Customers that own Investor A Shares.
Payments under the Servicing Plan are calculated daily and paid monthly at a
rate or rates set from time to time by Nations Short-Term Income Fund, provided
that the annual rate may not exceed 0.25% of the average daily net asset value
of the Fund's Investor A Shares. The fees payable to Servicing Agents under the
Servicing Plan are used primarily to compensate or reimburse Servicing Agents
for shareholder services provided, and related expenses incurred, by such
Servicing Agents. The shareholder services provided by Servicing Agents may
include, but are not limited to, those discussed above with respect to the
Investor A Plan.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the relevant SAI
for more details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor Shares for various services provided in connection with a
Customer's account. These fees would be in addition to any amounts received by a
Selling Agent under its Sales Support Agreement with Stephens or by a Servicing
Agent under its Servicing Agreement with Nations Fund. The Sales Support
Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
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How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Selling and Servicing Agents may provide for
the reinvestment of dividends in the form of additional Investor A Shares of the
same class in the same Fund. Dividends and distributions are paid in cash within
five Business Days of the end of the month or quarter to which the dividend
relates. Dividends and distributions payable to a shareholder are paid in cash
within five Business Days after a shareholder's complete redemption of his/her
Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
The Funds intend to distribute substantially all of their investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.) Corporate investors may be
entitled to the dividends-received deduction on a portion of the dividends from
those Funds investing in the stock of domestic corporations.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends
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and capital gains paid during the prior year. Such dividends and capital gains
may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, other economic and demographic
factors. For example, falling interest rates generally result in an increase in
the rate of prepayments of mortgage loans while rising interest rates generally
decrease the rate of prepayments. An acceleration in prepayments in response to
sharply falling interest rates will shorten the security's average maturity and
limit the potential appreciation in the security's value relative to a
conventional debt security. Consequently, asset-backed securities may not be as
effective in locking in high, long-term yields. Conversely, in periods of
sharply rising rates, prepayments are generally slow, increasing the security's
average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES represent an ownership interest in a pool of mortgage
loans.
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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..
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs," are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
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
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from a pool of mortgage assets. A Fund will only invest in SMBS whose mortgage
assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments, mortgage refinancings, or foreclosures.
The rate of mortgage prepayments, and hence the average life of the
certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined by
the Adviser and used for the purpose of determining the average weighted
maturity and duration of the Funds. 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. Such securities also may include instruments issued by trusts
or certain partnerships, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such trusts or partnerships.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the
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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.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risk, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities a
Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to
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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 Funds only enter 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 objective. 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
U.S. 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.
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Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted. The Funds will generally
not enter into forward contracts with terms of greater than one year.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by 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 such Funds against adverse market movements by investing
in futures, options and other derivative instruments. These include the purchase
and writing of options on securities
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(including index options) and options on foreign currencies, and investing in
futures contracts for the purchase or sale of instruments based on financial
indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold 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, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) 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 and
Section 4(2), 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 their
portfolios 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
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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: Nations Diversified Income Fund may invest in
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. Each
Fund that may invest in lower-rated debt securities intends 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' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include varia-
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ble- 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
securities. 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. The Funds will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in municipal securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the
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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.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of, and therefore backed by the full faith and
credit 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.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or spon-
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sored 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
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impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
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AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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.
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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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible
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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.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess 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.
44
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes three equity
portfolios -- NATIONS INTERNATIONAL EQUITY FUND,
NATIONS EMERGING MARKETS FUND and NATIONS PACIFIC
GROWTH FUND -- and one bond portfolio -- NATIONS
GLOBAL GOVERNMENT INCOME FUND (each, a
"Fund") -- of Nations Fund, Inc. and Nations Fund
Portfolios, Inc. ("Nations Portfolios"), each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Fund -- Investor A Shares.
This Prospectus sets forth concisely the
information about each Fund that a prospective
purchaser of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund, Inc. and
Nations Portfolios is contained in separate
Statements of Additional Information (the "SAIs"),
that 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, Inc. and
Nations Portfolios, each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the Funds. As used herein
the "Adviser" shall mean NBAI and/or Gartmore as
the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations International
Equity Fund
Nations Emerging
Markets Fund
Nations Pacific
Growth Fund
Nations Global
Government Income Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 9
How Objectives Are Pursued 10
How Performance Is Shown 15
How The Funds Are Managed 16
Organization And History 19
About Your Investment
How To Buy Shares 21
How To Redeem Shares 23
How To Exchange Shares 24
Shareholder Servicing And Distribution Plans 25
How The Funds Value Their Shares 27
How Dividends And Distributions Are Made;
Tax Information 27
Appendix A -- Portfolio Securities 28
Appendix B -- Description Of Ratings 33
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations International Equity Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of non-United States companies in Europe,
Australia, the Far East and other areas, including some
developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective
is to seek long-term capital growth by investing
primarily in equity securities of companies in
emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far
East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity
securities of companies in the Pacific Basin and the Far East
(excluding Japan).
(Bullet) Nations Global Government Income Fund's investment objective
is to maximize total return by investing primarily in high
quality debt securities issued by governments,
banks and supranational entities located throughout the world.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. Gartmore
Global Partners provides sub-advisory services to the Funds. See "How
The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds declare and pay
dividends from net investment income each calendar quarter and Nations
Global Government Income Fund declares dividends daily and pays them
monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: The Funds are designed for long-term investors seeking
international diversification and who are willing to bear the risks
associated with international investing, such as foreign currency
fluctuations and economic and political risks. For a discussion of
these and other factors, see "How Objectives Are Pursued -- Special
Risk Considerations Relevant to an Investment in the Funds."
(Bullet) MINIMUM PURCHASE. $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations
International Emerging Pacific
Equity Fund Markets Fund Growth Fund
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price) None None None
Maximum Deferred Sales Charge (as a percentage of the lower
of the original purchase price or redemption proceeds)1 None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90% 1.10% .90%
Rule 12b-1 Fees (Including shareholder servicing fees) .25% .25% .25%
Other Expenses .27% 1.03% .86%
Total Operating Expenses 1.42% 2.38% 2.01%
</TABLE>
<TABLE>
<CAPTION>
Nations Global
Government
Income Fund
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price) None
Maximum Deferred Sales Charge (as a percentage of the lower
of the original purchase price or redemption proceeds)1 None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .70%
Rule 12b-1 Fees (Including shareholder servicing fees) .25%
Other Expenses .62%
Total Operating Expenses 1.57%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Nations Global
International Emerging Market Pacific Growth Government
Equity Fund Fund Fund Income Fund
<S> <C> <C> <C> <C>
1 Year $ 14 $ 24 $ 20 $ 16
3 Years $ 45 $ 74 $ 63 $ 50
5 Years $ 78 $ 272 $ 108 $ 86
10 Years $ 170 $ 127 $ 234 $ 187
</TABLE>
4
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares of the Funds will bear either directly or indirectly. For more
complete descriptions of the Funds' operating expenses, see "How The Funds Are
Managed." For a more complete description of the Rule 12b-1 and shareholder
servicing fees payable by the Funds, see "Shareholder Servicing And Distribution
Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund, Inc. and Nations Portfolios. Price
Waterhouse LLP is the independent accountant to Nations Fund, Inc. and Nations
Portfolios. The reports of Price Waterhouse LLP for the most recent fiscal
years of Nations Fund, Inc. and Nations Portfolios accompany the financial
statements for such periods and are incorporated by reference in the SAIs,
which are available upon request. For more information see "Organization And
History." Shareholders of the Funds will receive unaudited semi-annual reports
describing the Funds' investment operations and annual financial statements
audited by the Funds' independent accountant.
5
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a)# 05/31/95# 05/31/94# 05/31/93*#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.67 $ 12.00 $ 10.56 $ 10.38
Net investment income/(loss) 0.04 0.11 0.06 0.07
Net realized and unrealized gain/(loss) on
investments 1.78 (0.20) 1.44 0.21
Net increase/(decrease) in net asset value from
operations 1.82 (0.09) 1.50 0.28
Distributions:
Dividends from net investment income (0.04) (0.02) (0.04) (0.08)
Distributions in excess of net investment income (0.04) -- -- --
Distributions from net realized capital gains (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized capital
gains -- (0.10) -- --
Total dividends and distributions (0.10) (0.24) (0.06) (0.10)
Net asset value, end of period $ 13.39 $ 11.67 $ 12.00 $ 10.56
Total return++ 15.66% (0.69)% 14.00% 2.91%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7,643 $ 4,877 $ 3,219 $ 839
Ratio of operating expenses to average net
assets 1.92%+ 1.28% 1.42% 1.55%+
Ratio of net investment income/(loss) to average
net assets 0.40%+ 0.92% 0.50% 0.78%+
Portfolio turnover rate 26% 92% 39% 41%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.43%+ 1.29% 1.43% 1.62%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.04 $ 0.11 $ 0.05 $ 0.07
Average commission rate paid (b) $ 0.0272 -- -- --
</TABLE>
* Nations International Equity Fund Investor A Shares commenced operations on
June 3, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share amounts have been calculated using the monthly 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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
6
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.05)
Net realized and unrealized gain on investments 0.37
Net increase in net asset value from operations 0.32
Dividends from net investment income --
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.32
Total return++ 3.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 477
Ratio of operating expenses to average net assets 2.38%+
Ratio of net investment loss to average net assets (0.63)%+
Portfolio turnover rate 17%
Averge commission rate paid (a) $ 0.0004
</TABLE>
* Nations Emerging Markets Fund Investor A Shares commenced operations on June
30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly 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.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.04)
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net asset value from operations 0.25
Dividends from net investment income --
Distributions in excess of net investment income (0.02)
Distributions from net realized capital gains --
Distributions in excess of net realized capital gain --
Total dividends and distributions (0.02)
Net asset value, end of period $ 10.23
Total return++ 2.52%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,375
Ratio of operating expenses to average net assets 2.01%+
Ratio of net investment income/(loss) to average net assets (0.52)%+
Portfolio turnover rate 23%
Average commission rate paid (b) $ 0.0178
</TABLE>
* Nations Pacific Growth Fund Investor A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charge.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period, since the use
of the undistributed income method did not accord with the results of
operations.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
8
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.37
Net realized and unrealized gain on investments 0.11
Net increase in net asset value from operations 0.48
Distributions:
Dividends from net investment income (0.35)
Distributions in excess of net investment income (0.02)
Distributions from net realized capital gains (0.04)
Total dividends and distributions (0.41)
Net asset value, end of period $ 10.07
Total return++ 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 14,898
Ratio of operating expenses to average net assets 1.57%+
Ratio of net investment income to average net assets 4.92%+
Portfolio turnover rate 213%
</TABLE>
* Nations Global Government Income Fund Investor A Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately represents the per share data for the
period, since the use of the undistributed income method did not accord with
the results of operations.
Objectives
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality 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 it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Funds will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs, nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market.
9
<PAGE>
How Objectives Are Pursued
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 companies 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 companies 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 may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities.
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return and forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures and options thereon. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in 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 the Fund.
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
equity securities of companies in emerging markets. 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.
Emerging Markets include, but are not limited to: Argentina, Brazil, Chile,
China, Czech Republic, Columbia, Ecuador, Greece, Hong Kong, Indonesia, India,
Malaysia, Mexico, the Philippines, Poland, Portugal, Peru, Russia, Singapore,
South Africa, Thailand, Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. A company will
be considered to conduct its principal business activities in a country, market
or region if it derives a significant portion (at least 50%) of its revenues or
profits from goods produced or sold, investments made, or services performed in
such country, market or region or has at least 50% of its assets situated in
such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
10
<PAGE>
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 Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("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 Funds," 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 also may invest in certain specified derivative securities, including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; and U.S. and foreign exchange-traded financial futures approved by
the Commodity Futures Trading Commission (the "CFTC") and options thereon for
market exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
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 in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in
11
<PAGE>
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 Funds," 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. The Fund also may invest in
certain specified derivative securities, including: exchange-traded options;
over-the-counter options executed with primary dealers, including long calls and
puts and covered calls and forward foreign exchange contracts; and U.S. and
foreign exchange-traded financial futures approved by the CFTC and options
thereon for market exposure risk management. The Fund may lend its portfolio
securities to qualified institutional investors. The Fund may invest in
restricted, private placement and other illiquid securities, and also may invest
in securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
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 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 Funds," below. Because the Fund intends to
invest a large portion of its assets in foreign Government Securities, the Fund
is a "non-diversified" investment company for purposes of the Investment Company
Act of 1940 (the "1940 Act"). The Fund may invest in securities of issuers
located in any region or country and that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various countries and currencies will vary in accordance with the
Adviser's assessment of the relative yield and appreciation of such securities.
Fundamental economic strength, credit quality and interest rate trends are the
principal factors considered by the Adviser in determining whether to increase
or decrease the emphasis placed upon a particular country or particular type of
security within the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase, will be determined to be of
comparable quality by the Adviser. The Fund also may
12
<PAGE>
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.
The Fund also may invest in money market instruments, forward foreign currency
exchange contracts, futures and options and other instruments. The Fund also may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUNDS: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, each Fund presents unique risks that investors should be
aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in 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.
The same is true, but even more so, for the emerging market countries in which
Nations Emerging Markets Fund invests. 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.
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
13
<PAGE>
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 U.S. 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.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. For the Funds' portfolio turnover rates, see "Financial
Highlights." If a Fund's portfolio turnover rate exceeds 100%, it may result in
higher costs to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences.
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 a Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in each
Fund's respective SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of a
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.
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.
Nations International Equity Fund, Nations Emerging Markets Fund and Nations
Pacific Growth 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 such Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
Nations 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
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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 current positions and
needs.
In order to permit the sale of a Fund's shares 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 interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of the Fund (as stated in the advertisement)
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment (reflecting the deduction of
any applicable contingent deferred sales charge ("CDSC")), assuming the
reinvestment of all dividend and capital gains distributions. Aggregate total
return reflects the total percentage change in the value of the investment over
the measuring period, again assuming the reinvestment of all dividends and
capital gains distributions. Total return may also be presented for other
periods or may not reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Funds offer Primary A, Primary B, Investor
C and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in the Funds will not be included in calculations of
total return or yield. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investors' selling agent.
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How The Funds Are Managed
The business and affairs of Nations Fund, Inc. and Nations Portfolios are
managed under the direction of their respective Boards of Directors. Nations
Fund, Inc.'s and Nations Portfolios' SAIs contain the names of and general
background information concerning each Director of Nations Fund, Inc. and
Nations Portfolios.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as sub-investment adviser to the Funds
pursuant to sub-advisory agreements. 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, an indirect, wholly owned subsidiary of
Gartmore Investment Management plc ("Gartmore plc"), a UK company which is the
holding company for a leading UK-based international fund management group of
companies. National Westminster Bank plc and affiliated entities (collectively,
"Natwest") own 100% of the equity of Gartmore plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management ("Nations Gartmore", the
predecessor to Gartmore), pursuant to sub-advisory agreements among NBAI,
Nations Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively, on
behalf of the Funds. Nations Gartmore was a joint venture structured as a
general partnership between NB Partner Corp. and Gartmore U.S. Limited. On April
10, 1996, NatWest acquired a controlling interest in Gartmore plc from Compagnie
de Suez and affiliated entities ("Compagnie de Suez") through a direct purchase
from Compagnie de Suez of its indirect subsidiary Indosuez UK Asset Management
Limited, which held 75% of Gartmore plc's outstanding voting securities (the
"Acquisition"). NatWest acquired the remaining portion of Gartmore plc's shares
held by public shareholders through a tender offer. Gartmore is the successor
entity resulting from the Acquisition and change of control of Nations Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in the personnel who provide services under the
new Sub-Advisory Agreements, and the Funds receive the same sub-advisory
services, provided in the same manner and at the same fee levels, as they
received under the Previous Sub-Advisory Agreements.
Subject to the general supervision of Nations Fund, Inc.'s and Nations
Portfolios' Boards of Directors, and in accordance with each Fund's investment
policies, the Adviser formulates guidelines and lists of approved investments
for each Fund, makes decisions with respect to and places orders for each Fund's
purchases and sales of portfolio securities and maintains records relating to
such purchases and sales. The Adviser is authorized to allocate purchase and
sale orders for portfolio securities to certain financial institutions,
including, in the case of agency transactions, financial institutions which are
affiliated with the Adviser or which have sold shares in the Funds, if the
Adviser believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified brokerage firms. From time
to time, to the extent consistent with its invest-
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ment objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.90% of each of Nations International Equity
Fund's and Nations Pacific Growth Fund's average daily net assets; 1.10% of
Nations Emerging Markets Fund's average daily net assets; and 0.70% of Nations
Global Government Income Fund's average daily net assets.
For services provided and expenses assumed pursuant to sub-advisory agreements,
Gartmore is entitled to receive from NBAI sub-advisory fees, computed daily and
paid monthly, at the annual rates of: 0.70% of Nations International Equity
Fund's average daily net assets; 0.85% of Nations Emerging Markets Fund's
average daily net assets; 0.70% of Nations Pacific Growth Fund's average daily
net assets; and 0.54% of Nations Global Government Income Fund's average daily
net assets.
From time to time, NBAI (and/or Gartmore) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund. In addition, the Adviser may from time to time
compensate Agents, as defined below, for providing certain services to
Customers.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.22% of the average daily net assets of Nations
International Equity Fund.
For the fiscal period from June 30, 1995 to December 31, 1995, after waivers,
Nations Portfolios paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth Fund --
0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.22% of the average daily net assets of Nations
International Equity Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors sub-advisory fees at the indicated rates of the following
Funds' average daily net assets: Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income
Fund -- 0.54%.
Philip Ehrmann is Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Gartmore Emerging Markets Team. He has been Portfolio
Manager for Nations Emerging Markets Fund since 1995. Prior to joining Gartmore,
Mr. Ehrmann was the Director of Emerging Markets for Invesco in London. Mr.
Ehrmann has over 15 years of investment management experience.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager for Nations Global Government Income
Fund since the Fund's inception. He joined Gulf International Bank in 1986 on
the trading desk, and subsequently joined its 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.
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Seok Teoh is Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been Portfolio Manager for Nations Pacific Growth Fund since the Fund's
inception. She has been associated with the Gartmore Group since 1990 as the
London based manager on its Far East desk. Prior to that, Ms. Teoh worked for
Overseas Union Bank Securities in Singapore where she was responsible for
Singaporean and Malaysian equity sales and then subsequently for Rothschild as a
Fund Manager in Singapore and later in Tokyo. Ms. Teoh, who is a native of
Singapore, is fluent in Mandarin and Cantonese and received an Economics degree
from the University of Durham in 1985.
Stephen Watson has been Principal Portfolio Manager for 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.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations 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.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
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 First Data 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 period from June 1, 1995 to March 31, 1996, after waivers, Nations Fund,
Inc. paid its administrator combined fees at the rate of 0.10% of the average
daily net assets of Nations International Equity Fund.
For the fiscal period from June 30, 1995 to March 31, 1996, after waivers,
Nations Portfolios paid its administrator combined fees at the indicated rate of
0.10% of the following Funds' average daily net assets: Nations Pacific Growth
Fund, Nations Emerging Markets Fund, and Nations Global Government Fund.
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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 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor A Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
Bank of New York (the "Custodian"), Avenue des Arts, 35 1040 Brussels, Belgium,
serves as custodian for the assets of the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; cost of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings, other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor A Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund, Inc. and/or Nations Portfolios that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund, Inc. and Nations Portfolios or in such other manner
as the relevant Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional
Reserves. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor A Shares of Nations International Equity Fund of Nations Fund, Inc. To
obtain additional information regarding the Fund's other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
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Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 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. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Investor A Shares of Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund of Nations Portfolios. To obtain additional information regarding
the Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of July 15, 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
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unless required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two 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, Inc. and
Nations Portfolios have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor A Shares
in order to accommodate different investors. Purchase orders for Investor A
Shares may be placed directly with a Fund or through banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and/or a sales support agreement ("Sales
Support Agreement") with Stephens ("Selling Agents"). Servicing Agent and
Selling Agents are sometimes referred to hereafter as "Agents."
In addition Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI, (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Inves-
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tor A Shares is recorded on the books of the Funds, and share certificates are
not issued unless expressly requested in writing. Certificates are not issued
for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH A FUND: Investors may open a regular
(non-retirement) account directly with a Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services at 1-800-982-2271 for an
account number and use the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund with a
reinvestment slip to the address set forth above. To purchase additional shares
by wire, follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent or Investor Services.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written con-
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firmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within three Business
Days after receipt of the order by the Fund. For shareholders who purchased
their shares through an Agent, redemption orders should be transmitted by
telephone or in writing through the same Agent. Redemption proceeds are normally
wired to the redeeming Agent within three Business Days after receipt of the
order by Stephens or by the Transfer Agent. Redemption orders are effected at
the net asset value per share next determined after receipt of the order by the
Fund, Stephens, or the Transfer Agent, as the case may be. The Agents are
responsible for transmitting redemption orders to Stephens or to the Transfer
Agent and for crediting their Customer's account with the redemption proceeds on
a timely basis. Redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately. No charge for wiring redemption payments is imposed by Nations
Fund. There is no redemption charge.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that were purchased prior to January 1, 1996 in
amounts of $1 million or more or through the Nations Fund Personal Investment
Planner will be subject to a CDSC equal to 1.00% of the lesser of the net asset
value or the purchase price of the shares being redeemed if such shares are
redeemed within one year of purchase, declining to 0.50% in the second year
after purchase and eliminated thereafter. No CDSC is imposed on increases in net
asset value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
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The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor A Shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC.
Within 120 days after a redemption of Investor A Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor A Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor A
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor A Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor A Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor A Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with the Fund, exchange
requests
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should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. And, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange request. Only
shares that may legally be sold in the state of the shareholder's residence may
be acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. In such
event, shareholders should consider communicating their exchange requests by
mail.
No CDSC will be imposed in connection with an exchange of Investor A Shares that
meets the requirements discussed in this section. If Investor A Shares of a Fund
are exchanged for shares of the same class of another fund, any CDSC applicable
to the original shares purchased will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of the Fund.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or 30th day of the
applicable month. The shareholder must have an existing position in both funds
in order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, a shareholder should contact his/her Selling Agent or Investor
Services.
Shareholder Servicing And Distribution
Plans
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits the Funds to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
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Aggregate payments under the Investor A Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Funds, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor A Shares of the Funds.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Funds
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
advertising provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan or upon receipt of a CDSC.
Any such additional consideration or incentive program may be terminated at any
time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAIs for more details on the Investor A Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
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How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid each calendar quarter by Nations International Equity Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund and are declared daily and
paid monthly by Nations Global Government Income Fund. Each Fund's net realized
capital gains (including net short-term capital gains) are distributed at least
annually. Investor A Shares of the Funds are eligible to receive dividends when
declared, provided, however, that the purchase order for such shares is received
at least one day prior to the dividend declaration and such shares continue to
be eligible for dividends through and including the day before the redemption
order is executed. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor A Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the month or quarter to which the dividend relates. Dividends
and distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA is generally deferred under the Code.)
Corporate investors in the Funds may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
these Funds to the extent that a Fund's income is derived from dividends (which,
if received directly, would qualify for such deduction) received from domestic
corporations. In
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order to qualify for the dividends-received deduction, a corporate shareholder
must hold the fund shares paying the dividends upon which the deduction is based
for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of tax. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each of those Funds will consist of securities
of foreign issuers, and therefore each of those Funds may elect to "pass
through" to its shareholders these foreign taxes, if any. In such event each
shareholder will be required to include his or her pro rata portion thereof in
his or her gross income, but will be able to deduct or (subject to various
limitations) claim a foreign tax credit against U.S. income tax for such amount.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
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.
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U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When 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. Nations International Equity Fund is a party 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. 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.
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 objective. 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: To the extent provided
under "How Objectives Are Pursued," the Funds may invest in debt securities
convertible into or exchangeable for equity securities, preferred stocks or
warrants. Preferred stocks are securities that represent an ownership interest
in a corporation providing the owner with claims on a company's earnings and
assets before common stock owners, but after bond or other debt security owners.
Warrants are options to buy a stated number of shares of common stock at a
specified price any time during the life of the warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. 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
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contract is an obligation by a Fund to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when 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 debt and equity obligations
(dollar- and non-dollar-denominated) 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securites exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may
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attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold 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, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Directors or the Adviser, acting under
guidelines approved and monitored by the Fund's Board, after considering trading
activity, availability of reliable price information and other relevant
information, that an adequate trading market exists for that security. To the
extent that, for a period of time, qualified institutional buyers cease
purchasing such restricted securities pursuant to Rule 144A and Section 4(2),
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 their
portfolios 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 inter-
31
<PAGE>
est 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: Each 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.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker-dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in their
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, 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
32
<PAGE>
rates or currency exchange rates. The contracts entail certain risks, including
but not limited to the following: no assurance that futures contracts
transactions can be offset at favorable prices; possible reduction of a Fund's
total return due to the use of hedging; possible lack of liquidity due to daily
limits on price fluctuation; imperfect correlation between the contracts and the
securities or currencies being hedged; and potential losses in excess of the
amount invested in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
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 eco-
33
<PAGE>
nomic conditions than debt in higher-rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the
34
<PAGE>
strongest investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by Duff & Phelps Credit
Rating Co. (collectively, "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.
35
<PAGE>
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 D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch
Investors Service, Inc. ("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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries. BankWatch ratings do not
constitute a recommendation to buy or sell securities of any of these companies.
Further, BankWatch does not suggest specific investment criteria for individual
clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
36
<PAGE>
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA Limited
or its affiliate IBCA Inc. ("IBCA"):
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess 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.
37
<PAGE>
Prospectus
INVESTOR B SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
(each a "Fund" and collectively, the "Money Market
Funds"), listed in the column to the right, of
Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Money Market Fund -- Investor B
Shares.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET
ASSET VALUE OF $1.00 PER SHARE. INVESTMENTS IN THE
FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT
THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor B Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that 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 bear the same date as this
Prospectus and 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
the Funds. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Prime Fund
Nations Treasury Fund
Nations Government
Money Market Fund
Nations Tax Exempt Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 7
How Objectives Are Pursued 8
How Performance Is Shown 11
How the Funds Are Managed 11
Organization And History 15
About Your Investment
How To Buy Shares 16
Shareholder Servicing And Distribution Plans 17
How To Redeem Shares 18
How To Exchange Shares 20
How The Funds Value Their Shares 20
How Dividends And Distributions Are Made;
Tax Information 21
Appendix A -- Portfolio Securities 22
Appendix B -- Description Of Ratings 29
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment objective
is to seek as high a level of current income as is consistent
with liquidity and stability of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to seek as
high a level of current interest income exempt from Federal
income taxes as is consistent with liquidity and stability of
principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $25,000 minimum initial investment per record holder.
$1,000 minimum subsequent investment (except for investments pursuant
to the Systematic Investment Plan and reinvested dividends). See "How
To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor B Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Nations Prime Nations Treasury Government Money
Fund Fund Market Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Charge None None None
<CAPTION>
</TABLE>
ANNUAL FUND OPERATING EXPENSES*
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .14% .14% .12%
Rule 12b-1 Fees (After Fee Waivers) .00% .00% .00%
Shareholder Servicing Fees (After Fee Waivers) .25% .25% .25%
Other Expenses (After Expense Reimbursements) .16% .16% .18%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .55% .55% .55%
Nations
Tax Exempt
Fund
Sales Load Imposed on Purchases None
Deferred Sales Charge None
<CAPTION>
Management Fees (After Fee Waivers) .13%
<S> <C>
Rule 12b-1 Fees (After Fee Waivers) .00%
Shareholder Servicing Fees (After Fee Waivers) .20%
Other Expenses (After Expense Reimbursements) .17%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .50%
</TABLE>
* The Funds and Stephens have voluntarily agreed to limit the total charges
against each Fund's net assets for sales distribution activities and/or
servicing of shareholder accounts to no more than .25% of each Fund's average
net assets per annum. This limitation will not be terminated without prior
notice to shareholders.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor B Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Nations Nations Government
Prime Treasury Money
Fund Fund Market Fund
1 Year $ 6 $ 6 $ 6
3 Years $18 $18 $18
5 Years $31 $31 $31
10 Years $69 $69 $69
<CAPTION>
Nations
Tax Exempt
Fund
1 Year $ 5
3 Years $16
5 Years $28
10 Years $63
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in each
Fund will bear either directly or indirectly. The "Other Expenses" figures
contained in the above table are based on estimated amounts for the Funds'
current fiscal year and reflect anticipated fee waivers and reimbursements.
There is no assurance that these fee waivers and reimbursements will continue
beyond the current fiscal year. If fee waivers and/or reimbursements are
discontinued, the amounts contained in the "Examples" above may increase. For
more complete descriptions of the Funds' operating expenses, see "How The Funds
Are Managed."
4
<PAGE>
Absent fee waivers and expense reimbursements, "Management Fees," "Rule 12b-1
Fees," "Other Expenses" and "Total Operating Expenses" for Investor B Shares of
the indicated Fund would be as follows: Nations Prime Fund -- .20%, .10%, .16%
and .71%, respectively; Nations Treasury Fund -- .20%, .10%, .16% and .71%,
respectively; Nations Government Money Market Fund -- .40%, .10%, .18% and .93%,
respectively. Absent fee waivers and expense reimbursements, "Management Fees,"
"Rule 12b-1 Fees," "Shareholder Servicing Fees," "Other Expenses" and "Total
Operating Expenses" for Nations Tax Exempt Fund would have been .40%, .10%,
.25%, .17% and .92%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse is the independent accountant to Nations Fund Trust and Nations Fund,
Inc. The reports of Price Waterhouse for the most recent fiscal years of Nations
Fund Trust and Nations Fund, Inc. accompany the financial statements for such
periods and are incorporated by reference in the SAIs, which are available upon
request. Shareholders of a Fund will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by the Fund's independent accountant.
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/96(a) 05/31/95 05/31/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0447 0.0493 0.0015
Dividends from net investment income (0.0447) (0.0493) (0.0015)
Total dividends and distributions (0.0447) (0.0493) (0.0015)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.57% 5.03% 0.15%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 358,646 $ 216,973 $ 2
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 5.37%+ 4.97% 2.95%+
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 0.62%+ 0.64% 0.62%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0442 $ 0.0485 $ 0.0015
</TABLE>
* Nations Prime Fund Investor B Shares commenced operations on May 11, 1994.
+ Annualized.
++ Total return represents aggregrate total return for the periods indicated
and does not reflect the deduction of any applicable sales charge.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/96(a) 05/31/95 05/31/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0437 0.0468 0.0015
Dividends from net investment income (0.0437) (0.0468) (0.0015)
Distributions from net realized capital gains (0.0000)# (0.0000)# --
Total dividends and distributions (0.0437) (0.0468) (0.0015)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.46% 4.76% 0.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,525,048 $ 52,564 $ 2
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 5.27%+ 4.73% 2.72%+
Ratio of operating expenses to average net assets without waivers
and/or reimbursements 0.62+ 0.61% 0.61%+
Net investment income per share without waivers and/or reimbursements $ 0.0432 $ 0.0463 $ 0.0014
</TABLE>
* Nations Treasury Fund Investor B Shares commenced operations on May 16,
1994.
+ Annualized.
++ Total return represents aggregrate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.0001.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
<TABLE>
<CAPTION>
NATIONS GOVERNMENT MONEY MARKET FUND
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/96(a) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0165 0.0532 0.0222
Distributions:
Dividends from net investment income (0.0165) (0.0532) (0.0222)
Distributions from net realized capital gains -- -- (0.0000)#
Total dividends and distributions (0.0165) (0.0532) (0.0222)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 1.66% 5.45% 2.24%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 62,617 $ 27,079 $ 11,955
Ratio of operating expenses to average net assets 0.55%+ 0.55% 0.55%+
Ratio of net investment income to average net assets 4.95%+ 5.33% 3.54%+
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 0.84%+ 0.82% 0.84%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0155 $ 0.0505 $ 0.0206
</TABLE>
* Nations Government Money Market Fund Investor B Shares commenced operations
on May 17, 1994.
+ Annualized.
++ Total return represents aggregrate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
6
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS TAX EXEMPT FUND
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/96(a) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0106 0.0342 0.0141
Dividends from net investment income (0.0106) (0.0342) (0.0141)
Total dividends and distributions (0.0106) (0.0342) (0.0141)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00
Total return++ 1.06% 3.47% 1.43%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 132,914 $ 86,374 $ 3
Ratio of operating expenses to average net assets 0.50%+ 0.50% 0.47%+
Ratio of net investment income to average net assets 3.15%+ 3.42% 2.39%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.78%+ 0.77% 0.79%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0097 $ 0.0316 $ 0.0118
</TABLE>
* Nations Tax Exempt Fund Investor B Shares commenced operations on May 17,
1994.
+ Annualized.
++ Total return represents aggregrate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
7
<PAGE>
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations"), other obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Obligations"), bank and
commercial instruments that may be available in the money markets, high quality
short-term taxable obligations issued by state and local governments, their
agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified First Tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and in instruments issued by trusts or certain partnerships, including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such trusts or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in obligations the
principal and interest of which are backed by the full faith and credit of the
United States Government, provided that such Fund shall, under normal market
conditions, invest at least 65% of its total assets in U.S. Treasury bills,
notes and bonds and other instruments issued directly by the U.S. Government.
The Fund may lend its portfolio securities to qualified institutional investors.
For more information concerning these instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund may lend its
portfolio securities to qualified institutional investors. For more information
concerning these instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: In pursuing its investment objective, the Fund invests
in a diversified portfolio of obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel to the issuer or bond counsel, is
exempt from regular Federal income tax ("Municipal Securities"). The Fund will
not knowingly purchase securities the interest on which is subject to such tax.
A portion of the Fund's assets, however, may be invested in private activity
bonds, the interest on which may be treated as a specific tax preference item
under the Federal alternative minimum tax. See "How Dividends And Distributions
Are Made; Tax Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation
("S&P"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"), or
Thomson BankWatch, Inc. ("BankWatch") or Aa or higher by Moody's Investors
Service, Inc. ("Moody's"), in the case of bonds; rated "A" or higher by D&P,
Fitch, S&P, IBCA, BankWatch or Moody's in the case
8
<PAGE>
of certain bonds which are unrated securities (I.E., lacking a short-term rating
from the requisite number of nationally recognized statistical rating
organizations); rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1"
by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher by
D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of
variable-rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by
Fitch, "A-1" or higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by Nations
Fund Trust's Board of Trustees. The applicable Municipal Securities ratings are
described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities, and authorities and each multi-state agency of
which a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by trusts or certain partnerships, including pass-through certificates
representing participations in, or debt instruments backed by, the securities
and other assets owned by such trusts or partnerships. For more information
concerning the Fund's investments, see "Appendix A."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds' investment in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments 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 are privately
placed), may enter into repurchase
agree-
9
<PAGE>
ments and may lend portfolio securities in accordance with its investment
policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of such 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.
In addition, as a matter of non-fundamental policy, the Nations Tax Exempt Fund
may not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations. The investment objectives and policies of the Funds, unless
otherwise specified, may be changed without shareholder approval. 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 positions and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in its best interests, it may consider terminating sales
of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost (see "How The Funds Value Their
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the Investment Company Act of 1940, as amended (the "1940 Act"), some of
which are described below. A Money Market Fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with a
remaining maturity of more than 397 days, provided such obligations are subject
to demand features or resets and to maintaining a dollar-weighted average
portfolio maturity of 90 days or less. Quality requirements generally limit
investments to U.S. dollar denominated instruments determined to present minimal
credit risks and that, at the time of acquisition, are rated in the first or
second rating categories (known as "first tier" and "second tier" securities,
respectively) by the required number of NRSROs (at least two or, if only one
NRSRO has rated the security, that one NRSRO) or, if unrated by any NRSRO, are
(i) comparable in priority and security to a class of short-term securities of
the same issuer that has the required rating, or (ii) determined to be
comparable in quality to securities having the required rating. The
diversification requirements provide generally that a Money Market Fund may not
at the time of acquisition invest more than 5% of its assets in securities of
any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
(except for Nations Tax Exempt Fund) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Fund's investment restrictions or permissible investments are more
restrictive than the requirements of Rule 2a-7, the Fund's own restrictions will
govern.
10
<PAGE>
How Performance Is Shown
From time to time, a Fund may advertise the "yield" and "effective yield" of a
class of shares, and Nations Tax Exempt Fund may advertise the "tax-equivalent
yield" of a class of shares. YIELD, EFFECTIVE YIELD AND TAX-EQUIVALENT YIELD
FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in such class over a seven-day period identified in the
advertisement. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares in a Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of each class of shares in Nations Tax Exempt Fund shows
the level of taxable yield needed to produce an after-tax equivalent to such
class's tax-free yield. This is done by increasing the class's yield (calculated
as above) by the amount necessary to reflect the payment of Federal income tax
at a stated tax rate. The tax-equivalent yield will always be higher than the
"yield" of a class of shares in Nations Tax Exempt Fund.
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. Any fees charged by selling and/or servicing
agents to their customers' accounts for automatic investment or other cash
management services will not be included in calculations of yield.
In addition to Investor B Shares, the Funds offer Primary A, Primary B, Investor
A, Investor C and Investor D Shares. Each class of shares may bear different
sales charges, shareholder servicing fees 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 the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's selling agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
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.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
11
<PAGE>
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Fund, if the Adviser believes that the quality of the transactions and the
commissions are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.25% of the first $250 million of the combined
average daily net assets of both Nations Prime Fund and Nations Treasury Fund,
plus 0.20% of the combined average daily net assets of such Funds in excess of
$250 million; and 0.40% of the average daily net assets of each of Nations
Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995, to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%:
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.55% of average daily net assets of Nations Government Money
Market Fund, Nations Tax Exempt Fund, Nations Prime Fund and Nations Treasury
Fund.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfo-
12
<PAGE>
lio Manager for Nations Tax Exempt Fund since 1991. She has worked in the
investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysts.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager for Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations 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.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to Co-Administration
Agreements. Under the Co-Administration Agreements, First Data provides various
administrative and accounting services to the Funds, including performing
calculations necessary to determine net asset values and dividends, preparing
tax returns and financial statements and maintaining the portfolio records and
certain general accounting records for the Funds. For the services rendered
pursuant to the Administration and Co-Administration Agreements, Stephens and
First Data 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 period
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from December 1, 1995 to March 31, 1996, after waivers, Nations Fund Trust paid
its administrators combined fees at the rate of 0.09% of the average daily net
assets of Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
and Nations Treasury Fund -- 0.05%.
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 0.01% 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 a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor B Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A., serves as each Fund's custodian (the "Custodian").
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of each Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
Investor B Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor B Shares, are deducted from accrued income before
dividends are declared. The respective Funds' expenses include, but are not
limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
interest; Directors' or Trustees' fees; federal and state securities
registration and qualification fees; brokerage fees and commissions; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to existing shareholders; charges of the Custodian and Transfer Agent; certain
insurance premiums; outside auditing and legal expenses; costs of shareholder
reports and shareholder meetings; other expenses which are not expressly assumed
by the Adviser, NationsBank, Stephens or First Data under their respective
agreements with Nations Fund; and any extraordinary expenses. Investor B Shares
may bear certain class specific retail transfer agency expenses and also bear
certain additional shareholder service and distribution costs. Any general
expenses of Nations Fund Trust and/or of Nations Fund, Inc. that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund Trust and/or of Nations Fund, Inc. or in such other
manner as the Board of Trustees or Board of Directors deems appropriate.
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Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor B Shares, Investor C Shares and Investor D Shares. This
Prospectus relates only to the Investor B Shares of Nations Government Money
Market Fund and Nations Tax Exempt Fund of Nations Fund Trust. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund and
shareholders of a 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 instances
where the 1940 Act requires voting by fund.
As of July 15, 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. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. 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 portfolios, each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor B Shares of Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To obtain additional information regarding the Funds' other classes
of shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854.
Shares of 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
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exclusive right to vote on matters affecting only the rights of the holders of
such fund or class. In the event of dissolution or liquidation, holders of each
class will receive pro rata, subject to the rights of creditors, (a) the
proceeds of the sale of that portion of the assets allocated to that class held
in the respective fund of Nations Fund, Inc., less (b) the liabilities of
Nations Fund, Inc. attributable to the respective fund or class or allocated
among the funds or classes based on the respective liquidation value of each
fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of Directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of Nations Fund, Inc.'s outstanding shares.
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 July 15, 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, except when required by
the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two 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 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 this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor B Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into sales support agreements
("Sales Support Agreements") with Stephens ("Selling Agents").
There is a minimum initial investment of $25,000; the minimum subsequent
investment is $1,000, except for investments pursuant to the Systematic
Investment Plan described below and reinvested dividends. Investor B Shares of
the Money Market Funds are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected only on days on which
the Federal Reserve Bank of New York is open for business (a "Business Day").
The Selling Agents have entered into Sales Support Agreements with Stephens
under which they will provide sales support assistance to their Customers who
own Investor B Shares. In addition, banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into shareholder servicing agreements ("Servicing Agreements") will provide
various shareholder services for their Customers who own Investor B Shares
("Servicing Agents"). Selling Agents and
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Servicing Agents are sometimes referred to hereafter as "Agents." From time to
time the Agents, Stephens, and Nations Fund may agree to voluntarily reduce the
fees payable for shareholder services and sales support services. See
"Shareholder Servicing And Distribution Plans."
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor B Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12:00 noon,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund). Absent prior arrangement with Stephens or the Transfer
Agent, purchase orders received after such time on any given day will not be
accepted; notice thereof will be given to the Selling Agent transmitting the
order, and any funds received will be returned promptly to the sending Selling
Agent. Any late purchase orders that are not rejected pursuant to such a prior
arrangement will be executed on the following Business Day. If federal funds are
not available by 4:00 p.m., Eastern time, the order will be canceled. Investor B
Shares are purchased at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent.
The Selling Agents are responsible for transmitting orders for purchases by
their Customers and delivering required funds on a timely basis. Stephens is
responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor B Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from
$500. For more information concerning the SIP, contact your Selling Agent.
TELEPHONE TRANSACTIONS: An investor may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
Shareholder Servicing And Distribution
Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits each Fund to compensate Servicing Agents for certain shareholder
support services that are provided by the Servicing Agents to their Customers
that own Investor B Shares. Payments under the Servicing Plan will be calculated
daily and paid monthly at a rate set from
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time to time by the Board of Directors or the Board of Trustees, provided that
the annual rate may not exceed 0.25% of the average daily net asset value of a
Fund's Investor B Shares. The shareholder services provided by Servicing Agents
may include general shareholder liaison services; processing purchase, exchange
and redemption requests from Customers and placing orders with Stephens or the
Transfer Agent; processing dividend and distribution payments from a Fund on
behalf of Customers; providing sales information periodically to Customers,
including information showing their positions in Investor B Shares; providing
sub-accounting with respect to Investor B Shares beneficially owned by Customers
or the information necessary for sub-accounting; responding to inquiries from
Customers concerning their investment in Investor B Shares; arranging for bank
wires; and providing such other similar services as may be reasonably requested.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Funds' Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Directors and
Trustees also have approved a Distribution Plan with respect to Investor B
Shares of the Funds. Pursuant to the Distribution Plan, each Fund may compensate
or reimburse Stephens for expenses incurred in connection with sales support
services. Payments under the Distribution Plan will be calculated daily and paid
monthly at a rate or rates set from time to time by the Board of Directors or
Board of Trustees provided that the annual rate may not exceed 0.10% of the
average daily net asset value of a Fund's Investor B Shares. Payments to
Stephens pursuant to the Distribution Plan will be used (i) to compensate
Selling Agents for providing sales support assistance relating to Investor B
Shares, (ii) for promotional activities intended to result in the sale of
Investor B 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 Shares. Fees received by Stephens pursuant to the Distribution Plan will not
be used to pay any interest expenses, carrying charges or other financing costs
(except to the extent permitted by the SEC) and will not be used to pay any
general and administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the Funds'
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Selling Agents and/or Servicing Agents may charge
fees to their Customers who are the owners of Investor B Shares for various
services provided in connection with a Customer's account. These fees would be
in addition to any amounts received by a Selling Agent under its Sales Support
Agreement with Stephens or by a Servicing Agent under its Servicing Agreement
with Nations Fund. The Sales Support Agreements and Servicing Agreements require
Agents to disclose to their Customers any compensation payable to the Agents by
Stephens or Nations Fund and any other compensation payable by the Customers for
various services provided in connection with their accounts. Customers of Agents
should read this Prospectus in light of the terms governing their accounts with
their Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent. The Selling Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customer's account with the redemption
pro-
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ceeds on a timely basis. No charge for wiring redemption payments is imposed by
Nations Fund.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), and payment will normally be wired the
same day to Selling Agents. Nations Fund reserves the right to wire redemption
proceeds within three Business Days after receiving the redemption orders if, in
the judgment of NationsBank, an earlier payment could adversely impact a Fund.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Redemption orders received by Stephens or by the Transfer Agent after 3:00 p.m.,
Eastern time (12:00 noon, Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), will be processed on the next
Business Day.
Nations Fund may redeem a shareholder's Investor B Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of a Fund involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor B Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
Free checkwriting is available with respect to Investor B Shares of the Funds.
With this service, a shareholder may write checks in the amount of $500 or more.
To obtain checks, a shareholder must complete the signature section included
within the Account Application Form. To establish this checkwriting service
after opening an account in one of the Funds, the shareholder must contact
his/her Selling Agent by telephone or mail to obtain an Application Form. A
shareholder will receive the dividends and distributions declared on the shares
to be redeemed up to the day that a check is presented to the Custodian for
payment. Upon 30 days' prior written notice to shareholders, the checkwriting
privilege may be modified or terminated. An investor cannot close an account in
a Fund by writing a check.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of a Fund if the value of the
Investor B Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings account
in a stated amount of not less than $500 on or about the 10th or 25th day of the
applicable month of withdrawal. Investor B Shares will be redeemed as necessary
to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling Agent or by Nations Fund at any time.
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How To Exchange Shares
The exchange feature enables a shareholder of Investor B Shares of a Money
Market Fund to acquire Investor B Shares of another Money Market Fund when that
shareholder believes that a shift between Funds is an appropriate investment
decision. An exchange of Investor B Shares for Investor B Shares of another
Money Market 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 Selling Agent through which the original shares were
purchased. Investors should consult their Selling Agent or Stephens for further
information regarding exchanges.
Investor B Shares may be exchanged by directing a request directly to the
Selling Agent through which the original Investor B Shares were purchased or in
some cases Stephens or the Transfer Agent. Investors should consult their
Selling Agent or Stephens for further information regarding exchanges. Your
exchange feature may be governed by your account agreement with your Selling
Agent.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in a Fund is calculated
by dividing the total value of its assets, less liabilities, by the number of
shares in the class outstanding. Shares are valued as of 3:00 p.m., Eastern time
(1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), on each Business Day. Currently, the days on
which the Federal Reserve Bank of New York is closed (other than weekends) are:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day, Thanksgiving Day and
Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Fund seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of each Fund
are declared daily to shareholders at 3:00 p.m., Eastern time (1:00 p.m.,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund), on the day of declaration. Investor B Shares begin earning
dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Investor B
Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Fund's Transfer Agent and will become
effective with respect to dividends paid after its receipt. Your dividend
election may be governed by your account agreement with your Selling Agent.
Dividends are paid in cash within five Business Days after a shareholder's
complete redemption of his/her Investor B Shares in a Fund. To the extent that
there are any net short-term capital gains, they will be paid at least annually.
Each Fund's net investment income available for distribution to the holders of
Investor B Shares will be reduced by the amount of sales support and shareholder
servicing fees paid to Selling Agents and Servicing Agents, respectively. Each
Fund's net investment income available for distribution to the holders of
Investor B Shares will be reduced by the amount of retail transfer agency fees
allocated to Investor B Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income tax on amounts
distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an IRA
are generally deferred under the Code.) These distributions will not qualify for
the dividends received deduction for corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends (and capital gains, if applicable) paid during the prior year.
Such dividends (and capital gains) may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if
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withholding results in overpayment of tax. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, Nations Tax Exempt
Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund may be taxable to investors under state or local law even though a
substantial portion of such distribution may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
If Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. To the extent, if any, dividends paid to
shareholders are derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from Federal income tax and
also may be subject to state and local tax.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this 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.
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Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the related SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Prime Fund may invest up to 100% of its assets in obligations issued by
banks. All other 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. Nations
Prime Fund may invest in U.S. dollar-denominated obligations issued by foreign
branches of domestic banks ("Eurodollar" obligations) and domestic branches of
foreign banks ("Yankee dollar" obligations).
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 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.
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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 Funds may use reverse
repurchase agreements for the purpose of investing the proceeds in tri-party
repurchase agreements. Generally, the effect of such a transaction is that a
Fund can recover all or most of the cash invested in the portfolio securities
involved during the term of the reverse repurchase agreement, while it will be
able to keep the interest income associated with those portfolio securities.
Such transactions are only advantageous if the interest cost to a Fund 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 Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. 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
Funds only enter 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 Fund does not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, a Fund is required to maintain an asset coverage (including the
proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, a Fund's asset coverage and other factors at the time of a
reverse repurchase, the Fund may not establish a segregated account when the
Adviser believes it is not in the best interests of the Fund to do so. In this
case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations Prime Fund
will limit purchases of commercial instruments to instruments which: (a) if
rated by at least two 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 objective. 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 the Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dol-
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lar-denominated) 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
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 hold 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 Funds sells their shares. Repurchase agreements, time de-
posits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by the Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) 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,
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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 and
Section 4(2), 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 their
portfolios 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less, or instruments
subject to demand features or resets if the remaining maturity is more than 397
days. 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 instrument. 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
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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. 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 also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. 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 without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
municipal securities. The Funds will limit their put transacations to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Tax Exempt Fund may invest more than
40% of its portfolio in puts or other securities guaranteed by banks and other
financial institutions. Accordingly, changes in the credit quality of these
institutions could cause losses to the Fund and affect its share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent
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that more than 25% of a Fund's total assets are invested in Municipal Securities
that are payable from the revenues of similar projects, a Fund will be subject
to the peculiar risks presented by such projects to a greater extent than it
would be if its assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested 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.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
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-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by the trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government Obliga-
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tions may fluctuate due to fluctuations in market interest rates. As a general
matter, the value of debt instruments, including U.S. Government Obligations,
declines when market interest rates increase and rises when market interest
rates decrease. Certain types of U.S. Government obligations are subject to
fluctuations in yield or value due to their structure or contract terms.
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 and foreign 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. The Funds will invest
in securities with demand features where (a) the security or its issuer has
received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) 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 takes 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 three ratings used by S&P for corporate and
municipal bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
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.
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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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. 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 and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
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.
30
<PAGE>
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 two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
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+.
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.
For commercial paper, D&P uses the short-term ratings described above.
For commercial paper, Fitch uses the short-term ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest 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
31
<PAGE>
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.
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".
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.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess 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.
32
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Money Market Funds") of
Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Money Market Fund -- Investor C
Shares.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET
ASSET VALUE OF $1.00 PER SHARE. INVESTMENTS IN THE
MONEY MARKET FUNDS ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE
NO ASSURANCE THAT THE MONEY MARKET FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that 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 bear the same date as this
Prospectus and 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
the Funds. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Prime Fund
Nations Treasury Fund
Nations Government
Money Market Fund
Nations Tax
Exempt Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 7
How Objectives Are Pursued 8
How Performance Is Shown 10
How The Funds Are Managed 11
Organization And History 14
About Your Investment
How To Buy Shares 16
Shareholder Servicing Plan 17
How To Redeem Shares 17
How To Exchange Shares 18
How The Funds Value Their Shares 19
How Dividends And Distributions Are Made; Tax
Information 20
Appendix A -- Portfolio Securities 22
Appendix B -- Description Of Ratings 29
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent
consistent with the preservation of capital and the
maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment objective
is to seek as high a level of current income as is consistent
with liquidity and stability of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to seek as
high a level of current interest income exempt from Federal
income taxes as is consistent with liquidity and stability of
principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains, are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
INVESTOR C SHARES
Nations
Government Nations Tax
Nations Nations Money Exempt
SHAREHOLDER TRANSACTION EXPENSES Prime Fund Treasury Fund Market Fund Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Charge None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .14% .14% .12% .13%
Rule 12b-1 Fees None None None None
Shareholder Servicing Fees (After Fee Waivers) .25% .25% .25% .15%
Other Expenses (After Expense Reimbursements) .16% .16% .18% .17%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .55% .55% .55% .45%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations
Nations Prime Nations Treasury Government Money
Fund Fund Market Fund
<S> <C> <C> <C>
1 Year $ 6 $ 6 $ 6
3 Years $ 18 $ 18 $ 18
5 Years $ 31 $ 31 $ 31
10 Years $ 69 $ 69 $ 69
</TABLE>
<TABLE>
<CAPTION>
Nations Tax
Exempt
Fund
<S> <C>
1 Year $ 5
3 Years $ 14
5 Years $ 25
10 Years $ 57
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in each
Fund will bear either directly or indirectly. The "Other Expenses" figures
contained in the above table are based on estimated amounts for the Funds'
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. For
more complete descriptions of the Funds' operating expenses, see "How The Funds
Are Managed."
4
<PAGE>
Absent fee waivers and expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" for Investor C Shares of the indicated
Fund would have been as follows: Nations Prime Fund -- .20%, .16% and .61%,
respectively; Nations Treasury Fund -- .20%, .16% and .61%, respectively;
Nations Government Money Market Fund -- .40%, .18% and .83%, respectively.
Absent fee waivers and expense reimbursements, "Management Fees," "Shareholder
Servicing Fees," "Other Expenses" and "Total Operating Expenses" for the Nations
Tax Exempt Fund would have been .40%, .25%, .17%, .17% and .82%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor C Shares 03/31/96(a) 05/31/95 05/31/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0447 0.0493 0.0155
Dividends from net investment income (0.0447) (0.0493) (0.0155)
Total dividends and distributions (0.0447) (0.0493) (0.0155)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.57% 5.03% 1.58%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 74,822 $ 53,451 $ 1,481
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 5.37%+ 4.97% 2.95%+
Ratio of operating expenses to average net assets without waivers
and/or reimbursements 0.62%+ 0.64% 0.62%+
Net investment income per share without waivers and/or
reimbursements $ 0.0442 $ 0.0485 $ 0.0151
</TABLE>
* Nations Prime Fund Investor C Shares commenced operations on November 26,
1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor C Shares 03/31/96(a) 05/31/95 05/31/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0437 0.0468 0.0019
Dividends from net investment income (0.0437) (0.0468) (0.0019)
Distributions from net realized capital gains (0.0000)# (0.0000)# --
Total dividends and distributions (0.0437) (0.0468) (0.0019)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.46% 4.76% 0.19%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,783 $ 6,373 $ 191
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 5.27%+ 4.73% 2.72%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.62%+ 0.61% 0.61%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0432 $ 0.0463 $ 0.0019
</TABLE>
* Nations Treasury Fund Investor C Shares commenced operations on May 11, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Amount represents less than $0.0001.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor C Shares 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0165 0.0532 0.0290
Distributions:
Dividends from net investment income (0.0165) (0.0532) (0.0290)
Dividends from net realized capital gains -- -- (0.0000)#
Total dividends and distributions (0.0165) (0.0532) (0.0290)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 1.66% 5.44% 2.94%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,731 $ 4,414 $ 476
Ratio of operating expenses to average net assets 0.55%+ 0.55% 0.55%+
Ratio of net investment income to average net assets 4.95%+ 5.33% 3.54%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.84%+ 0.82% 0.84%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0155 $ 0.0505 $ 0.0268
</TABLE>
* Nations Government Money Market Fund Investor C Shares commenced operations
on March 21, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor C Shares 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0107 0.0346 0.0203
Dividends from net investment income (0.0107) (0.0346) (0.0203)
Total dividends and distributions (0.0107) (0.0346) (0.0203)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 1.07% 3.52% 2.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 66,743 $ 41,409 $ 25,704
Ratio of operating expenses to average net assets 0.45%+ 0.45% 0.42%+
Ratio of net investment income to average net assets 3.20%+ 3.47% 2.44%+
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 0.73%+ 0.72% 0.74%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0098 $ 0.0320 $ 0.0177
</TABLE>
* Nations Tax Exempt Fund Investor C Shares commenced operations on March 7,
1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
7
<PAGE>
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations"), other obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Obligations"), bank and
commercial instruments that may be available in the money markets, high quality
short-term taxable obligations issued by state and local governments, their
agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified First Tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and instruments issued by trusts or certain partnerships, including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such trusts or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in obligations the
principal and interest of which are backed by the full faith and credit of the
United States Government, provided that such Fund shall, under normal market
conditions, invest at least 65% of its total assets in U.S. Treasury bills,
notes and bonds and other instruments issued directly by the U.S. Government.
The Fund may lend its portfolio securities to qualified institutional investors.
For more information concerning these instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund may lend its
portfolio securities to qualified institutional investors. For more information
concerning these instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: In pursuing its investment objective, the Fund invests
in a diversified portfolio of obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel to the issuer or bond counsel, is
exempt from regular Federal income tax ("Municipal Securities"). The Fund will
not knowingly purchase securities the interest on which is subject to such tax.
A portion of the Fund's assets, however, may be invested in private activity
bonds, the interest on which may be treated as a specific tax preference item
under the Federal alternative minimum tax. See "How Dividends And Distributions
Are Made; Tax Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation
("S&P"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA") or
Thomson BankWatch, Inc. ("BankWatch") or Aa or higher by Moody's Investors
Service, Inc. ("Moody's"), in the case of bonds; rated "A" or higher by D&P,
Fitch, S&P, IBCA, BankWatch or Moody's in the case
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<PAGE>
of certain bonds which are unrated securities (I.E., lacking a short-term rating
from the requisite number of nationally recognized statistical rating
organizations); rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1"
by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher by
D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of
variable-rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by
Fitch, "A-1" or higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by Nations
Fund Trust's Board of Trustees. The applicable Municipal Securities ratings are
described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by trusts or certain partnerships including pass-through certificates
representing participations in, or debt instruments backed by, the securities
and other assets owned by such trusts or partnerships. For more information
concerning the Fund's investments, see "Appendix A."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds' investment in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in each Fund's SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments 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 are privately
placed), may enter into repurchase
agree-
9
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ments and may lend portfolio securities in accordance with its investment
policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of such 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.
In addition, as a matter of non-fundamental policy, Nations Tax Exempt Fund may
not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations. The investment objectives and policies of the Funds, unless
otherwise specified, may be changed without shareholder approval. 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 positions and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus or the SAIs. Should a Fund determine that any such
commitment is no longer in its best interests, it may consider terminating sales
of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost (see "How The Funds Value Their
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the Investment Company Act of 1940, as amended ("1940 Act"), some of which
are described below. A Money Market Fund is limited to acquiring obligations
with a remaining maturity of 397 days or less, or obligations with a remaining
maturity of more than 397 days, provided such obligations are subject to demand
features or resets and to maintaining a dollar-weighted average portfolio
maturity of 90 days or less. Quality requirements generally limit investments to
U.S. dollar denominated instruments determined to present minimal credit risks
which, at the time of acquisition, are rated in the first or second rating
categories (known as "first tier" and "second tier" securities, respectively) by
the required number of NRSROs (at least two or, if only one NRSRO has rated the
security, that one NRSRO) or, if unrated by any NRSRO, are (i) comparable in
priority and security to a class of short-term securities of the same issuer
that has the required rating, or (ii) determined to be comparable in quality to
securities having the required rating. The diversification requirements provide
generally that a Money Market Fund may not at the time of acquisition invest
more than 5% of its assets in securities of any one issuer except that up to 25%
of total assets may be invested in the first tier securities of a single issuer
for three business days. Additionally, (except for Nations Tax Exempt Fund) no
more than 5% of total assets may be invested, at the time of acquisition, in
second tier securities in the aggregate, and any investment in second tier
securities of one issuer is limited to the greater of 1% of total assets or one
million dollars. Securities issued by the U.S. Government, its agencies,
authorities or instrumentalities are exempt from the quality requirements, other
than minimal credit risk. In the event that a Fund's investment restrictions or
permissible investments are more restrictive than the requirements of Rule 2a-7,
the Fund's own restrictions will govern.
How Performance Is Shown
From time to time the Funds may advertise the yield and effective yield on a
class of shares and Nations Tax Exempt Fund also may advertise the
tax-equivalent yield of a class of shares. YIELD, EFFECTIVE YIELD AND TAX
EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE.
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<PAGE>
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in such class over a seven-day period identified in the
advertisement. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares in a Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of each class of shares in Nations Tax Exempt Fund shows
the level of taxable yield needed to produce an after-tax equivalent to such
class's tax-free yield. This is done by increasing the class's yield (calculated
as above) by the amount necessary to reflect the payment of Federal income tax
at a stated tax rate.
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. Any fees charged by servicing agents to their
customers' accounts for automatic investment or other cash management services
will not be included in calculations of yield.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A, Investor B and Investor D Shares. Each class of shares may bear different
sales charges, shareholder servicing fees 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. Each Fund's annual report contains additional performance information
and is available upon request without charge from the Funds' distributor or the
investor's servicing agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
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.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
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 the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board 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
11
<PAGE>
securities and maintains records relating to such purchases and sales. With
respect to Nations Tax Exempt Fund, 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 Fund, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.25% of the first $250 million of the combined
average daily net assets of both Nations Prime Fund and Nations Treasury Fund,
plus 0.20% of the combined average daily net assets of such Funds in excess of
$250 million; and 0.40% of the average daily net assets of each of Nations
Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.055% of the average daily net assets of Nations Government
Money Market Fund, Nations Tax Exempt Fund, Nations Prime Fund, and Nations
Treasury Fund.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. She has worked in the
investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysts.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in
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<PAGE>
the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager of the Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations 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.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to Co-Administration
Agreements. Under the Co-Administration Agreements, First Data provides various
administrative and accounting services to the Funds, including performing
calculations necessary to determine net asset values and dividends, preparing
tax returns and financial statements and maintaining the portfolio records and
certain general accounting records for the Funds. For the services rendered
pursuant to the Administration and Co-Administration Agreements, Stephens and
First Data 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 period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the rate of 0.09% of
the average daily net assets of Nations Government Money Market Fund and Nations
Tax Exempt Fund.
For the fiscal period from June 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
and Nations Treasury Fund -- 0.05%.
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 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and
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<PAGE>
distributor. Stephens is a registered broker/dealer with principal offices at
111 Center Street, Little Rock, Arkansas 72201. Nations Fund has entered into a
distribution agreement with Stephens which provides that Stephens has the
exclusive right to distribute shares of the Funds. Stephens may pay service fees
or commissions to servicing agents that assist customers in purchasing Investor
C Shares of the Funds. See "Shareholder Servicing Plan."
NationsBank of Texas, N.A., serves as each Fund's custodian (the "Custodian").
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of each Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor C Shares are deducted from accrued income before
dividends are declared. The respective Fund's expenses include, but are not
limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
interest; Directors' or Trustees' fees; federal and state securities
registration and qualification fees; brokerage fees and commissions; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to existing shareholders; charges of the Custodian and Transfer Agent; certain
insurance premiums; outside auditing and legal expenses; costs of shareholder
reports and shareholder meetings; other expenses which are not expressly assumed
by the Adviser, NationsBank, Stephens or First Data under their respective
agreements with Nations Fund; and any extraordinary expenses. Investor C Shares
may bear certain class specific retail transfer agency expenses and also bear
certain additional shareholder service costs. Any general expenses of Nations
Fund Trust and/or of Nations Fund, Inc. that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Fund Trust and/or Nations Fund, Inc. or in such other manner as the
Board of Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor B Shares, Investor C Shares and Investor D Shares. This
Prospectus relates only to the Investor C Shares of Nations Government Money
Market Fund and Nations Tax Exempt Fund of Nations Fund Trust. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or
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<PAGE>
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 a 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 of shares. See the SAI for examples of instances where
the 1940 Act requires voting by fund.
As of July 15, 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. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. 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 portfolios, each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of the Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To obtain additional information regarding the Funds' other classes
of shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of Directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of Nations Fund, Inc.'s outstanding shares.
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 July 15,, 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, except when required by
the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus
con-
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<PAGE>
cerning 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 this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into shareholder servicing
agreements ("Servicing Agreements") with Stephens ("Servicing Agents").
Investors exchanging Investor N Shares of a non-money market fund of the Nations
Fund Family for Investor C Shares of the Money Market Funds and investors who
have entered into managed account arrangements with a Servicing Agent are
eligible to invest in Investor C Shares of the Funds. Under a managed account
arrangement investors would be provided with some or all of the following types
of services or features: automated investment of excess account cash balances;
debit cards; checking privileges; direct deposit; automatic bill payment;
federal funds transfer; travelers checks; charge card protection; and periodic
summary account statements.
Investor C Shares of the Money Market Funds are purchased at net asset value per
share without the imposition of a sales charge. Purchases may be effected only
on days on which the Federal Reserve Bank of New York is open for business (a
"Business Day").
Servicing Agents will perform various shareholder services for their customers
("Customers") who from time to time own of record or beneficially Investor C
Shares. From time to time the Servicing Agents and the Funds may agree to
voluntarily reduce the fees payable for shareholder services. See "Shareholder
Servicing Plan."
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor C Shares is recorded on the books of the Funds and share certificates
are not issued.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund). Absent prior arrangement with Stephens or the Transfer Agent,
purchase orders received after such time on any given day will not be accepted;
notice thereof will be given to the Servicing Agent transmitting the order, and
any funds received will be returned promptly to the sending Servicing Agent. Any
late purchase orders that are not rejected pursuant to such a prior arrangement
will be executed on the following Business Day. If federal funds are not
available by 4:00 p.m., Eastern time, the order will be canceled. Investor C
Shares are purchased at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent.
The Servicing Agents are responsible for transmitting orders for purchases by
their Customers and delivering required funds on a timely basis. Stephens is
responsible for transmitting orders it receives to Nations Fund.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a
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<PAGE>
signature guarantee will be required. Shareholders should be aware that by using
the telephone transaction feature, such shareholders may be giving up a measure
of security that they may have if they were to authorize requests in writing
only. A shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
Shareholder Servicing Plan
The Directors and Trustees have approved a Shareholder Servicing Plan (the
"Servicing Plan") with respect to Investor C Shares of each Fund. Pursuant to
the Servicing Plan, a Fund may pay Servicing Agents that have entered into a
Servicing Agreement with Nations Fund for certain shareholder support services
that are provided by the Servicing Agents. Payments under the Servicing Plan
will be calculated daily and paid monthly at a rate set from time to time by the
Board of Directors or the Board of Trustees, provided that the annual rate may
not exceed 0.25% of the average daily net asset value of a Fund's Investor C
Shares. The shareholder services provided by Servicing Agents may include
general shareholder liaison services; pro-
cessing purchase, exchange and redemption requests from Customers and placing
orders with Stephens or the Transfer Agent; processing dividend and distribution
payments from a Fund on behalf of Customers; providing sales information
periodically to Customers, including information showing their positions in
Investor C Shares; providing sub-accounting with respect to Investor C Shares
beneficially owned by Customers or the information necessary for sub-accounting;
responding to inquiries from Customers concerning their investment in Investor C
Shares; arranging for bank wires; and providing such other similar services as
may be reasonably requested.
Nations Fund understands that Servicing Agents may charge fees to their
Customers who are the owners of Investor C Shares for additional services
provided in connection with their Customers' accounts. These fees would be in
addition to any amounts which may be received by Servicing Agents under a
Servicing Agreement with Nations Fund. The Servicing Agreements require
Servicing Agents to disclose to their Customers any compensation payable to the
Servicing Agents by Nations Fund and any other compensation payable by Customers
in connection with the investment of their assets in Investor C Shares.
Customers should read this Prospectus in light of the terms governing their
accounts with their Servicing Agents.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Funds' Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Servicing Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent. The Servicing Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
pro-
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ceeds on a timely basis. No charge for wiring redemption payments is imposed by
Nations Fund.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), and payment will normally be wired the same day
to Servicing Agents. Nations Fund reserves the right to wire redemption proceeds
within three Business Days after receiving the redemption orders if, in the
judgment of NationsBank, an earlier payment could adversely impact a Fund.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Redemption orders received by Stephens or by the Transfer Agent after 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), will be processed on the next Business
Day.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Servicing Agent pursuant to arrangements between the Servicing Agent and its
Customers. Nations Fund also may redeem shares of a Fund involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
How To Exchange Shares
SHARES PURCHASED DIRECTLY THROUGH A SERVICING AGENT: Investor C Shares of a
Money Market Fund purchased directly through a Servicing Agent may not be
exchanged for shares of another fund of Nations Fund.
SHARES ACQUIRED THROUGH AN EXCHANGE: The exchange feature enables a shareholder
who acquires Investor C Shares of a Money Market Fund through an exchange of
Investor N Shares of a non-money market fund or a permissible exchange of
Investor A Shares of Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund to re-exchange such shares for Investor C Shares of
another Money Market Fund, Investor N Shares of any non-money market fund of
Nations Fund (except Nations Short-Term Income Fund and Nations Short-Term
Municipal Income Fund) or for Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund. A re-exchange of Investor C
Shares for 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.
If a shareholder acquires Investor C Shares of a Money Market Fund through an
exchange, the acquired shares (and any other Investor A or Investor C Shares
acquired through a re-exchange of such shares) will remain subject to the
contingent deferred sales charge ("CDSC") schedule applicable to the original
Investor N Shares purchased.
The holding period (for the purpose of determining the applicable rate of the
CDSC) does not
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accrue as long as the investor holds Investor C Shares of a Money Market Fund or
Investor A Shares of Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund. As a result, the CDSC that is ultimately charged upon
redemption is based upon the total holding period of Investor N Shares of a
non-money market fund that charges a CDSC.
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(s) 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.
Investor C Shares may be exchanged by directing a request directly to the
Servicing Agent through which the original Investor C Shares were acquired or in
some cases to Stephens or the Transfer Agent. Your exchange feature may be
governed by your account agreement with your Servicing Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the Servicing Agent through which the original shares were
purchased. Investors should consult their Servicing Agent or Stephens for
further information regarding exchanges.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), on each Business Day. Currently, the
days on which the Federal Reserve Bank of New York is closed (other than
weekends) are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Memorial Day (observed), Independence Day, Labor Day, Columbus Day, Thanksgiving
Day and Christmas Day. The assets of each Money Market Fund are valued based
upon the amortized cost method. Although Nations Fund seeks to maintain the net
asset value per share of these Funds at $1.00, there can be no assurance that
their net asset value per share will not vary.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of each Fund
are declared daily to shareholders at 3:00 p.m., Eastern time (1:00 p.m.,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund), on the day of declaration. Investor C Shares begin earning
dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Investor C
Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Funds' Transfer Agent and will become
effective with respect to dividends paid after its receipt. Your dividend
election may be governed by your account agreement with your Servicing Agent.
Dividends are paid in cash within five Business Days after a shareholder's
complete redemption of his/her Investor C Shares in a Fund. To the extent that
there are any net short-term capital gains, they will be paid at least annually.
Each Fund's net investment income available for distribution to the holders of
Investor C Shares will be reduced by the amount of shareholder servicing fees
paid to Servicing Agents and by the amount of retail transfer agency fees
payable to the Transfer Agent applicable to Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income tax on amounts
distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an
Individual Retirement Account is generally deferred under the Code.) These
distributions will not qualify for the dividends received deduction for
corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends (and capital gains, if applicable) paid during the prior year.
Such dividends (and capital gains) may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the 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, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the
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shareholder is subject to backup withholding. Amounts withheld are applied to
the shareholder's Federal tax liability, and a refund may be obtained from the
Internal Revenue Service if withholding results in overpayment of taxes. Federal
law also requires the Fund to withhold 30% or the applicable tax treaty rate
from dividends paid to certain nonresident alien, non-U.S. partnership and
non-U.S. corporation shareholder accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, the Nations Tax
Exempt Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
federal gross income under Section 103(a) of the Code unless under the
circumstances applicable to the particular shareholder the exclusion would be
disallowed. (See the related SAI under "Additional Information Concerning
Taxes.") Distributions of net investment income by the Nations Tax Exempt Fund
may be taxable to investors under state or local law even though a substantial
portion of such distribution may be derived from interest on tax-exempt
obligations which, if realized directly, would be exempt from such income taxes.
If Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. To the extent, if any, dividends paid to
shareholders are derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from Federal income tax and
also may be subject to state and local taxes.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specified call dates. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the related SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
The Nations Prime Fund may invest up to 100% of its assets in obligations issued
by banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. The Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
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
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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 requre the untimely disposition of securities.
Reverse repurchase agreements 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 Funds may use reverse repurchase agreements
for the purpose of investing the proceeds in tri-party repurchase agreements.
Generally, the effect of such a transaction is that a Fund can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while it will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. 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 Fund does 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, a Fund's asset coverage and other factors at the time of a
reverse repurchase, the Fund may not establish a segregated account when the
Adviser believes it is not in the best interests of the Fund to do so. In this
case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
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COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations Prime Fund
will limit purchases of commercial instruments to instruments which: (a) if
rated by at least two 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 objective. 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.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements each referred to as a 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 or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The GICs provide that this guaranteed interest will
not be less than a certain minimum rate. 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
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purchase price paid for a GIC generally becomes part of the general assets of
the issuer, and the contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
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 hold 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. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by the Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by the Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), 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 their
portfolios 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less, or instruments
subject to demand features or resets if the remaining maturity is more than 397
days. 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
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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 instrument. 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. 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 also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. 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 without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a
26
<PAGE>
"when-issued" basis and reserves the right to engage in "put" transactions on a
daily, weekly or monthly basis. Securities purchased on a "when-issued" basis
are subject to settlement within 45 days of the purchase date. The interest rate
realized on these securities is fixed as of the purchase date and no interest
accrues to the Fund before settlement. These securities are subject to market
fluctuation due to changes in market interest rates. The Funds will only commit
to purchase a security on a when-issued basis with the intention of actually
acquiring the security and will segregate sufficient liquid assets to meet its
purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
municipal securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Tax Exempt Fund may invest more than
40% of its portfolio in puts or other securities guaranteed by banks and other
financial institutions. Accordingly, changes in the credit quality of these
institutions could cause losses to the Fund and affect its share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in municipal securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Fund's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested 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.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all out-
27
<PAGE>
standing loans of a Fund may not exceed 30% of the value of its total assets.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
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 and foreign 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. The Funds will invest
in securities with demand features where (a) the security or its issuer has
received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) 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.
28
<PAGE>
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. 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 and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
29
<PAGE>
The following summarizes the highest three ratings used by Fitch for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
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 two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
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+.
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
30
<PAGE>
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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest 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.
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".
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.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
31
<PAGE>
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess 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.
32
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND AND NATIONS DISCIPLINED EQUITY FUND
(the "Funds") of Nations Fund Trust and Nations
Fund, Inc., each an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of the
Funds -- Investor C Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that 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 and
Nations Fund, Inc., each dated July 31, 1996, 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 the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
GROWTH AND INCOME FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Balanced Assets
Fund
GROWTH FUNDS:
Nations Capital Growth Fund
Nations Emerging Growth
Fund
Nations Disciplined Equity
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 7
Objectives 12
How Objectives Are Pursued 13
How Performance Is Shown 19
How The Funds Are Managed 20
Organization And History 24
About Your Investment
How To Buy Shares 26
How To Redeem Shares 27
How To Exchange Shares 29
Shareholder Servicing And Distribution Plans 30
How The Funds Value Their Shares 31
How Dividends And Distributions Are Made;
Tax Information 32
Appendix A -- Portfolio Securities 33
Appendix B -- Description Of Ratings 40
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
GROWTH AND INCOME FUNDS
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is to seek
current income and growth of capital by investing primarily
in companies with above average dividend yields.
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income securities.
GROWTH FUNDS
(BULLET) Nations Capital Growth Fund's investment objective is to seek growth
of capital by investing in companies that are believed to have
superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment objective is to seek
capital appreciation by investing in emerging growth companies that
are believed to have superior long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective is to
seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per
share.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare and pay dividends from
net investment income each calendar quarter. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Fund, there is no assurance that it will be able to do
so. 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 risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities, including U.S. Government
Obligations, are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Fund's
investments constitute deriva-
3
<PAGE>
tive securities. Certain types of derivative securities can, under
certain circumstances, significantly increase an investor's exposure to
market or other risks. For a discussion of these and other factors, see
"How Objectives Are Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. Minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Equity Balanced Capital Nations Emerging
Value Fund Income Fund Assets Fund Growth Fund Growth Fund
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None None None
Deferred Sales Charge (as a
percentage of the lower of the
original purchase price or
redemption proceeds)1 .50% .50% .50% .50% .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees .75% .70% .75% .75% .75%
Rule 12b-1 Fees (After Fee
Waivers) .25% .25% .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .21% .20% .25% .21% .24%
Total Operating Expenses (After
Fee Waivers and Expense
Reimbursements) 1.46% 1.40% 1.50% 1.46% 1.49%
</TABLE>
<TABLE>
<CAPTION>
Nations
Disciplined
Equity Fund
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a
percentage of the lower of the
original purchase price or
redemption proceeds)1 .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees .75%
Rule 12b-1 Fees (After Fee
Waivers) .25%
Shareholder Servicing Fees .25%
Other Expenses (After Expense
Reimbursements) .27%
Total Operating Expenses (After
Fee Waivers and Expense
Reimbursements) 1.52%
</TABLE>
1A Deferred Sales Charge, if any, is imposed only with respect to Investor C
Shares redeemed within one year of purchase. Investor C Shares purchased prior
to January 1, 1996 will continue to be subject to the 1.00% Deferred Sales
Charge.
5
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Equity Balanced Capital Growth Emerging Growth
Value Fund Income Fund Assets Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 20 $ 19 $ 20 $ 20 $ 20
3 Years $ 46 $ 44 $ 47 $ 46 $ 47
5 Years $ 80 $ 77 $ 82 $ 80 $ 81
10 Years $ 175 $ 168 $ 179 $ 175 $ 178
</TABLE>
<TABLE>
<CAPTION>
Nations
Disciplined
Equity Fund
<S> <C>
1 Year $ 20
3 Years $ 48
5 Years $ 83
10 Years $ 181
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Equity Balanced Capital Growth Emerging Growth
Value Fund Income Fund Assets Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 15 $ 14 $ 15 $ 15 $ 15
3 Years $ 46 $ 44 $ 47 $ 46 $ 47
5 Years $ 80 $ 77 $ 82 $ 80 $ 81
10 Years $ 175 $ 168 $ 179 $ 175 $ 178
</TABLE>
<TABLE>
<CAPTION>
Nations
Disciplined
Equity Fund
<S> <C>
1 Year $ 15
3 Years $ 48
5 Years $ 83
10 Years $ 181
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares of the Funds will bear either directly or indirectly. The
figures in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. Absent fee waivers and expense reimbursements "Rule 12b-1
Fees" and "Total Operating Expenses" would have been as follows: Nations Value
Fund -- .75% and 1.96%, respectively; Nations Equity Income Fund -- .75% and
1.90%, respectively; Nations Balanced Assets Fund -- .75% and 2.00%,
respectively; Nations Capital Growth Fund -- .75% and 1.96%, respectively;
Nations Emerging Growth Fund -- .75% and 1.99%, respectively; and Nations
Disciplined Equity Fund -- .75% and 2.02%, respectively. 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 of the
Funds could pay more in sales charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
For a more complete description of the Rule 12b-1 and shareholder servicing fees
payable by the Funds, see "Shareholder Servicing And Distribution Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS VALUE FUND
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.09 $ 12.90 $ 13.64 $ 12.41
Net investment income 0.04 0.13 0.12 0.13
Net realized and unrealized gain/(loss) on
investments 1.05 3.88 (0.22) 1.32
Net increase/(decrease) in net asset value from
operations 1.09 4.01 (0.10) 1.45
Distributions:
Dividends from net investment income (0.06) (0.15) (0.10) (0.13)
Distributions from net realized capital gains (0.62) (0.67) (0.54) (0.09)
Total dividends and distributions (0.68) (0.82) (0.64) (0.22)
Net asset value, end of period $ 16.50 $ 16.09 $ 12.90 $ 13.64
Total return++ 6.99% 33.15% (0.92)% 11.85%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,633 $ 4,185 $ 2,983 $ 2,997
Ratio of operating expenses to average net
assets 1.58%+ 1.94% 1.93% 1.96%
Ratio of net investment income to average net
assets 0.68%+ 0.90% 0.85% 0.98%
Portfolio turnover rate 12% 63% 75% 64%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.58%+ 1.94% 1.93% 1.97%
Net investment income per share without waivers
and/or expense reimbursements $ 0.04 $ 0.13 $ 0.12 $ 0.13
Average commission rate paid (b) $ 0.0648 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 11.63
Net investment income 0.07
Net realized and unrealized gain/(loss) on
investments 0.78
Net increase/(decrease) in net asset value from
operations 0.85
Distributions:
Dividends from net investment income (0.07)
Distributions from net realized capital gains --
Total dividends and distributions (0.07)
Net asset value, end of period $ 12.41
Total return++ 7.33%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,286
Ratio of operating expenses to average net
assets 1.98%+
Ratio of net investment income to average net
assets 1.22%+
Portfolio turnover rate 60%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.98%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.07
Average commission rate paid (b) N/A
</TABLE>
* Nations Value Fund Investor C Shares commenced operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
7
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 05/31/95 05/31/94 05/31/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.83 $ 11.47 $ 12.04 $ 11.13
Net investment income 0.21 0.32 0.28 0.32
Net realized and unrealized gain on investments 1.78 1.08 0.21 1.32
Net increase in net asset value from operations 1.99 1.40 0.49 1.64
Distributions:
Dividends from net investment income (0.26) (0.31) (0.25) (0.28)
Distributions from net realized capital gains (0.37) (0.73) (0.81) (0.45)
Total dividends and distributions (0.63) (1.04) (1.06) (0.73)
Net asset value, end of period $ 13.19 $ 11.83 $ 11.47 $ 12.04
Total return++ 17.20% 13.49% 3.96% 15.31%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,612 $ 4,278 $ 4,221 $ 4,377
Ratio of operating expenses to average net assets 1.75%+ 1.92% 1.94% 1.92%+
Ratio of net investment income to average net assets 1.99%+ 2.75% 2.41% 2.37%+
Portfolio turnover rate 59% 158% 116% 55%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.75%+ 1.93% 1.95% 2.04%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.21 $ 0.32 $ 0.28 $ 0.31
Average commission rate paid (b) $ 0.0287 N/A N/A N/A
</TABLE>
* Nations Equity Income Fund Investor C Shares commenced operations on June
17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
8
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.61 $ 10.38 $ 10.82 $ 10.23
Net investment income 0.09 0.26 0.14 0.23
Net realized and unrealized gain/(loss) on
investments 0.45 2.21 (0.43) 0.59
Net increase/(decrease) in net asset value from
operations 0.54 2.47 (0.29) 0.82
Distributions:
Dividends from net investment income (0.14) (0.22) (0.15) (0.23)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.55) (0.24) (0.15) (0.23)
Net asset value, end of period $ 11.60 $ 12.61 $ 10.38 $ 10.82
Total return++ 4.71% 24.03% (2.72)% 8.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,187 $ 992 $ 951 $ 1,196
Ratio of operating expenses to average net
assets 1.62%+ 1.99% 1.98% 1.90%
Ratio of net investment income to average net
assets 2.29%+ 2.25% 1.31% 1.82%
Portfolio turnover rate 83% 174% 156% 50%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.62%+ 1.99% 1.99% 1.97%
Net investment income per share without waivers
and/or expense reimbursements $ 0.09 $ 0.26 $ 0.14 $ 0.22
Average commission rate paid (b) $ 0.0598 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.01
Net realized and unrealized gain/(loss) on
investments 0.22#
Net increase/(decrease) in net asset value from
operations 0.23
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.23
Total return++ 2.30%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 156
Ratio of operating expenses to average net
assets 1.30%+
Ratio of net investment income to average net
assets 2.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.05%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.01
Average commission rate paid (b) N/A
</TABLE>
* Nations Balanced Assets Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end
was November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
9
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.09 $ 11.14 $ 11.01 $ 10.67
Net investment income/(loss) 0.00(b) (0.03) (0.02) (0.00)(b)
Net realized and unrealized gain on investments 0.36 3.24 0.15 0.38
Net increase in net asset value from operations 0.36 3.21 0.13 0.38
Distributions:
Dividends from net investment income -- -- -- (0.03)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (1.19) (0.26) (0.00)(b) (0.04)
Net asset value, end of period $ 13.26 $ 14.09 $ 11.14 $ 11.01
Total return++ 2.86% 29.61% 1.22% 3.61%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,655 $ 3,322 $ 2,394 $ 2,919
Ratio of operating expenses to average net
assets 1.58%+ 1.98% 1.90% 1.80%
Ratio of net investment income/(loss) to average
net assets (0.24)%+ (0.29)% (0.15)% (0.16)%
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.58%+ 1.98% 1.91% 1.89%
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ (0.00)(b) $ (0.03) $ (0.02) $ 0.00(b)
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.00)(b)
Net realized and unrealized gain on investments 0.67#
Net increase in net asset value from operations 0.67
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions 0.00(b)
Net asset value, end of period $ 10.67
Total return++ 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 406
Ratio of operating expenses to average net
assets 1.30%+
Ratio of net investment income/(loss) to average
net assets 0.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.05%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.00(b)
Average commission rate paid (c) N/A
</TABLE>
* Nations Capital Growth Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
10
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96#(a) 11/30/95 11/30/94# 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.87 $ 11.20 $ 10.78 $ 9.89
Net investment income/(loss) (0.03) (0.08) (0.14) (0.09)
Net realized and unrealized gain on investments 1.22 3.15 0.70 0.98
Net increase in net asset value from operations 1.19 3.07 0.56 0.89
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14) --
Total dividends and distributions (1.50) (0.40) (0.14) --
Net asset value, end of period $ 13.56 $ 13.87 $ 11.20 $ 10.78
Total return++ 9.64% 28.67% 5.19% 9.00%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 936 $ 805 $ 542 $ 469
Ratio of operating expenses to average net assets 1.61%+ 1.98% 2.01% 1.80%+
Ratio of net investment income/(loss) to average net assets (0.68)% (0.92)% (1.29)% (1.15)%+
Portfolio turnover rate 39% 139% 129% 159%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.61%+ 1.98% 2.01% 2.01%+
Net investment income/(loss) per share without waivers and/or
expense reimbursements $ (0.03) $ (0.08) $ (0.12) $ (0.11)
Average commission rate paid (b) $ 0.0599 N/A N/A N/A
</TABLE>
* Nations Emerging Growth Fund Investor C Shares commenced operations on
December 18, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
11
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.97 $ 14.08
Net investment income/(loss) 0.01 (0.00)(b)
Net realized and unrealized gain/(loss) on investments 0.35 2.92
Net increase/(decrease) in net asset value from operations 0.36 2.92
Distributions:
Dividends from net investment income -- (0.03)
Distributions from net realized capital gains (0.23) --
Return of capital -- --
Total dividends and distributions (0.23) (0.03)
Net asset value, end of period $ 17.10 $ 16.97
Total return++ 2.19% 20.78%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 283 $ 322
Ratio of operating expenses to average net assets 1.65%+ 2.30%+
Ratio of net investment income/(loss) to average net assets 0.19%+ (0.15)%+
Portfolio turnover rate 47% 124%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.65%+ 2.30%+
Net investment income/(loss) per share without waivers and/or expense reimbursements $ 0.01 $ (0.00)(b)
Average commission rate paid (c) $ 0.0627 N/A
</TABLE>
* Nations Disciplined Equity Fund Investor C Shares commenced operations on May
10, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
Objectives
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
12
<PAGE>
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
How Objectives Are Pursued
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 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-to-
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.
The Fund invests under normal market conditions 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 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 up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in obligations issued or guaranteed as to
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade
securities of domestic companies. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by
Moody's Investors Service, Inc. ("Moody's")) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. Subsequent to its purchase by the Fund,
an issue of securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. The Adviser will consider
such an event in
13
<PAGE>
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.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, 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. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, 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 and government 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." They 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 up to 20%
of its total assets in foreign securities. 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.
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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 classes 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. These asset classes
are actively managed in an effort to maximize total return. In general, the
Adviser believes that common stocks offer the best opportunity for long-term
capital appreciation.
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. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as 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
S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"),
or Thomson BankWatch, Inc. ("BankWatch") or, if unrated, determined by the
Adviser to be comparable in quality to instruments so rated. Obligations with
the lowest investment grade rating (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. Unrated obligations may be acquired by the Fund
if they are determined by the Adviser to be of comparable quality at the time of
purchase to rated obligations that may be acquired.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For more information concerning these instruments, see
"Appendix A."
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above-average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
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In addition, the Fund's investment program enables it to invest in the following
types of companies:
(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.
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 up to 20% of its total assets in 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.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above-average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant. For additional information concerning
these instruments and the Fund's investment practices, see "Appendix A."
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may
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<PAGE>
invest up to 20% of its total assets in foreign securities.
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 up to 20% of its total assets in 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.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ( the "CFTC") and options thereon for
market exposure risk management. The Nations Balanced Assets Fund also may
engage in dollar roll transactions. Each Fund may lend its portfolio securities
to qualified institutional investors. Each Fund also may invest in restricted,
private placement and other illiquid securities and securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. Each Fund may invest in real estate investment trust securities. For
more information concerning these and other instruments in which the Funds may
invest and their investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital
apprecia-
17
<PAGE>
tion or investment income, or both, and not for short-term trading profits. For
the Funds' portfolio turnover rates, see "Financial Highlights." If a Fund's
annual portfolio turnover rate exceeds 100%, it may result in higher costs to
the Fund, including brokerage commissions or dealer markups and other
transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods. The value
of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the Fund's investment objective and do not unduly increase the
Fund's exposure to market or other risks. For additional risk information
regarding the Funds' investments in particular instruments, see "Appendix
A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's
sharehold-
18
<PAGE>
ers. 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 positions and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of a Fund (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment (reflecting the deduction of any
applicable contingent deferred sales charge ("CDSC")), assuming the reinvestment
of all dividend and capital gains distributions. Aggregate total return reflects
the total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in the Funds will not be included in calculations of
total return or yield. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investor's selling agent.
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<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust and Nations Fund, Inc. are
managed under the direction of their 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.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc., serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
the Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.75% of the average daily net assets of each
of Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets Fund;
and 0.75% of the first $100 million of the Nations Equity Income Fund's average
daily net assets, plus 0.70% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus 0.60% of the Fund's average daily net
assets in excess of $250 million.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.25% of Nations Value Fund's, Nations Balanced
Assets Fund's, Nations Capital Growth Fund's, Nations Emerging Growth Fund's and
Nations Disciplined Equity Fund's average daily net assets; and 0.20% of Nations
Equity Income Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
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For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996 after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations Emerging
Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations Balanced
Assets Fund -- 0.25%; and Nations Equity Income Fund -- .20%.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been Portfolio
Manager for Nations Value Fund since 1989. Prior to assuming her position with
TradeStreet, she was Senior Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. Ms. Herrmann has worked for the
Investment Management Group at NationsBank since 1981 where her responsibilities
included fund management and institutional portfolio management. She attended
Virginia Wesleyan College. Ms. Herrmann holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position at TradeStreet, he was Senior Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. Mr.
Sanders has worked in the financial investment community since 1981. His past
experience includes portfolio management, equity research and financial analysis
for the Investment Management Group at NationsBank and Duke Power Company. Mr.
Sanders received a B.A. in Economics from the University of Michigan and an
M.B.A. from University of North Carolina at Charlotte. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from Mount St. Mary's College and an M.B.A. from
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<PAGE>
Kent State University. She holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research as well as
the North Carolina Society of Security Analysts, Inc. She is also a member of
the National Association for Petroleum Investment Analysts and the World Affairs
Council of Washington, D.C.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet, and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been Portfolio Manager for Nations Emerging Growth
Fund since 1992. Prior to assuming his position with TradeStreet, he was Senior
Vice President and Senior Portfolio Manager for the Investment Management Group
at NationsBank. He has worked in the investment community since 1968. His past
experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been the Portfolio Manager of the Nations Disciplined Equity Fund
since 1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been Portfolio Manager for Nations Equity Income Fund since 1991.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
He has worked in the investment community since 1980. Past experience includes
fund analysis and portfolio management for National Bank of Detroit. Mr.
Williams received a B.S. in Accounting from East Carolina University, Summa Cum
Laude and an M.B.A. from Indiana University. He holds the Chartered Financial
Analyst designation, is on the Advisory Board of Indiana University's Investment
Management Academy, and is a member of the Association for Investment Management
and Research as well as the North Carolina Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant
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<PAGE>
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.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
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 First Data 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 period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the indicated rate of the
following Funds' average daily net assets: Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund, and
Nations Balanced Assets Fund -- 0.10%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Equity Income 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 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A. ("NationsBank of Texas" or the "Custodian") serves as
custodian for the assets of each Fund. NationsBank of Texas is located at 1401
Elm Street, Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of each Fund for
which it serves as custodian, (ii) $10.00 per repurchase collateral transaction
by such Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving such Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
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qualification fees; brokerage fees and commissions; cost of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodians and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings, other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor C Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust and/or Nations Fund, Inc. that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund Trust and Nations Fund, Inc. or in such other manner
as the relevant Board of Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. This Prospectus relates only to
the Investor C Shares of Nations Capital Growth Fund, Nations Emerging Growth
Fund, Nations Disciplined Equity Fund, Nations Value Fund and Nations Balanced
Assets Fund of Nations Fund Trust. To obtain additional information regarding
the Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 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
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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. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of Nations Equity Income Fund of Nations Fund, Inc. To obtain
additional information regarding the Fund's other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 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.
Because this Prospectus combines disclosure on two 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 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 this
Prospectus.
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About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders for Investor C
Shares may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a Sales Support Agreement with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for "IRA" investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor C Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
With respect to Investor C Shares, the Selling Agents have entered into Sales
Support Agreements with Stephens whereby they will provide various sales support
services to their customers ("Customers") who own Investor C Shares. In
addition, banks, broker/dealers or other financial institutions (including
certain affiliates of NationsBank) that have entered into Servicing Agreements
with Nations Fund ("Servicing Agents") will provide various shareholder services
for their Customers who own Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor C Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
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The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a
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commercial bank or a member of a major stock exchange, unless other arrangements
satisfactory to Nations Fund have previously been made. Nations Fund may require
any additional information reasonably necessary to evidence that a redemption
has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Funds that are redeemed within one year of the date of purchase may be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. Investor C Shares purchased prior
to January 1, 1996 remain subject to the 1.00% CDSC. No CDSC is imposed on
increases in net asset value above the initial purchase price, including shares
acquired by reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor C Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor C shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor C Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC. Nations Fund may terminate any
waiver of the CDSC by providing notice in the Funds' Prospectus, but any such
termination would affect only shares purchased after such termination.
Within 120 after a redemption of Investor C Shares of a Fund, a shareholder may
reinvest any portion of the proceeds of such redemption in Investor C Shares of
the same Fund. The amount which may be so reinvested is limited to an amount up
to, but not exceeding, the redemption proceeds (or to the nearest full share if
fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor C
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor C Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor C Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor C Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a
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monthly, quarterly or annual check or automatic transfer to a checking or
savings account in a stated amount of not less than $25 on or about the 10th or
25th day of the applicable month of withdrawal. Investor C Shares will be
redeemed (net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals will reduce principal and may eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. An AWP may be terminated by a
shareholder on 30 days' written notice to his/her Agent or by Nations Fund at
any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Fund or Investor D Shares of any
Nations Fund money market fund when he or she believes that a shift between
funds is an appropriate investment decision. A qualifying exchange is based on
the next calculated net asset value per share of each fund after the exchange
order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquired Investor C Shares of a Nations Fund non-money market
fund or Investor D Shares of a Nations Fund money market fund through an
exchange, the CDSC applicable to the original shares purchased will be applied
to any redemption of the acquired shares. Additionally, when an investor
exchanges Investor C Shares of a Nations Fund non-money market fund for shares
of the same class of another non-money market fund or Investor D Shares of any
money market fund of Nations Fund, the remaining period of time (if any) that
the CDSC is in effect will be computed from the time of the initial purchase of
the previously held Investor C Shares.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one Nations Fund
to another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th or 30th day of the applicable month.
The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, an
investor should contact his/her Selling Agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchange through the AEF). Nations Fund reserves the right to reject
any exchange request. Only shares that may legally be sold in the state of the
investor's residence may be acquired in an exchange. Only shares of a class that
is accepting investments generally may be
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acquired in an exchange. An investor may telephone an exchange request by
calling his/her Agent which is responsible for transmitting such request to
Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and Directors have
approved a Distribution Plan with respect to Investor C Shares of the Funds.
Pursuant to the Distribution Plan, the Funds may compensate or reimburse
Stephens for any activities or expenses primarily intended to result in the sale
of the Funds' Investor C Shares. Payments under the Investor C Distribution Plan
will be calculated daily and paid monthly at a rate or rates set from time to
time by the Trustees and Directors, provided that the annual rate may not exceed
0.75% of the average daily net asset value of the Funds' Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution Plan will not be used to
pay any interest expenses, carrying charges or other financing costs (except to
the extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
The Trustees and Directors also have approved a shareholder servicing plan
("Servicing Plan") for the Funds which permits the Funds to compensate Servicing
Agents for services provided to their Customers that own Investor C Shares.
Payments under the Servicing Plan are calculated daily and paid monthly at a
rate or rates set from time to time by the Funds, provided that the annual rate
may not exceed 0.25% of the average daily net asset value of the Funds' Investor
C Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor C Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor C
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of
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Customers; (iv) providing information periodically to Customers showing their
positions in Investor C Shares; (v) arranging for bank wires; and (vi) providing
general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor C Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.75% of the offering
price per share on all sales of Investor C Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Distribution Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Funds distribute any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Investor C Shares of the
Funds are eligible to receive dividends when declared, provided, however, that
the purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
Distributions paid by the Funds with respect to one class of shares may be
greater or less than those paid with respect to another class of shares due to
the different expenses of the different classes.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor C Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds may be entitled to the dividends-received
deduction on all or a portion of such Funds' dividends to the extent that a
Fund's income is derived from dividends (which, if received directly, would
qualify for such deduction) received from domestic corporations. In order to
qualify for the dividends-received deduction, a corporate shareholder must hold
the fund shares paying the dividends upon which the deduction is based for at
least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has
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notified Nations Fund that the Taxpayer Identification Number listed on a
shareholder account is incorrect according to its records, or that the
shareholder is subject to backup withholding. Amounts withheld are applied to
the shareholder's Federal tax liability, and a refund may be obtained from the
Internal Revenue Service if withholding results in overpayment of taxes. Federal
law also requires the Funds to withhold 30% or the applicable tax treaty rate
from dividends paid to certain nonresident alien, non-U.S. partnership and
non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specified call dates. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage-backed securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), parallel pay CMOs, planned
amortization class CMOs ("PAC Bonds") and stripped mortgage-backed securities
("SMBS"), including interest-only and principal-only SMBS. SMBS may be more
volatile than other debt securities. For additional information concerning
mortgage-backed securities, see the related SAI.
Non-mortgage asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations), and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
juris-
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diction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under 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
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage described above. 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed
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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 objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the United States Dollar. A Fund either
enters into these transactions on a spot (I.E., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies. A forward foreign currency exchange
contract is an obligation by a Fund to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract.
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.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic
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developments, the possible imposition of withholding taxes on interest income,
possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign issuers in general may be
subject to different accounting, auditing, reporting, and record keeping
standards than those applicable to domestic companies, and securities of foreign
issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold 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, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the
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"1933 Act") but which can be sold to "qualified institutional buyers" in
accordance with Rule 144A and Section 4(2) under the 1933 Act. Any such security
will not be considered illiquid so long as it is determined by a Fund's Board of
Trustees or Board of Directors or the Adviser, acting under guidelines approved
and monitored by the Fund's Board, after considering trading activity,
availability of reliable price information and other relevant information, that
an adequate trading market exists for that security. To the extent that, for a
period of time, qualified institutional buyers cease purchasing such restricted
securities pursuant to Rule 144A and Section 4(2), 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 their
portfolios 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: Nations Equity Income Fund may invest in
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 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' Boards, 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the
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revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Private activity bonds
held by a Fund are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax-exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue of a provision
requiring repayment following demand by the lender. Such loans made by a Fund
may have a demand provision permitting the Fund to require payment within seven
days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
security. To the extent that municipal participation interests are considered to
be "illiquid securities," such instruments are subject to each Fund's limitation
on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified municipal securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, a Fund
may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in municipal securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater
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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.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, 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
for-
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eign commodity exchanges is not regulated by the CFTC and may be subject to
greater risks than trading on domestic exchanges. For example, some foreign
exchanges are principal markets for which no common clearing facility exists and
a trader may look only to the broker for performance of the contract. In
addition, unless a Fund hedges against fluctuations in the exchange rate between
the U.S. dollar and the currencies in which trading is done on foreign
exchanges, any profits that such Fund might realize could be eliminated by
adverse changes in the exchange rate, or the Fund could incur losses as a result
of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government Obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government Obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
Obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
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 prin-
40
<PAGE>
cipal for debt in this category than for those in higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only
41
<PAGE>
slightly more than for risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal
42
<PAGE>
operating factors and/or access to alternative sources of funds, is judged to be
"outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations." D-1 indicates very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are considered to be minor. D-1- indicates high certainty of timely
payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small. D-2 indicates good certainty of
timely payment. Liquidity factors and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small. D-3 indicates satisfactory
liquidity and other protection factors which qualify the issue as investment
grade. Risk factors are larger and subject to more variation. Nevertheless,
timely payment is expected.
The following summarizes the 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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is 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.
43
<PAGE>
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four 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.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus of minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess 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.
44
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes NATIONS SHORT-TERM INCOME
FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND,
NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND AND NATIONS DIVERSIFIED
INCOME FUND (the "Funds") of Nations Fund Trust and
Nations Fund, Inc., each an open-end management
investment company in the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes one class of shares of the
Funds -- Investor C Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that 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 and
Nations Fund, Inc., each dated July 31, 1996, 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 the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Short-Term Income
Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations Strategic Fixed
Income Fund
Nations Diversified Income
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 6
Objectives 11
How Objectives Are Pursued 12
How Performance Is Shown 16
How the Funds Are Managed 17
Organization And History 21
About Your Investment
How To Buy Shares 22
How To Redeem Shares 24
How To Exchange Shares 25
Shareholder Servicing And Distribution Plans 27
How The Funds Value Their Shares 28
How Dividends And Distributions Are Made;
Tax Information 28
Appendix A -- Portfolio Securities 30
Appendix B -- Description Of Ratings 40
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Short-Term Income Fund's investment objective is to
seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment
grade fixed income securities.
(Bullet) Nations Short-Intermediate Government Fund's investment objective is
to seek current income consistent with modest fluctuation of
principal. The Fund will invest primarily in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment objective is to seek
current income by investing primarily in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Strategic Fixed Income Fund's investment objective is to seek
total return by investing primarily in investment grade fixed income
securities. The Fund may invest in long-term, intermediate-term and
short-term securities.
(Bullet) Nations Diversified Income Fund's investment objective is to seek
current income consistent with total return by investing primarily in
a diversified portfolio of fixed income securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities, including U.S. Government
Obligations, are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Fund's
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
3
<PAGE>
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor C Shares of the
indicated Fund over specified periods.
<TABLE>
<CAPTION>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
SHAREHOLDER TRANSACTION EXPENSES Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Charge (as a percentage of the
lower of the original purchase price or
redemption proceeds)1 .50% .50% .50% .50%
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
SHAREHOLDER TRANSACTION EXPENSES Income Fund
<S> <C>
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of the
lower of the original purchase price or
redemption proceeds)1 .50%
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .30% .40% .50% .50%
Rule 12b-1 Fees (After Fee Waivers) .10% .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses (After Expense Reimbursements) .25% .23% .30% .22%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) .90% 1.13% 1.30% 1.22%
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
Income Fund
<S> <C>
Management Fees (After Fee Waivers) .50%
Rule 12b-1 Fees (After Fee Waivers) .25%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .27%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) 1.27%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of the date of purchase. Investor C Shares purchased
prior to January 1, 1996 will continue to be subject to the 1.00% Deferred
Sales Charge.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
1 Year $ 14 $ 17 $ 18 $ 17
3 Years $ 29 $ 36 $ 41 $ 39
5 Years $ 50 $ 62 $ 71 $ 67
10 Years $ 111 $ 137 $ 157 $ 148
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
Income Fund
<S> <C>
1 Year $ 18
3 Years $ 40
5 Years $ 70
10 Years $ 153
</TABLE>
5
<PAGE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
1 Year $ 9 $ 12 $ 13 $ 12
3 Years $ 29 $ 36 $ 41 $ 39
5 Years $ 50 $ 62 $ 71 $ 67
10 Years $ 111 $ 137 $ 157 $ 148
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
Income Fund
<S> <C>
1 Year $ 13
3 Years $ 40
5 Years $ 70
10 Years $ 153
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares of the Funds will bear either directly or indirectly. Certain
figures contained in the above tables are based on amounts incurred during each
Fund's most recent fiscal year and have been adjusted as necessary to reflect
current service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fees waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. Long-term shareholders of the Funds could pay more in sales
charges than the economic equivalent of the maximum front-end sales charges
applicable to mutual funds sold by members of the National Association of
Securities Dealers, Inc. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed." For a more complete description of
the Rule 12b-1 and shareholder servicing fees payable by the Funds, see
"Shareholder Servicing And Distribution Plans."
Absent fee waivers and reimbursements, "Management Fees," "Rule 12b-1 Fees" and
"Total Operating Expenses" for Investor C Shares of the indicated Fund would
have been as follows: Nations Short-Term Income Fund -- .60%, .75% and 1.85%,
respectively; Nations Short-Intermediate Government Fund -- .60%, .75% and
1.83%, respectively; Nations Strategic Fixed Income Fund -- .60%, .75% and
1.82%; Nations Government Securities Fund -- .64%, .75% and 1.94%, respectively;
and Nations Diversified Income Fund -- .60%, .75% and 1.87%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of a Fund will receive unaudited semi-annual reports describing the
Fund's investment operations and financial statements audited by the Funds'
independent accountant.
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.19 0.57 0.46 0.48
Net realized and unrealized gain/(loss) on
investments (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value from
operations 0.11 0.93 (0.05) 0.74
Distributions:
Dividends from net investment income (0.19) (0.57) (0.44) (0.48)
Distributions in excess of net investment
income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.19) (0.57) (0.48) (0.48)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.07% 10.08% (0.51)% 7.73%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,121 $ 6,056 $ 8,102 $ 19,851
Ratio of operating expenses to average net
assets 0.90%+ 0.91% 0.89% 0.87%
Ratio of net investment income to average net
assets 5.72%+ 5.97% 4.84% 4.77%
Portfolio turnover rate 73% 224% 293% 121%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.23%+ 1.21% 1.21% 1.29%
Net investment income per share without waivers
and/or expense reimbursements $ 0.18 $ 0.54 $ 0.43 $ 0.45
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.08
Net realized and unrealized gain/(loss) on
investments (0.26)
Net increase/(decrease) in net asset value from
operations (0.18)
Distributions:
Dividends from net investment income (0.07)
Distributions in excess of net investment
income --
Distributions from capital --
Total dividends and distributions (0.07)
Net asset value, end of period $ 9.75
Total return++ (1.82)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,747
Ratio of operating expenses to average net
assets 0.80%+
Ratio of net investment income to average net
assets 5.04%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.40%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.07
</TABLE>
* Nations Short-Term Income Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b)# 11/30/95# 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.19
Net investment income 0.07 0.22 0.20 0.20 0.10
Net realized and unrealized gain/(loss) on
investments (0.07) 0.21 (0.33) 0.14 (0.03)
Net increase/(decrease) in net asset value from
operations 0.00 0.43 (0.13) 0.34 0.07
Distributions:
Dividends from net investment income (0.07) (0.22) (0.20) (0.20) (0.10)
Distributions in excess of net investment
income (0.00)(a) (0.00)(a) (0.00)(a) -- --
Distributions from net realized capital gains -- -- (0.02) (0.02) --
Total dividends and distributions (0.07) (0.22) (0.22) (0.22) (0.10)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16
Total return++ (0.10)% 11.15% (2.80)% 8.20% 1.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 11,820 $ 13,206 $ 16,725 $ 31,440 $ 24,352
Ratio of operating expenses to average net
assets 1.13%+ 1.10% 1.17% 1.30% 1.18%+
Ratio of net investment income to average net
assets 4.82%+ 5.38% 5.18% 4.65% 4.80%+
Portfolio turnover rate 189% 328% 133% 92% 25%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.36%+ 1.30% 1.38% 1.54% 1.44%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.06 $ 0.21 $ 0.19 $ 0.19 $ 0.09
</TABLE>
* Nations Short-Intermediate Government Fund Investor C Shares commenced
operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately represents the per share data for the period
since use of the undistributed income method did not accord with the results
of operations.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
8
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b)# 05/31/95# 05/31/94 05/31/93*#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.52
Net investment income 0.47 0.57 0.55 0.59
Net realized and unrealized gain/(loss) on
investments (0.19) 0.06 (0.61) 0.02
Net increase/(decrease) in net asset value from
operations 0.28 0.63 (0.06) 0.61
Distributions:
Dividends from net investment income (0.45) (0.53) (0.50) (0.63)
Dividends in excess of net investment income (0.02) -- (0.01) --
Distributions from net realized capital gains -- -- -- --
Distributions in excess of net realized capital
gains -- -- (0.05) (0.04)
Distributions from capital -- (0.04) (0.04) --
Total dividends and distributions (0.47) (0.57) (0.60) (0.67)
Net asset value, end of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Total return++ 2.83% 6.76% (0.69)% 5.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,558 $ 2,945 $ 5,265 $ 5,998
Ratio of operating expenses to average net
assets 1.48%+ 1.51% 1.48% 1.60%+
Ratio of net investment income to average net
assets 5.68%+ 5.94% 5.33% 5.92%+
Portfolio turnover rate 199% 413% 56% 103%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.63%+ 1.69% 1.69% 1.75%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.47 $ 0.55 $ 0.53 $ 0.42
</TABLE>
* Nations Government Securities Fund Investor C Shares commenced operations on
July 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
9
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.17 0.54 0.47 0.48
Net realized and unrealized gain/(loss) on
investments (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value from
operations (0.12) 1.44 (0.42) 1.10
Distributions:
Dividends from net investment income (0.17) (0.54) (0.45) (0.48)
Distributions in excess of net investment
income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.17) (0.54) (0.81) (0.49)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.22)% 15.87% (4.14)% 11.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 299 $ 227 $ 41 $ 65
Ratio of operating expenses to average net
assets 1.22%+ 1.21% 1.43% 1.36%
Ratio of net investment income to average net
assets 4.99%+ 5.55% 4.68% 4.65%
Portfolio turnover rate 133% 228% 307% 161%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.33%+ 1.31% 1.51% 1.52%
Net investment income per share without waivers
and/or expense reimbursements $ 0.18 $ 0.53 $ 0.46 $ 0.47
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.97
Net investment income 0.02
Net realized and unrealized gain/(loss) on
investments (0.04)
Net increase/(decrease) in net asset value from
operations (0.02)
Distributions:
Dividends from net investment income (0.01)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.01)
Net asset value, end of period $ 9.94
Total return++ (0.22)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 84
Ratio of operating expenses to average net
assets 1.03%+
Ratio of net investment income to average net
assets 5.40%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.63%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.02
</TABLE>
* Nations Strategic Fixed Income Fund Investor C Shares commenced operations on
November 16, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
10
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94# 11/30/93#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 9.96
Net investment income 0.21 0.66 0.67 0.70
Net realized and unrealized gain/(loss) on
investments (0.40) 1.15 (1.06) 0.92
Net increase/(decrease) in net asset value from
operations (0.19) 1.81 (0.39) 1.62
Distributions:
Dividends from net investment income (0.21) (0.66) (0.67) (0.70)
Distributions in excess of net investment
income -- -- (0.00)(a) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.21) (0.66) (0.82) (0.70)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.77)% 19.22% (3.77)% 16.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,454 $ 3,582 $ 2,636 $ 3,633
Ratio of operating expenses to average net
assets 1.33%+ 1.55% 1.49% 1.30%
Ratio of net investment income to average net
assets 5.93%+ 6.28% 6.56% 6.27%
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.43%+ 1.68% 1.70% 1.70%
Net investment income per share without waivers
and/or expense reimbursements $ 0.21 $ 0.65 $ 0.65 $ 0.64
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.93
Net investment income 0.03
Net realized and unrealized gain/(loss) on
investments 0.02
Net increase/(decrease) in net asset value from
operations 0.05
Distributions:
Dividends from net investment income (0.02)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.02)
Net asset value, end of period $ 9.96
Total return++ 0.54%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 149
Ratio of operating expenses to average net
assets 1.00%+
Ratio of net investment income to average net
assets 7.01%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.60%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.03
</TABLE>
* Nations Diversified Income Fund Investor C Shares commenced operations on
November 9, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by invest-
11
<PAGE>
ing primarily in investment grade fixed income securities. The Fund may invest
in long-term, intermediate-term and short-term securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities.
How Objectives Are Pursued
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity and duration of the Fund's portfolio will not exceed three
years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the following six nationally recognized statistical rating organizations,
Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service, Inc.
("Fitch"), Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), IBCA Limited or its affiliate, IBCA Inc. (collectively,
"IBCA") or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs"), or,
if not so rated, determined by the Adviser to be of comparable quality to
instruments so rated; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments; and mortgage-related
securities of governmental issuers 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
and municipal 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.
The Fund may also invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
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 invest in "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.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will not exceed seven years
and the duration will not
12
<PAGE>
exceed five years. 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.
The Fund also 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; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will be greater than four
years and the Fund's duration is expected to be in a range of 3.5 to six years.
The Fund also 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; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade debt obligations. It is expected that
the average weighted maturity of the Fund's portfolio will be ten years or less
and under no circumstances will it exceed 15 years.
The 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; mortgage-backed securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund also may invest in dividend-paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade
13
<PAGE>
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 invest in "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.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will invest at least 65% of the total value of its assets in investment grade
debt obligations. It is expected that the average weighted maturity of the
Fund's portfolio will greater than five years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed and variable rate bonds; U.S. Government Obligations;
dollar-denominated and non-dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
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." They 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.
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 "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.
GENERAL: Each of the Funds may invest in certain specified derivative
securities, including: interest rate swaps, caps and floors for hedging
14
<PAGE>
purposes; exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures and options
thereon approved by the Commodity Futures Trading Commission ("CFTC") for market
exposure risk-management. Each of the Funds may lend its portfolio securities to
qualified institutional investors and may invest in restricted, private
placement and other illiquid securities. Each of the Funds may engage in reverse
repurchase agreements and dollar roll transactions. Additionally, each Fund may
purchase securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity and duration of the Funds.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
The value of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the U.S.
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
For more information concerning these and other instruments in which the Funds
invest and their investment practices, see "Appendix A."
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the Fund's investment objective and do not unduly increase the
Fund's exposure to market or other risks. For additional risk information
regarding the Funds' investments in particular instruments, see "Appendix
A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be
15
<PAGE>
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 to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund 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 investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time a Fund may advertise the total return and yield on a class of
shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares may be calculated on an average annual total return basis or an aggregate
total return basis. The "total return" of a class of shares refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gains distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and a Fund's operating
expenses. Investment performance also often reflects the risks associated with
such Fund's investment objective and policies. These factors should be
considered when comparing a Fund's investment results to those of other mutual
funds and other investment vehicles. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in a Fund with bank deposits,
savings accounts, and similar investment alternatives which often
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provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in a Fund will not be included in calculations of
yield and total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or an investor's selling agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of Directors,
respectively. The SAI for Nations Fund Trust contains the names of and general
background information concerning the Trustees of Nations Fund Trust. The SAI
for Nations Fund, Inc. contains the names of and general background information
concerning the Directors of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with the Funds'
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares of
a Fund, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to Investment Advisory Agreements, NBAI
is entitled to receive advisory fees, computed daily and paid monthly, at the
annual rate of 0.60% of the average daily net assets of each of Nations Short-
Term Income Fund, Nations Diversified Income Fund, Nations Strategic Fixed
Income Fund and Nations Short-Intermediate Government Fund;
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and 0.65% of the first $100 million of the Nations Government Securities Fund's
average daily net assets, plus 0.55% of the Fund's average daily net assets in
excess of $100 million and up to $250 million, plus 0.50% of the Fund's average
daily net assets in excess of $250 million.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.15% of Nations Short-Term Income Fund's,
Nations Short-Intermediate Government Fund's, Nations Government Securities
Fund's, Nations Strategic Fixed Income Fund's and Nations Diversified Income
Fund's average daily net assets.
From time to time, NBAI and/or TradeStreet may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.15% of the following Funds' average daily net assets: Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund and Nations
Government Securities Fund.
David M. Hetherington, CFA, is a Director of TradeStreet and Managing Director
of Fixed Income Management. Mr. Hetherington is responsible for overseeing all
fixed income product management and is Senior Portfolio Manager for Nations
Short-Term Income Fund. Mr. Hetherington has been Portfolio Manager for the
Nations Short-Term Income Fund since 1995. Prior to assuming his position with
TradeStreet, he was Senior Vice President and Director of Fixed Income for the
Investment Management Group at NationsBank. Mr. Hetherington has worked in the
investment community since 1975. His past experience includes working as a
portfolio manager, a trust investment officer and a securities analyst for First
Citizens Bank and Deposit Guarantee as well as working as an Economist for the
U.S. Department of Labor in the Bureau of Labor Statistics. Mr. Hetherington
received a B.A. in Economics from Duke University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud has
been Portfolio Manager for the Nations Diversified Income Fund since 1992. Prior
to assuming his position with TradeStreet, he was Senior Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. Mr.
Ahnrud
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has worked for the Investment Management Group at NationsBank since 1985 where
his responsibilities initially included institutional investment management
sales and later involved high yield credit analysis. Mr. Ahnrud received a dual
B.S. in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations 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.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to Co-Administration
Agreements. Under the terms of the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds, including
performing the calculations necessary to determine net asset values and
dividends, preparing tax returns and financial statements, maintaining the
portfolio records and certain general accounting records for the Funds.
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For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the rate of 0.10% of the
following Funds' average daily net assets: Nations Short-Intermediate Government
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund, and
Nations Strategic Fixed Income Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of 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 0.01% 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 a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares. See "Shareholder Servicing And Distribution Plans."
NationsBank of Texas, N.A., ("NationsBank of Texas", or the "Custodian"), serves
as the Funds' custodian. NationsBank of Texas is located at 1401 Elm Street,
Dallas, Texas 75202 and is a wholly owned subsidiary of NationsBank Corporation.
In return for providing custodial services, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees payable monthly (i) at the
rate of 1.25% of 1% of the average daily net assets of each Fund, (ii) $10.00
per repurchase collateral transaction by the Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachuetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. Each fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor C Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and sales support costs. Any general expenses of
Nations Fund Trust and/or Nations Fund, Inc. that are not readily identifiable
as belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bear to the assets
of Nations Fund Trust and Nations Fund, Inc. or in such other manner as the
Board of Trustees or Board of Directors deems appropriate.
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Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Investor A, Investor C, Investor N, Primary A
and Primary B Shares. This Prospectus relates only to the Investor C Shares of
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund and Nations Short-Intermediate Government Fund of
Nations Fund Trust. To obtain additional information regarding the Funds' other
classes of shares which may be available to you, contact your Selling Agent (as
defined below) or Nations Fund at 1-800-321-7854.
Each share is without par value, represents an equal proportionate interest in
the related fund with other shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such fund as are declared in the discretion of Nations Fund Trust's Board of
Trustees. Nations Fund Trust's Declaration of Trust authorizes the Board of
Trustees to classify or reclassify any class of shares into one or more series
of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the 1940 Act
requires voting by fund.
As of July 15, 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 related SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of Nations Government Securities Fund of Nations Fund, Inc. To
obtain additional information regarding the Fund's other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the
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exclusive right to vote on matters affecting only the rights of the holders of
such fund or class. In the event of dissolution or liquidation, holders of each
class will receive pro rata, subject to the rights of creditors, (a) the
proceeds of the sale of that portion of the assets allocated to that class held
in the respective fund of Nations Fund, Inc., less (b) the liabilities of
Nations Fund, Inc. attributable to the respective fund or class or allocated
among the funds or classes based on the respective liquidation value of each
fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 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.
Because this Prospectus combines disclosure on two 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 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 this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders for Investor C
Shares may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a Sales Support Agreement with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund
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reserves the right to redeem the shares held by such plans on 60 days' written
notice. The minimum subsequent investment is $100, except for investments
pursuant to the Systematic Investment Plan described below.
Investor C Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
With respect to Investor C Shares, the Selling Agents have entered into Sales
Support Agreements with Stephens whereby they will provide various sales support
services to their customers ("Customers") who own Investor C Shares. In
addition, banks, broker/dealers or other financial institutions (including
certain affiliates of NationsBank) that have entered into Servicing Agreements
with Nations Fund ("Servicing Agents") will provide various shareholder services
for their Customers who own Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor C Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
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How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Funds that are redeemed within one year of the date of purchase will be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. Investor C Shares purchased prior
to January 1, 1996 remain subject to the 1.00% CDSC (except for Nations
Short-Term Income Fund). No CDSC is imposed on increases in net asset value
above the initial purchase price, including shares acquired by reinvestment of
distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
retirement plans, (except in cases of plan level terminations); (b)
distributions from an IRA following attainment of age 59 1/2; (c) a tax-free
return of an excess contribution to an IRA, and (d) distributions from a
qualified retirement plan that are not subject to the 10% additional Federal
withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected pursuant
to
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Nations Fund's right to liquidate a shareholder's account, including instances
where the aggregate net asset value of the Investor C Shares held in the account
is less than the minimum account size, (iv) in connection with the combination
of Nations Fund with any other registered investment company by merger,
acquisition of assets or by any other transaction, and (v) effected pursuant to
the Automatic Withdrawal Plan discussed below, provided that such redemptions do
not exceed, on an annual basis, 12% of the net asset value of the Investor C
Shares in the account. Shareholders are responsible for providing evidence
sufficient to establish that they are eligible for any waiver of the CDSC.
Nations Fund may terminate any waiver of the CDSC by providing notice in the
Prospectus, but any such termination would affect only shares purchased after
such termination.
Within 120 days after a redemption of Investor C Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor C Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor C
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of a Fund if the value of the
Investor C Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor C Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the and Investor C Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer or to a checking or savings account in a stated amount of
not less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor C Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling or Servicing Agent or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Fund or Investor D Shares of any
Nations Fund money market fund when he or she believes that a shift between
funds is an appropriate investment decision. A qualifying exchange is based on
the next calculated net asset value per share of each fund after the exchange
order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquires Investor C Shares of a Nations Fund non-money market
fund or Investor D Shares of a Nations Fund money market fund through an
exchange, the CDSC applicable to the original shares purchased will be applied
to any redemption of the acquired shares (except for exchanges of Nations
Short-Term Income Fund shares purchased prior to January 1, 1996,
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which will be subject to the CDSC schedule applicable to the acquired Fund).
Additionally, when an investor exchanges Investor C Shares of a Nations Fund
non-money market fund for shares of the same class of another non-money market
fund or Investor D Shares of any money market fund of Nations Fund, the
remaining period of time (if any) that the CDSC is in effect will be computed
from the time of the initial purchase of the previously held Investor C Shares
(except for shares of Nations Short-Term Income Fund purchased prior to January
1, 1996). If an investor exchanges Investor C Shares of the Nations Short-Term
Income Fund purchased prior to January 1, 1996 for shares of the same class of
another non-money market fund, the remaining period of time that the CDSC
applicable to the acquired shares is in effect will be computed from the time of
the exchange.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one Nations Fund
to another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th or 30th day of the applicable month.
The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, an
investor should contact his/her Selling Agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchanges through the AEF). Nations Fund reserves the right to
reject any exchange request. Only shares that may legally be sold in the state
of the investor's residence may be acquired in an exchange. Only shares of a
class that is accepting investments generally may be acquired in an exchange. An
investor may telephone an exchange request by calling his/her Selling or
Servicing Agent which is responsible for transmitting such request to Stephens
or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling or Servicing Agent through which the original
shares were purchased. An investor should consult his/her Selling or Servicing
Agent or Stephens for further information regarding exchanges.
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Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have approved a
Distribution Plan with respect to the Investor C Shares of each Fund. Pursuant
to the Distribution Plan, each Fund may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor C Shares. Payments under the Distribution Plan will be calculated daily
and paid monthly at a rate or rates set from time to time by the Trustees
provided that the annual rate may not exceed 0.75% of the average daily net
asset value of each Fund's Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution Plan will not be used to
pay any interest expenses, carrying charges or other financing costs (except to
the extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the relevant SAI for more details on
the Distribution Plan.
The Trustees and Directors also have approved a shareholder servicing plan
("Investor C Servicing Plan") for each Fund which permits the Funds to
compensate Servicing Agents for services provided to their Customers that own
Investor C Shares. Payments under the Investor C Servicing Plan are calculated
daily and paid monthly at a rate or rates set from time to time by the Funds,
provided that the annual rate may not exceed 0.25% of the average daily net
asset value of the Investor C Shares.
The fees payable under the Investor C Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for Investor C Shares from Customers and
transmitting net purchase and redemption orders to Stephens or the Transfer
Agent; (ii) providing Customers with a service that invests the assets of their
accounts in Investor C Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor C Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Investor C Servicing Plan
at any time, and payments are subject to the continuation of the Investor C
Servicing Plan described above and the terms of the Servicing Agreements. See
the SAI for more details on the Investor C Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor Shares for various services pro-
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vided in connection with a Customer's account. These fees would be in addition
to any amounts received by a Selling Agent under its Sales Support Agreement
with Stephens or by a Servicing Agent under its Servicing Agreement with Nations
Fund. The Sales Support Agreements and Servicing Agreements require Agents to
disclose to their Customers any compensation payable to the Agent by Stephens or
Nations Fund and any other compensation payable by the Customers for various
services provided in connection with their accounts. Customers should read this
Prospectus in light of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of a Fund during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.75% of the offering
price per share on all sales of Investor C Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Distribution Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Selling and Servicing Agents may provide for
the reinvestment of dividends in the form of additional Investor Shares of the
same class in the same Fund. Dividends and distributions are paid in cash within
five Business
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Days of the end of the month or quarter to which the dividend relates. Dividends
and distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
The Funds intend to distribute substantially all of their investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.) Corporate investors may be
entitled to the dividends-received deduction on a portion of the dividends from
those Funds investing in the stock of domestic corporations.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and this SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, other economic and demographic
factors. For example, falling interest rates generally result in an increase in
the rate of prepayments of mortgage loans while rising interest rates generally
decrease the rate of prepayments. An acceleration in prepayments in response to
sharply falling interest rates will shorten the security's average maturity and
limit the potential appreciation in the security's value relative to a
conventional debt security. Consequently, asset-backed securities may not be as
effective in locking in high, long-term yields. Conversely, in periods of
sharply rising rates, prepayments are generally slow, increasing the security's
average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
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.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return 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.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the sec-
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ondary market at a premium or discount after issuance; (iii) interest is earned
and compounded monthly which has the effect of raising the effective yield
earned on the Certificates; and (iv) the actual yield of each Certificate is
affected by the prepayment of mortgages included in the mortgage pool underlying
the Certificates and the rate at which principal so prepaid is reinvested. In
addition, prepayment of mortgages included in the mortgage pool underlying a
GNMA Certificate purchased at a premium may result in a loss to the Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs," are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
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.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments, mortgage refinancings, or foreclosures.
The rate of mortgage prepayments, and hence the average life of the
certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined by
the Adviser and used for the purpose of determining the average weighted
maturity and duration of the Funds. For additional information concerning
mortgage-backed securities, see the related SAI.
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
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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. Such securities also may include instruments issued by trusts
or certain partnerships, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such trusts or partnerships.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations), and other foreign obligations involve special investment
risk, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable
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to foreign issuers may differ from those applicable to domestic issuers. In
addition, foreign banks are not subject to examination by U.S. Government
agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities a
Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. 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
Funds only enter 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
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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 objective. 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
U.S. dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted. The Funds will generally
not enter into forward contracts with terms of greater than one year.
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FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by 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 such Funds against adverse market movements by investing
in futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold 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, time deposits and
guaranteed investment contracts that do not
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provide for payment to a Fund within seven days after notice, and illiquid
restricted securities are subject to the limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) 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 and
Section 4(2), 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 their
portfolios 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: Nations Diversified Income Fund may invest in
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. Each
Fund that may invest in lower-rated debt securities intends 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' Boards, 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
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to service their payment obligations, meet projected goals, or obtain additional
financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss. Some of these instruments may be unrated, but unrated
instruments purchased by a Fund will be determined by the Adviser to be of
comparable quality at the time of purchase to instruments rated "high quality"
by any major rating service. Where necessary to ensure that an instrument is of
comparable "high quality," a Fund will require that an issuer's obligation to
pay the principal of the note may be backed by an unconditional bank letter or
line of credit, guarantee, or commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue 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
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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
securities. 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. The Funds will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in municipal securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, 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 con-
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tracts transactions can be offset at favorable prices; possible reduction of a
Fund's total return due to the use of hedging; possible lack of liquidity due to
daily limits on price fluctuation; imperfect correlation between the contracts
and the securities or currencies being hedged; and potential losses in excess of
the amount invested in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of, and therefore backed by the full faith and
credit 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.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
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.
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Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
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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
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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 D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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
42
<PAGE>
more affected by external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term 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 busi-
43
<PAGE>
ness, economic or financial conditions may lead to increased investment
risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess 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.
44
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes three equity
portfolios -- NATIONS INTERNATIONAL EQUITY FUND,
NATIONS EMERGING MARKETS FUND and NATIONS PACIFIC
GROWTH FUND -- and one bond portfolio -- NATIONS
GLOBAL GOVERNMENT INCOME FUND (each, a
"Fund") -- of Nations Fund, Inc. and Nations Fund
Portfolios, Inc. ("Nations Portfolios"), each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Fund -- Investor C Shares.
This Prospectus sets forth concisely the
information about each Fund that a prospective
purchaser of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund, Inc. and
Nations Portfolios is contained in separate
Statements of Additional Information (the "SAIs"),
that 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, Inc. and
Nations Portfolios, each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the Funds. As used herein
the "Adviser" shall mean NBAI and/or Gartmore as
the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations International
Equity Fund
Nations Emerging
Markets Fund
Nations Pacific
Growth Fund
Nations Global
Government Income Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 9
How Objectives Are Pursued 10
How Performance Is Shown 15
How The Funds Are Managed 16
Organization And History 20
About Your Investment
How To Buy Shares 21
How To Redeem Shares 23
How To Exchange Shares 24
Shareholder Servicing And Distribution Plans 25
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 34
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations International Equity Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of non-United States companies in Europe,
Australia, the Far East and other areas, including some
developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective
is to seek long-term capital growth by investing
primarily in equity securities of companies in
emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far
East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of companies in the Pacific Basin and the Far
East (excluding Japan).
(Bullet) Nations Global Government Income Fund's investment objective
is to maximize total return by investing primarily in high
quality debt securities issued by governments, banks and
supranational entities located throughout the world.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. Gartmore
Global Partners provides sub-advisory services to the Funds. See "How
The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds declare and pay
dividends from net investment income each calendar quarter and the
Nations Global Government Income Fund declares dividends daily and pays
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: The Funds are designed for long-term investors seeking
international diversification and who are willing to bear the risks
associated with international investing, such as foreign currency
fluctuations and economic and political risks. For a discussion of
these and other factors, see "How Objectives Are Pursued -- Special
Risk Considerations Relevant to an Investment in the Funds."
(Bullet) MINIMUM PURCHASE. $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors: $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR C SHARES
<TABLE>
<CAPTION>
Nations
International Nations Emerging Nations Pacific
Equity Fund Markets Fund Growth Fund
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of the
original purchase price or redemption proceeds)1 .50% .50% .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90% 1.10% .90%
Rule 12b-1 Fees (After Fee Waivers) .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .27% 1.03% .86%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) 1.67% 2.63% 2.26%
</TABLE>
<TABLE>
<CAPTION>
Nations Global
Government
Income Fund
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of the lower of the
original purchase price or redemption proceeds)1 .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .70%
Rule 12b-1 Fees (After Fee Waivers) .25%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .62%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) 1.82%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of the date of purchase. Investor C Shares purchased
prior to January 1, 1996 will continue to be subject to the 1.00% Deferred
Sales Charge.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Nations Nations
International Emerging Markets Pacific Growth
Equity Fund Fund Fund
<S> <C> <C> <C>
1 Year $ 22 $ 32 $ 28
3 Years $ 53 $ 82 $ 71
5 Years $ 91 $ 140 $ 121
10 Years $ 198 $ 296 $ 260
</TABLE>
<TABLE>
<CAPTION>
Nations Global
Government
Income Fund
<S> <C>
1 Year $ 24
3 Years $ 57
5 Years $ 99
10 Years $ 214
</TABLE>
4
<PAGE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
Nations Nations Nations
International Emerging Markets Pacific Growth
Equity Fund Fund Fund
<S> <C> <C> <C>
1 Year $ 17 $ 27 $ 23
3 Years $ 53 $ 82 $ 71
5 Years $ 91 $ 140 $ 121
10 Years $ 198 $ 296 $ 260
</TABLE>
<TABLE>
<CAPTION>
Nations Global
Government
Income Fund
<S> <C>
1 Year $ 19
3 Years $ 57
5 Years $ 99
10 Years $ 214
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares of the Funds will bear either directly or indirectly. The
figures in the above tables are based on amounts incurred during the Funds' most
recent fiscal year and have been adjusted as necessary to reflect current
service provider fees and waivers. Absent fee waivers, "Rule 12b-1 Fees" and
"Total Operating Expenses" would be as follows: Nations International Equity
Fund -- .75% and 2.17%, respectively; Nations Emerging Markets Fund -- .75% and
2.90%, respectively; Nations Pacific Growth Fund -- .75% and 2.70%,
respectively; and Nations Global Government Fund -- .75% and 2.30%,
respectively. 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 of the Funds could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers, Inc.
For more complete descriptions of the Funds' operating expenses, see "How The
Funds Are Managed." For a more complete description of the Rule 12b-1 and
shareholder servicing fees payable by the Funds, see "Shareholder Servicing And
Distribution Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund, Inc. and Nations Portfolios. Price
Waterhouse LLP is the independent accountant to Nations Fund, Inc. and Nations
Portfolios. The reports of Price Waterhouse LLP for the most recent fiscal
years of Nations Fund, Inc. and Nations Portfolios accompany the financial
statements for such periods and are incorporated by reference in the SAIs,
which are available upon request. For more information see "Organization And
History." Shareholders of the Funds will receive unaudited semi-annual reports
describing the Funds' investment operations and annual financial statements
audited by the Funds' independent accountant.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a)# 05/31/95# 05/31/94#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.45 $ 11.86 $ 10.49
Net investment income/(loss) (0.03) 0.02 (0.03)
Net realized and unrealized gain/(loss) on
investments 1.75 (0.21) 1.43
Net increase/(decrease) in net asset value from
operations 1.72 (0.19) 1.40
Distributions:
Dividends from net investment income -- -- (0.01)
Distributions in excess of net investment income (0.02) -- --
Distributions from net realized capital gains (0.02) (0.12) (0.02)
Distributions in excess of net realized capital
gains -- (0.10) --
Total dividends and distributions (0.04) (0.22) (0.03)
Net asset value, end of period $ 13.13 $ 11.45 $ 11.86
Total return++ 15.09%% (1.56)% 13.21%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 652 $ 495 $ 339
Ratio of operating expenses to average net assets 2.09%+ 2.03% 2.17%
Ratio of net investment income/(loss) to average
net assets (0.27)%+ 0.17% (0.25)%
Portfolio turnover rate 26% 92% 39%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.102%+ 2.04% 2.18%
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ (0.03) $ 0.02 $ (0.03)
Average commission rate paid (b) $ 0.0272 -- --
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 05/31/93*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.10
Net investment income/(loss) 0.00**
Net realized and unrealized gain/(loss) on
investments 0.48
Net increase/(decrease) in net asset value from
operations 0.48
Distributions:
Dividends from net investment income (0.07)
Distributions in excess of net investment income --
Distributions from net realized capital gains (0.02)
Distributions in excess of net realized capital
gains --
Total dividends and distributions (0.09)
Net asset value, end of period $ 10.49
Total return++ 4.97%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 200
Ratio of operating expenses to average net assets 2.30%+
Ratio of net investment income/(loss) to average
net assets 0.03%+
Portfolio turnover rate 41%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.32%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.00**
Average commission rate paid (b) --
</TABLE>
* Nations International Equity Fund Investor C Shares commenced operations on
June 17, 1992.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly 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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per shares of securities purchased and sold by
the Fund.
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 03/31/96*#
<S> <C>
Operating Performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.10)
Net realized and unrealized gain on investments (0.37)
Net increase in net asset value from operations (0.27)
Dividends from net investment income --
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.27
Total return++ (2.70)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23
Ratio of operating expenses to average net assets 3.02%+
Ratio of net investment income to average net assets (1.27)%+
Portfolio turnover rate 17%
Average commission rate paid (a) $ 0.0004
</TABLE>
* Nations Emerging Markets Fund Investor C Shares commenced operations on June
30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period, since the use
of the undistributed income method did not accord with the results of
operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
7
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 03/31/96*#
<S> <C>
Operating Performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.09)
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net asset value from operation (0.20)
Dividends from net investment income --
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.20
Total return++ 2.00%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 60
Ratio of operating expenses to average net assets 2.65%+
Ratio of net investment income/(loss) to average net assets (1.16)%+
Portfolio turnover rate 2.3%
Average commission rate paid (b) $ 0.0178
</TABLE>
* Nations Pacific Growth Fund Investor C Shares commenced operations on June
30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly 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.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
8
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 03/31/96*#
<S> <C>
Operating Performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.33
Net realized and unrealized gain on investments 0.11
Net increase in net asset value from operations 0.44
Distributions:
Dividends from net investment income (0.31)
Distributions in excess of net investment income (0.02)
Distributions from net realized capital gains (0.04)
Total dividends and distributions (0.37)
Net asset value, end of period $ 10.07
Total return++ 4.40%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 9
Ratio of operating expenses to average net assets 2.16%+
Ratio of net investment income to average net assets 4.33%+
Portfolio turnover rate 213%
</TABLE>
* Nations Global Government Income Fund Investor C Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately represents the per share data for the
period, since the use of the undistributed income method did not accord with
the results of operations.
Objectives
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality 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 it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Funds will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs, nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market.
9
<PAGE>
How Objectives Are Pursued
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 companies 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 companies 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 may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities.
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return and forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures and options thereon. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in 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 the Fund.
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
equity securities of companies in emerging markets. 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.
Emerging Markets include, but are not limited to: Argentina, Brazil, Chile,
China, Czech Republic, Columbia, Ecuador, Greece, Hong Kong, Indonesia, India,
Malaysia, Mexico, the Philippines, Poland, Portugal, Peru, Russia, Singapore,
South Africa, Thailand, Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. A company will
be considered to conduct its principal business activities in a country, market
or region if it derives a significant portion (at least 50%) of its revenues or
profits from goods produced or sold, investments made, or services performed in
such country, market or region or has at least 50% of its assets situated in
such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests
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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 Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("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 Funds," 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 also may invest in certain specified derivative securities, including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; 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. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
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 in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 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
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lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. See "Appendix B" for a description of
these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in 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 Funds," 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. The Fund also may invest in
certain specified derivative securities, including: exchange-traded options;
over-the-counter options executed with primary dealers, including long calls and
puts and covered calls and forward foreign exchange contracts; and U.S. and
foreign exchange-traded financial futures approved by the CFTC and options
thereon for market exposure risk management. The Fund may lend its portfolio
securities to qualified institutional investors. The Fund may invest in
restricted, private placement and other illiquid securities, and also may invest
in securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
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 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 Funds," below. Because the Fund intends to
invest a large portion of its assets in foreign Government Securities, the Fund
is a "non-diversified" investment company for purposes of the Investment Company
Act of 1940 (the "1940 Act"). The Fund may invest in securities of issuers
located in any region or country and that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various countries and currencies will vary in accordance with the
Adviser's assessment of the relative yield and appreciation of such securities.
Fundamental
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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.
The Fund also may invest in money market instruments, forward foreign currency
exchange contracts, futures and options and other instruments. The Fund also may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies. For defensive purposes, the Fund may
temporarily invest substantially all of its assets in U.S. financial markets or
in U.S. dollar-denominated instruments. See "Appendix A" below for additional
information concerning the investment practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUNDS: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, each Fund presents unique risks that investors should be
aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in the Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties.
The same is true, but even more so, for the emerging market countries in which
Nations Emerging Markets Fund invests. 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
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well capitalized and thus securities of issuers based in such countries may be
less liquid.
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.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. For the Funds' portfolio turnover rates, see "Financial
Highlights." If a Fund's portfolio turnover rate exceeds 100%, it may result in
higher costs to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences.
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 a Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in each
Fund's respective SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of a
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.
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.
Nations International Equity Fund, Nations Emerging Markets Fund and Nations
Pacific Growth Fund may not:
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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 such Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
Nations 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 current positions and
needs.
In order to permit the sale of a Fund's shares 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 interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of the Fund (as stated in the advertisement)
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment (reflecting the deduction of
any applicable contingent deferred sales charge ("CDSC")), assuming the
reinvestment of all dividend and capital gains distributions. Aggregate total
return reflects the total percentage change in the value of the investment over
the measuring period, again assuming the reinvestment of all dividends and
capital gains distributions. Total return may also be presented for other
periods or may not reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A and Investor
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N Shares. Each class of shares may bear different sales charges, shareholder
servicing fees, loads and other expenses, which may cause the performance of a
class to differ from the performance of the other classes. Total return and
yield quotations will be computed separately for each class of the Funds'
shares. Any quotation of total return or yield not reflecting CDSCs would be
reduced if such sales charges were reflected. Any fees charged by a selling
agent and/or servicing agent directly to its customers' accounts in connection
with investments in the Funds will not be included in calculations of total
return or yield. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investor's selling agent.
How The Funds Are Managed
The business and affairs of Nations Fund, Inc. and Nations Portfolios are
managed under the direction of their respective Boards of Directors. Nations
Fund, Inc.'s and Nations Portfolios' SAIs contain the names of and general
background information concerning each Director of Nations Fund, Inc. and
Nations Portfolios.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as sub-investment adviser to the Funds
pursuant to sub-advisory agreements. 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 an indirect, wholly owned subsidiary of
Gartmore Investment Management plc ("Gartmore plc"), a UK company which is the
holding company for a leading UK-based international fund management group of
companies. National Westminster Bank plc and affiliated entities (collectively,
"Natwest") own 100% of the equity of Gartmore plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management ("Nations Gartmore"), the
predecessor to Gartmore, pursuant to sub-advisory agreements among NBAI, Nations
Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively, on behalf
of the Funds. Nations Gartmore was a joint venture structured as a general
partnership between NB Partner Corp. and Gartmore U.S. Limited. On April 10,
1996, NatWest acquired a controlling interest in Gartmore plc from Compagnie de
Suez and affiliated entities ("Compagnie de Suez") through a direct purchase
from Compagnie de Suez of its indirect subsidiary Indosuez UK Asset Management
Limited, which held 75% of Gartmore plc's outstanding voting securities (the
"Acquisition"). NatWest acquired the remaining portion of Gartmore plc's shares
held by public shareholders through a tender offer. Gartmore is the successor
entity resulting from the Acquisition and change of control of Nations Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in
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the personnel who provide services under the new Sub-Advisory Agreements, and
the Funds receive the same sub-advisory services, provided in the same manner
and at the same fee levels, as they received under the Previous Sub-Advisory
Agreements.
Subject to the general supervision of Nations Fund, Inc.'s and Nations
Portfolios' Boards of Directors, and in accordance with each Fund's investment
policies, the Adviser formulates guidelines and lists of approved investments
for each Fund, makes decisions with respect to and places orders for each Fund's
purchases and sales of portfolio securities and maintains records relating to
such purchases and sales. The Adviser is authorized to allocate purchase and
sale orders for portfolio securities to certain financial institutions,
including, in the case of agency transactions, financial institutions which are
affiliated with the Adviser or which have sold shares in the Funds, if the
Adviser believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified brokerage firms. From time
to time, to the extent consistent with its investment objective, policies and
restrictions, each Fund may invest in securities of companies with which
NationsBank has a lending relationship. For the services provided and expenses
assumed pursuant to various Investment Advisory Agreements, NBAI is entitled to
receive advisory fees, computed daily and paid monthly, at the annual rates of:
0.90% of each of Nations International Equity Fund's and Nations Pacific Growth
Fund's average daily net assets; 1.10% of Nations Emerging Markets Fund's
average daily net assets, and 0.70% of Nations Global Government Income Fund's
average daily net assets.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
Gartmore is entitled to receive from NBAI sub-advisory fees, computed daily and
paid monthly, at the annual rate of 0.70% of Nations International Equity Fund's
average daily net assets; 0.85% of Nations Emerging Markets Fund's average daily
net assets; 0.70% of Nations Pacific Growth Fund's average daily net assets; and
0.54% of Nations Global Government Income Fund's average daily net assets.
From time to time, NBAI (and/or Gartmore) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.22% of the average daily net assets of Nations
International Equity Fund.
For the fiscal period from June 30, 1995 to December 31, 1995, after waivers,
Nations Portfolios paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth Fund --
0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.22% of the average daily net assets of Nations
International Equity Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors sub-advisory fees at the indicated rates of the following
Funds' average daily net assets: Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income
Fund -- 0.54%.
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Philip Ehrmann is Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Gartmore Emerging Markets Team. He has been Portfolio
Manager for Nations Emerging Markets Fund since 1995. Prior to joining Gartmore,
Mr. Ehrmann was the Director of Emerging Markets for Invesco in London. Mr.
Ehrmann has over 15 years of investment management experience.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager for Nations Global Government Income
Fund since the Fund's inception. 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.
Seok Teoh is Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been Portfolio Manager for Nations Pacific Growth Fund since the Fund's
inception. She has been associated with the Gartmore Group since 1990 as the
London based manager on its Far East desk. Prior to that, Ms. Teoh worked for
Overseas Union Bank Securities in Singapore where she was responsible for
Singaporean and Malaysian equity sales and then subsequently for Rothschild as a
Fund Manager in Singapore and later in Tokyo. Ms. Teoh, who is a native of
Singapore, is fluent in Mandarin and Cantonese and received an Economics degree
from the University of Durham in 1985.
Stephen Watson has been Principal Portfolio Manager for 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.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations 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.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One
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Exchange Place, Boston, Massachusetts 02109, serves as the co-administrator of
Nations Fund pursuant to Co-Administration Agreements. Under the
Co-Administration Agreements, First Data 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 First Data 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 period from June 1, 1995 to March 31, 1996, after waivers, Nations Fund,
Inc. paid its administrator combined fees at the rate of 0.10% of the average
daily net assets of Nations International Equity Fund.
For the fiscal period from June 30, 1995 to March 31, 1996, after waivers,
Nations Portfolios paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Pacific Growth Fund --
0.10%; Nations Emerging Markets Fund -- 0.10%; and Nations Global Government
Fund -- 0.10%.
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 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
Bank of New York (the "Custodian"), Avenue des Arts, 35 1040 Brussels, Belgium,
serves as custodian for the assets of the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; cost of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings, other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor C Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund, Inc. and/or Nations Portfolios that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund, Inc. and Nations Portfolios or in such other manner
as the relevant Board of Directors deems appropriate.
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Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional
Reserves. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of Nations International Equity Fund of Nations Fund, Inc. To
obtain additional information regarding the Fund's other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 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. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Investor C Shares of Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund of Nations Portfolios. To obtain additional information regarding
the Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion
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of the assets allocated to that class held in the respective fund of Nations
Portfolios, less (b) the liabilities of Nations Portfolios attributable to the
respective fund or class allocated among the funds or classes based on the
respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of July 15, 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 two 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, Inc. and
Nations Portfolios have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders for Investor C
Shares may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a Sales Support Agreement with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor C Shares are purchased at net asset value per share. Purchases may be
effected on
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days on which the New York Stock Exchange (the "Exchange") is open for business
(a "Business Day").
With respect to Investor C Shares, the Selling Agents have entered into Sales
Support Agreements with Stephens whereby they will provide various sales support
services to their customers ("Customers") who own Investor C Shares. In
addition, banks, broker/dealers or other financial institutions (including
certain affiliates of NationsBank) that have entered into Servicing Agreements
with Nations Fund ("Servicing Agents") will provide various shareholder services
for their Customers who own Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor C Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
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How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Funds that are redeemed within one year of the date of purchase will be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. Investor C Shares purchased prior
to January 1, 1996 remain subject to the 1.00% CDSC. No CDSC is imposed on
increases in net asset value above the initial purchase price, including shares
acquired by reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor C Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor C shares held in the account is less than the
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minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor C Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC. Nations Fund may terminate any
waiver of the CDSC by providing notice in the Funds' Prospectus, but any such
termination would affect only shares purchased after such termination.
Within 120 after a redemption of Investor C Shares of a Fund, a shareholder may
reinvest any portion of the proceeds of such redemption in Investor C Shares of
the same Fund. The amount which may be so reinvested is limited to an amount up
to, but not exceeding, the redemption proceeds (or to the nearest full share if
fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor C
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor C Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor C Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor C Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor C Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Fund or Investor D Shares of any
Nations Fund money market fund when he or she believes that a shift between
funds is an appropriate investment decision. A qualifying exchange is based on
the next calculated net asset value per share of each fund after the exchange
order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquires Investor C Shares of a Nations Fund non-money market
fund or Investor D Shares of a Nations Fund money market fund through an
exchange, the CDSC applicable to the original shares purchased will be applied
to any redemption of the acquired shares. Additionally, when an investor
exchanges Investor C Shares of a Nations Fund non-money market fund for shares
of the same class of another non-money market fund or Investor D Shares of any
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money market fund of Nations Fund, the remaining period of time (if any) that
the CDSC is in effect will be computed from the time of the initial purchase of
the previously held Investor C Shares.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or 30th day of the
applicable month. The shareholder must have an existing position in both funds
in order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, an investor should contact his/her Selling Agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchange through the AEF). Nations Fund reserves the right to reject
any exchange request. Only shares that may legally be sold in the state of the
investor's residence may be acquired in an exchange. Only shares of a class that
is accepting investments generally may be acquired in an exchange. An investor
may telephone an exchange request by calling his/her Agent which is responsible
for transmitting such request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Directors have approved a
Distribution Plan with respect to Investor C Shares of the Funds. Pursuant to
the Distribution Plan, the Funds may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Funds'
Investor C Shares. Payments under the Investor C Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Directors provided that the annual rate may not exceed 0.75% of the average
daily net asset value of the Funds' Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C
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Shares such as the preparation, printing and distribution of prospectuses to
other than current shareholders, and (iii) to compensate Selling Agents for
providing sales support services with respect to their Customers who are, from
time to time, beneficial and record holders of Investor C Shares. Currently,
substantially all fees paid pursuant to the Distribution Plan are paid to
compensate Selling Agents for providing the services described in (i) and (iii)
above, with any remaining amounts being used by Stephens to partially defray
other expenses incurred by Stephens in distributing Investor C Shares. Fees
received by Stephens pursuant to the Distribution Plan will not be used to pay
any interest expenses, carrying charges or other financing costs (except to the
extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
The Directors also have approved a shareholder servicing plan ("Servicing Plan")
for the Funds which permits the Funds to compensate Servicing Agents for
services provided to their Customers that own Investor C Shares. Payments under
the Servicing Plan are calculated daily and paid monthly at a rate or rates set
from time to time by the Funds, provided that the annual rate may not exceed
0.25% of the average daily net asset value of the Funds' Investor C Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor C Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor C
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor C Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor Shares for various services provided in connection with a
Customer's account. These fees would be in addition to any amounts received by a
Selling Agent under its Sales Support Agreement with Stephens or by a Servicing
Agent under its Servicing Agreement with Nations Fund. The Sales Support
Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.75% of the offering
price per share on all sales of Investor C Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Distribution Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional com-
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pensation in the form of trips to sales seminars or vacation destinations,
tickets to sporting events, theater or other entertainment, opportunities to
participate in golf or other outings and gift certificates for meals or
merchandise. This non-cash compensation program may be amended or terminated at
any time by Stephens.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid each calendar quarter by Nations International Equity Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund and are declared daily and
paid monthly by Nations Global Government Income Fund. Each Fund's net realized
capital gains (including net short-term capital gains) are distributed at least
annually. Investor C Shares of the Funds are eligible to receive dividends when
declared, provided, however, that the purchase order for such shares is received
at least one day prior to the dividend declaration and such shares continue to
be eligible for dividends through and including the day before the redemption
order is executed. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor C Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the month or quarter to which the dividend relates. Dividends
and distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax
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for distributions to an IRA are generally deferred under the Code.)
Corporate investors in the Funds may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
these Funds to the extent that a Fund's income is derived from dividends (which,
if received directly, would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the Fund shares paying the dividends upon which
the deduction is based for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each of those Funds will consist of securities
of foreign issuers, and therefore each of those Funds may elect to "pass
through" to its shareholders these foreign taxes, if any. In such event each
shareholder will be required to include his or her pro rata portion thereof in
his or her gross income, but will be able to deduct or (subject to various
limitations) claim a foreign tax credit against U.S. income tax for such amount.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
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.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations), and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When 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. Nations International Equity Fund is a party 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. 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.
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 objective. 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: To the extent provided
under "How Objectives Are Pursued," 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
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portfolio depends primarily on interest rate changes, the average weighted
maturity of the portfolio and the quality of the securities held. The debt
component of a Fund's portfolio will tend to decrease in value when interest
rates rise and increase when interest rates fall. A Fund's share price and yield
depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. dollar. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract is an
obligation by a Fund to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when 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 debt and equity obligations
(dollar- and non-dollar-denominated 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S.
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exchanges, and there is generally less government supervision and regulation of
foreign securities exchanges, brokers, and companies than in the United States.
With respect to certain foreign countries, there is a possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets, or diplomatic developments that could affect investments within
those countries. Because of these and other factors, securities of foreign
companies acquired by a Fund may be subject to greater fluctuation in price than
securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed-income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold 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, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Directors or the Adviser, acting under
guidelines approved and monitored by the Fund's Board, after considering trading
activity, availability of reliable price information and other relevant
information, that an adequate trading market exists for that security. To the
extent that, for a period of time, qualified institutional buyers cease
purchasing such restricted securities pursuant to Rule 144A and Section 4(2),
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 their
portfolios 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
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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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: Each 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.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies
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the attendant risks. The aggregate of all outstanding loans of a Fund may not
exceed 30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
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.
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Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
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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 Duff + Phelps Credit
Rating Co. ("D&P") for bonds, each of which denotes that the securities are
investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may 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 Investors
Service ("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
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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 D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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.
36
<PAGE>
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries. BankWatch ratings do not
constitute a recommendation to buy or sell securities of any of these companies.
Further, BankWatch does not suggest specific investment criteria for individual
clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term 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.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse
37
<PAGE>
changes in business, economic or financial conditions are more likely to
lead to increased investment risk than for obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
38
<PAGE>
Prospectus
INVESTOR N SHARES
JULY 31, 1996
This Prospectus describes NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND AND NATIONS DISCIPLINED EQUITY FUND
(the "Funds") of Nations Fund Trust and Nations
Fund, Inc., each an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of the
Funds -- Investor N Shares.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor N Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that 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 and
Nations Fund, Inc., each dated July 31, 1996, 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 the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
GROWTH AND INCOME FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Balanced
Assets Fund
GROWTH FUNDS:
Nations Capital Growth Fund
Nations Emerging
Growth Fund
Nations Disciplined
Equity Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 11
How Objectives Are Pursued 12
How Performance Is Shown 18
How The Funds Are Managed 19
Organization And History 23
About Your Investment
How To Buy Shares 25
Shareholder Servicing And Distribution Plans 26
How To Redeem Shares 28
How To Exchange Shares 30
How The Funds Value Their Shares 31
How Dividends And Distributions Are Made; Tax
Information 31
Appendix A -- Portfolio Securities 32
Appendix B -- Description Of Ratings 40
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by
investing primarily in companies with above average
dividend yields.
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income
securities.
(Bullet) Nations Capital Growth Fund's investment objective is to seek
growth of capital by investing in companies that are believed
to have superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment objective is to seek
capital appreciation by investing in emerging growth companies
that are believed to have superior long-term earnings growth
prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective is to
seek growth of capital by investing in companies that
are expected to produce significant increases in
earnings per share.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare and pay dividends from
net investment income each calendar quarter. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. 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 risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities, including U.S. Government
Obligations, are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Funds'
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
3
<PAGE>
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. Minimum subsequent
investment is $100, except for investments pursuant to the systematic
investment plan. See "How To Buy Shares."
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor N Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
Nations Nations
Nations Equity Balanced Nations Nations
Value Income Assets Capital Growth Emerging Growth
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None None None
Deferred Sales Charge (as a percentage of
the lower of the original purchase price
or redemption proceeds)1 None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .70% .75% .75% .75%
Rule 12b-1 Fees (After fee waivers) .50% .50% .50% .75% .75%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses (After expense
reimbursements) .21% .20% .25% .21% .24%
Total Operating Expenses (After fee
waivers and expense reimbursements) 1.71%2 1.65%2 1.75%2 1.96% 1.99%
</TABLE>
<TABLE>
<CAPTION>
Nations
Disciplined
Equity
Fund
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of
the lower of the original purchase price
or redemption proceeds)1 None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75%
Rule 12b-1 Fees (After fee waivers) .75%
Shareholder Servicing Fees .25%
Other Expenses (After expense
reimbursements) .27%
Total Operating Expenses (After fee
waivers and expense reimbursements) 2.02%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
4
<PAGE>
EXAMPLES:
An investment of $1,000 would incur the following expenses, assuming (1) a 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Equity Balanced Capital
Value Income Assets Growth
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
1 Year $ 17 $ 17 $ 18 $ 20
3 Years $ 54 $ 52 $ 55 $ 62
5 Years $ 93 $ 90 $ 93 $ 106
10 Years $ 202 $ 195 $ 206 $ 229
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Emerging Disciplined
Growth Equity
Fund Fund
<S> <C> <C>
1 Year $ 20 $ 21
3 Years $ 62 $ 63
5 Years $ 107 $ 109
10 Years $ 232 $ 235
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in the
Funds will bear either directly or indirectly. The figures contained in the
above tables are based on amounts incurred during each Fund's most recent fiscal
year and have been adjusted as necessary to reflect current service provider
fees. The "Other Expenses" figures in the above table are based on estimates for
the current fiscal year. There is no assurance that any fee waivers and/or
expense reimbursements will continue beyond the current fiscal year. If fee
waivers and/or expense reimbursements are discontinued, the amounts contained in
the "Examples" above may increase. Long-term shareholders of the Funds could pay
more in sales charges than the economic equivalent of the maximum front-end
sales charges applicable to mutual funds sold by members of the National
Association of Securities Dealers, Inc. For more complete descriptions of the
Funds' operating expenses, see "How The Funds Are Managed." Absent fee waivers,
"Rule 12b-1 Fees" and "Total Operating Expenses" would have been as follows:
Nations Value Fund -- .75% and 1.96%, respectively; Nations Equity Income
Fund -- .75% and 1.90%, respectively; and Nations Balanced Assets Fund -- .75%
and 2.00%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.15 $ 12.94 $ 13.71 $ 13.08
Net investment income 0.03 0.17 0.15 0.11
Net realized and unrealized gain/(loss) on investments 1.05 3.89 (0.22) 0.63
Net increase/(decrease) in net asset value from operations 1.08 4.06 (0.07) 0.74
Distributions:
Dividends from net investment income (0.06) (0.18) (0.16) (0.11)
Distributions from net realized capital gains (0.62) (0.67) (0.54) --
Total dividends and distributions (0.68) (0.85) (0.70) (0.11)
Net asset value, end of period $ 16.55 $ 16.15 $ 12.94 $ 13.71
Total return++ 6.90% 33.55% (0.69)% 5.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 88,861 $ 83,699 $ 42,530 $ 10,449
Ratio of operating expenses to average net assets 1.71%+ 1.69% 1.68% 1.71%+
Ratio of net investment income to average net assets 0.55%+ 1.15% 1.10% 1.23%+
Portfolio turnover rate 12% 63% 75% 64%
Ratio of operating expenses to average net assets without
waivers
and/or expense reimbursements 1.71%+ 1.69% 1.68% 1.72%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.03 $ 0.17 $ 0.15 $ 0.11
Average commission rate paid (b) $ 0.0648 N/A N/A N/A
</TABLE>
* Nations Value Fund Investor N Shares commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
6
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EQUITY INCOME FUND
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 05/31/95 05/31/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.77 $ 11.40 $ 11.98
Net investment income 0.22 0.34 0.37
Net realized and unrealized gain on investments 1.76 1.11 0.22
Net increase in net asset value resulting from operations 1.98 1.45 0.59
Distributions:
Dividends from net investment income (0.28) (0.35) (0.36)
Distributions from net realized capital gains (0.37) (0.73) (0.81)
Total dividends and distributions (0.65) (1.08) (1.17)
Net asset value, end of period $ 13.10 $ 11.77 $ 11.40
Total return++ 17.21% 14.03% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 104,026 $ 75,371 $ 46,043
Ratio of operating expenses to average net assets 1.65%+ 1.67% 1.69%+
Ratio of net investment income to average net assets 2.09%+ 3.00% 2.66%+
Portfolio turnover rate 59% 158% 116%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.65%+ 1.68% 1.70%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.22 $ 0.34 $ 0.37
Average commission rate paid (b) $ 0.0287 N/A N/A
</TABLE>
* Nations Equity Income Investor N Shares commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
7
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS BALANCED ASSETS FUND
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.63 $ 10.40 $ 10.85 $ 10.61
Net investment income 0.09 0.28 0.17 0.14
Net realized and unrealized gain/(loss) on investments 0.45 2.22 (0.44) 0.23
Net increase/(decrease) in net asset value from operations 0.54 2.50 (0.27) 0.37
Distributions:
Dividends from net investment income (0.14) (0.25) (0.18) (0.13)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.55) (0.27) (0.18) (0.13)
Net asset value, end of period $ 11.62 $ 12.63 $ 10.40 $ 10.85
Total return++ 4.69% 24.35% (2.51)% 3.45%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 65,764 $ 65,275 $ 52,905 $ 27,982
Ratio of operating expenses to average net assets 1.75%+ 1.74% 1.73% 1.65%+
Ratio of net investment income to average net assets 2.16%+ 2.50% 1.56% 2.07%+
Portfolio turnover rate 83% 174% 156% 50%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.75%+ 1.74% 1.74% 1.72%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.09 $ 0.28 $ 0.17 $ 0.14
Average commission rate paid (b) $ 0.0598 N/A N/A N/A
</TABLE>
* Nations Balanced Assets Fund Investor N Shares commenced operations on June
7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
8
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.15 $ 11.17 $ 11.05 $ 10.55
Net investment income/(loss) (0.02) (0.03) (0.01) (0.01)
Net realized and unrealized gain on investments 0.37 3.27 0.13 0.53
Net increase in net asset value from operations 0.35 3.24 0.12 0.52
Distributions:
Dividends from net investment income -- -- -- (0.02)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) --
Total dividends and distributions (1.19) (0.26) (0.00)(b) (0.02)
Net asset value, end of period $ 13.31 $ 14.15 $ 11.17 $ 11.05
Total return++ 2.77% 29.80% 1.12% 4.95%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 41,045 $ 40,868 $ 23,591 $ 9,511
Ratio of operating expenses to average net assets 1.96%+ 1.98% 1.90% 1.80%+
Ratio of net investment income/(loss) to average net assets (0.62)%+ (0.29)% (0.15)% (0.16)%+
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.96%+ 1.98% 1.91% 1.89%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.02) $ (0.03) $ (0.01) $ (0.02)
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
</TABLE>
* Nations Capital Growth Fund Investor N Shares commenced operations on June 7,
1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
9
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96#(a) 11/30/95 11/30/94# 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.93 $ 11.24 $ 10.82 $ 9.88
Net investment income/(loss) (0.05) (0.07) (0.14) (0.02)
Net realized and unrealized gain on investments 1.23 3.16 0.70 0.96
Net increase in net asset value from operations 1.18 3.09 0.56 0.94
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14) --
Total dividends and distributions (1.50) (0.40) (0.14) --
Net asset value, end of period $ 13.61 $ 13.93 $ 11.24 $ 10.82
Total return++ 9.52% 28.75% 5.17% 9.51%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 34,989 $ 32,349 $ 15,909 $ 3,594
Ratio of operating expenses to average net assets 1.99%+ 1.98% 2.01% 1.80%+
Ratio of net investment income/(loss) to average net assets (1.06)%+ (0.92)% (1.29)% (1.15)%+
Portfolio turnover rate 39% 139% 129% 159%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.99%+ 1.98% 2.01% 2.01%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements (0.05) $ (0.07) $ (0.09) $ (0.03)
Average commission rate paid (b) $ 0.0599 N/A N/A N/A
</TABLE>
* Nations Emerging Growth Fund Investor N Shares commenced operations on June
7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
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<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.89 $ 13.02 $ 12.77
Net investment income/(loss) (0.01) 0.03 (0.02)
Net realized and unrealized gain/(loss) on investments 0.35 3.87 0.28
Net increase/(decrease) in net asset value from operations 0.34 3.90 0.26
Distributions:
Dividends from net investment income -- (0.03) (0.01)
Distributions from net realized capital gains (0.23) -- --
Return of capital -- -- (0.00)(b)
Total dividends and distributions (0.23) (0.03) (0.01)
Net asset value, end of period $ 17.00 $ 16.89 $ 13.02
Total return++ 2.08% 29.94% 2.02%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18,412 $ 16,874 $ 177
Ratio of operating expenses to average net assets 2.02%+ 2.30% 2.09%+
Ratio of net investment income/(loss) to average net assets (0.18)%+ (0.15)% (0.84)%+
Portfolio turnover rate 47% 124% 177%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 2.02%+ 2.30% 2.52%+
Net investment income/(loss) per share without waivers and/or expense
reimbursements (0.01) $ 0.03 $ (0.03)
Average commission rate paid (c) $ 0.0627 N/A N/A
</TABLE>
* Nations Disciplined Equity Fund Investor N Shares commenced operations on May
20, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
Objectives
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
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<PAGE>
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
How Objectives Are Pursued
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 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-to-
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.
The Fund invests under normal market conditions 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 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 up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in obligations issued or guaranteed as to
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade
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 Investor's Service, Inc. ("Moody's")) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. Subsequent to its purchase by the Fund,
an issue of securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. The Adviser will consider
such an event in
12
<PAGE>
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.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, 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. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, 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 and government 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." They 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 up to 20%
of its total assets in foreign securities. 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.
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<PAGE>
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 classes 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. These asset classes
are actively managed in an effort to maximize total return. In general, the
Adviser believes that common stocks offer the best opportunity for long-term
capital appreciation.
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. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as 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
S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc.
(collectively "IBCA"), or Thomson BankWatch, Inc. ("BankWatch") or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
Obligations with the lowest investment grade rating (E.G. rated "BBB" by S&P or
"Baa" by Moody's) have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by NationsBank to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in 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.
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
14
<PAGE>
In addition, the Fund's investment program enables it to invest in the following
types of companies:
(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.
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 up to 20% of its total assets in 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.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
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. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities.
15
<PAGE>
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 up to 20% of its total assets in 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.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Nations Balanced Assets Fund also may engage in dollar
roll transactions. Each Fund may lend its portfolio securities to qualified
institutional investors and may invest in restricted, private placement and
other illiquid securities and securities issued by other investment companies,
consistent with the Fund's investment objective and policies. Each Fund may
invest in real estate investment trust securities. For more information
concerning these and other instruments in which the Funds may invest and their
investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual
16
<PAGE>
portfolio turnover rate exceeds 100%, it may result in higher brokerage costs
and possible tax consequences for the Fund and its shareholders. For the Funds'
portfolio turnover rates, see "Financial Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
Investments by a Fund in a 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, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than short-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with such Funds'
investment objective and do not unduly increase the Fund's exposure to market or
other risks. For additional risk information regarding the Funds' investments in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current positions
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments
17
<PAGE>
more restrictive than the investment policies and limitations described in this
Prospectus and the SAIs. Should a Fund determine that any such commitment is no
longer in the best interests of the Fund, it may consider terminating sales of
its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average 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 a Fund (as stated in the advertisement) that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment (reflecting the deduction of any applicable contingent
deferred sales charge ("CDSC")), and assuming the reinvestment of all dividend
and capital gains distributions. Aggregate total return reflects the total
percentage change in the value of the investment over the measuring period again
assuming the reinvestment of all dividends and capital gains distributions.
Total return may also be presented for other periods or may not reflect a
deduction of the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with the Funds' investment objective and policies. These factors
should be considered when comparing the Funds' investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor N Shares, the Funds offer Primary A, Primary B, Investor
A and Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in the Funds will not be included in calculations of
total return or yield. The Funds' annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investors' selling agent.
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<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust and Nations Fund, Inc. are
managed under the direction of their 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.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
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., through its investment
management division, serves as investment adviser to the Funds. NBAI is an
indirect wholly owned subsidiary of NationsBank, which in turn is a wholly owned
banking subsidiary of NationsBank Corporation, a bank holding company organized
as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
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 has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.75% of the average daily net assets of each
of Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets Fund;
and 0.75% of the first $100 million of 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.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.20% of Nations Equity Income Fund's average
daily net assets and 0.25% of Nations Value Fund's, Nations Balanced Assets
Fund's, Nations Capital Growth Fund's, Nations Emerging Growth Fund's and
Nations Disciplined Equity Fund's average daily net assets.
From time to time, NationsBank (and/or TradeStreet) may waive or reimburse
(either voluntarily or pursuant to applicable state limitations) advisory fees
and/or expenses payable by a Fund.
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For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Equity Income Fund -- 0.67%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Equity Income Fund -- 0.67%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations Emerging
Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations Balanced
Assets Fund -- 0.25%; and Nations Equity Income Fund -- .20%.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been Portfolio
Manager of the Nations Value Fund since 1989. Prior to assuming her position
with TradeStreet she was Senior Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. Ms. Herrmann has worked for the
Investment Management Group at NationsBank since 1981 where her responsibilities
included fund management and institutional portfolio management. She attended
Virginia Wesleyan College. Ms. Herrmann holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has worked in the financial investment community since 1981. His
past experience includes portfolio management, equity research and financial
analysis for the Investment Management Group at NationsBank and Duke Power
Company. Mr. Sanders received a B.A. in Economics from the University of
Michigan and an M.B.A. from University of North Carolina at Charlotte. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
20
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Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from Mount St. Mary's College and an M.B.A. from Kent State University. She
holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Security Analysts, Inc. She is also a member of the National
Association for Petroleum Investment Analysts and the World Affairs Council of
Washington, D.C.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been the Portfolio Manager for Nations Emerging
Growth Fund since 1992. Prior to assuming his position at TradeStreet, he was
Senior Vice President and Senior Portfolio Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1968. His
past experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Development for
TradeStreet and Senior Portfolio Management for Nations Disciplined Equity Fund.
Mr. Moser has been the Portfolio Manager for Nations Disciplined Equity Fund
since 1995. Prior to assuming his position at Trade Street, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been Portfolio Manager for Nations Equity Income Fund since 1991.
Prior to assuming his position at TradeStreet, he was Senior Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. He
has worked in the investment community since 1980. His past experience includes
fund analysis and portfolio management for National Bank of Detroit. Mr.
Williams received a B.S. in Accounting from East Carolina University, Summa Cum
Laude and an M.B.A. from Indiana University. He holds the Chartered Financial
Analyst designation, is on the Advisory Board of Indiana University's Investment
Management Academy, and is a member of the Association for Investment Management
and Research as well as the North Carolina Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements, and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
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OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., 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, First Data
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 shares 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 First Data 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 period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the indicated rates of the
following Funds' average daily net assets: Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund, and
Nations Balanced Assets Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Equity Income
Fund -- 0.10%.
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 0.01% 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, out
of its own resources, service fees or commissions to selling agents which assist
customers in purchasing Investor N Shares of the Funds. See "Shareholder
Servicing and Distribution Plans."
NationsBank of Texas, N.A. ("NationsBank of Texas" or the "Custodian") serves as
custodian for the assets of each Fund. NationsBank of Texas is located at 1401
Elm Street, Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of each Fund for
which it serves as custodian, (ii) $10.00 per repurchase collateral transaction
by such Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving such Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor N Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Inves-
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<PAGE>
tor N Shares, are deducted from accrued income before dividends are declared.
These Fund expenses include, but are not limited to: fees paid to the Adviser,
NationsBank, Stephens and First Data; interest; trustees' and directors' fees;
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the
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 First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Investor N Shares may bear certain class specific retail
transfer agency expenses and also bear certain additional shareholder service
and sales support costs. Any general expenses of Nations Fund Trust and/or
Nations Fund, Inc. that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust and Nations Fund, Inc. or in such other manner as the Board of Trustees or
Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. This Prospectus relates only to
the Investor N Shares of the following funds of Nations Fund Trust: Nations
Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity
Fund, Nations Value Fund and Nations Balanced Assets Fund. To obtain additional
information regarding the Funds' other classes of shares which may be available
to you, contact your Selling Agent (as defined below) or Nations Fund at
1-800-321-7854.
Each share in Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 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 pos-
23
<PAGE>
sessed 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. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor N Shares of Nations Equity Income Fund of Nations Fund, Inc. To obtain
additional information regarding the Fund's other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 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 the SAI of Nations Fund, Inc. 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.
Because this Prospectus combines disclosure on two 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 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 this
Prospectus.
24
<PAGE>
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor N Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into sales support agreements
("Sales Support Agreements") with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor N Shares are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected on days on which the New
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
The Selling Agents have entered into Sales Support Agreements with Stephens
whereby they will provide various sales support services to their customers
("Customers") who own Investor N Shares. In addition, banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into shareholder servicing agreements ("Servicing Agreements") with
Nations Fund ("Servicing Agents") will provide various shareholder services for
their Customers who own Investor N Shares. Servicing Agents and Selling Agents
are sometimes referred to hereafter as "Agents." From time to time the Agents,
Stephens and Nations Fund may agree to voluntarily reduce the maximum fees
payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor N Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor N Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Selling Agent placing the order. Payment for orders which
are not received or accepted will be returned after prompt inquiry to the
sending Selling Agent.
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The Selling Agents are responsible for transmitting orders for purchases of
Investor N Shares by their Customers, and delivering required funds, on a timely
basis. Stephens is responsible for transmitting orders it receives to Nations
Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor N Shares. On a bi-monthly,
monthly or quarterly basis, shareholders may direct cash to be transferred
automatically from their checking or savings account at any bank to their Fund
account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Selling
Agent.
REINVESTMENT PRIVILEGE: Within 120 days after a redemption of Investor N Shares
of a Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor N Shares of the same Fund at the net asset value next
determined after a reinvestment request is received by the Transfer Agent,
together with the proceeds. A shareholder exercising this privilege would
receive a pro-rata credit for any CDSC paid in connection with the redemption. A
shareholder may not exercise this privilege with the proceeds of a redemption of
shares purchased through the reinvestment privilege.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires the telephone transaction
feature after opening an account, a signature guarantee will be required.
Shareholders should be aware that by using the telephone transaction feature,
such shareholders may be giving up a measure of security that they may have if
they were to request such transactions in writing. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
Shareholder Servicing And
Distribution Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits the Funds to compensate Servicing Agents for services provided to
their Customers that own Investor N Shares. Payments under the Servicing Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by the Funds, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Investor N Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor N Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor N
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodi-
26
<PAGE>
cally to Customers showing their positions in Investor N Shares; (v) arranging
for bank wires; and (vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and
Directors have approved a Distribution Plan with respect to Investor N Shares of
the Funds. Pursuant to the Distribution Plan, the Funds may compensate or
reimburse Stephens for any activities or expenses primarily intended to result
in the sale of the Funds' Investor N Shares. Payments under the Distribution
Plan will be calculated daily and paid monthly at a rate or rates set from time
to time by the Trustees and Directors provided that the annual rate may not
exceed 0.75% of the average daily net asset value of the Funds' Investor N
Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing and
distributing prospectuses, sales literature and advertising materials,
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or the Selling Agents;
overhead and other office expenses; opportunity costs relating to the foregoing;
and any other costs and expenses relating to distribution or sales support
activities. The overhead and other office expenses referenced above may include,
without limitation, (i) the expenses of operating Stephens' or the Selling
Agents' offices in connection with the sale of Fund shares, including rent, the
salaries and employee benefit costs of administrative, operations and support
personnel, utility costs, communications 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.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreements
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor N Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
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<PAGE>
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent, less any applicable
CDSC. The Selling Agents are responsible for transmitting redemption orders to
Stephens or to the Transfer Agent and for crediting their Customers' accounts
with the redemption proceeds on a timely basis. No charge for wiring redemption
payments is imposed by Nations Fund. Except for any CDSC which may be applicable
upon redemption of Investor N Shares, as described below, there is no redemption
charge.
Redemption proceeds are normally wired to the redeeming Selling Agent within
three Business Days after receipt of the order by Stephens or by the Transfer
Agent. However, redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately.
Nations Fund may redeem a shareholder's Investor N Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of the Funds involuntarily or
make payment for redemption in readily marketable securities or other property
under certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor N Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor N Shares purchased prior to January 1, 1996, may be subject a CDSC if
such shares are redeemed within six years of the date of purchase. No CDSC is
imposed on increases in net asset value above the initial purchase price,
including shares acquired by reinvestment of distributions. Subject to the
exclusions described below, the amount of the CDSC is determined as a percentage
of the lesser of the net asset value or the purchase price of the shares being
redeemed. The amount of the CDSC will depend on the number of years since you
invested, according to the following table:
<TABLE>
<CAPTION>
<S> <C>
Contingent Deferred
Sales Charge as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Funds will first
redeem shares not subject to any charge, and then shares held longest during the
six year period. This will result in you paying the lowest possible CDSC. Solely
for purposes of determining the number of years from the date of purchase of
shares, all purchases are deemed to have been made on the trade date of the
transaction.
The CDSC will be waived on redemptions of Investor N Shares (i) following the
death or dis-
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<PAGE>
ability (as defined in the Internal Revenue Code of 1986, as amended (the
"Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an IRA or Custodial
Account under Section 403(b)(7) of the Code following attainment of age 59 1/2;
(c) a tax-free return of an excess contribution to an IRA; and (d) distributions
from a qualified retirement plan that are not subject to the 10% additional
Federal withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected
pursuant to Nations Fund's right to liquidate a shareholder's account, including
instances where the aggregate net asset value of the Investor N shares held in
the account is less than the minimum account size, (iv) in connection with the
combination of Nations Fund with any other registered investment company by a
merger, acquisition of assets or by any other transaction, and (v) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor N Shares in the account. In addition, the CDSC will be waived on
Investor N Shares purchased before September 30, 1994 by current or retired
employees of NationsBank and its affiliates or by current or former Trustees or
Directors of Nations Fund or other management companies managed by NationsBank.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the plan adopted pursuant to Rule 12b-1 under the 1940
Act, pay a bonus or other consideration or incentive to Agents who sell a
minimum dollar amount of shares of the Funds during a specified period of time.
Stephens also may, from time to time, pay additional consideration to Agents not
to exceed 0.75% of the offering price per share on all sales of Investor N
Shares as an expense of Stephens or for which Stephens may be reimbursed under
the plan adopted pursuant to Rule 12b-1 or upon receipt of a CDSC. Any such
additional consideration or incentive program may be terminated at any time by
Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor N Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor N Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor N Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor N Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling Agent or by Nations Fund at any time.
29
<PAGE>
How To Exchange Shares
The exchange feature enables a shareholder to exchange funds as specified below
when the shareholder believes that a shift between funds is an appropriate
investment decision. The exchange feature enables a shareholder of Investor N
Shares of a fund offered by Nations Fund to acquire shares of the same class
that are offered by any other fund of Nations Fund (except Nations Short-Term
Income Fund and Nations Short-Term Municipal Income Fund), Investor A Shares of
the Nations Short-Term Income Fund or Nations Short-Term Municipal Income Fund,
or Investor C Shares of a Nations Fund money market fund. A qualifying exchange
is based on the next calculated net asset value per share of each fund after the
exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor N Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor N Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996) to the
original shares purchased will be applied to any redemption of the acquired
shares. If a shareholder exchanges Investor N Shares of a fund for Investor C
Shares of a money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund, the acquired shares will
remain subject to the CDSC schedule applicable to the Investor N Shares
exchanged. The holding period (for purposes of determining the applicable rate
of the CDSC) does not accrue while the shares owned are Investor C Shares of a
Nations Fund money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund. As a result, the CDSC that is
ultimately charged upon a redemption is based upon the total holding period of
Investor N Shares of a fund that charges a CDSC.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor N Shares exchanged must have a current value of at least $1,000.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange. An investor may telephone an exchange request by
calling the investor's Selling Agent which is responsible for transmitting such
request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling Agent through which the original shares were
purchased. An investor should consult his/her Selling Agent or Stephens for
further information regarding exchanges.
30
<PAGE>
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Funds distribute any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Distributions paid by the
Funds with respect to one class of shares may be greater or less than those paid
with respect to another class of shares due to the different expenses of the
different classes.
The net asset value of Investor N Shares will be reduced by the amount of any
dividend or distribution. Certain Selling Agents may provide for the
reinvestment of dividends in the form of additional Investor N Shares of the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor N Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Funds of liability for
Federal income taxes on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional shares. (Federal income taxes for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds may be entitled to the dividends received
deduction on all or a portion of such Funds' dividends paid by these Funds to
the extent that a Fund's income is derived from dividends (which, if received
directly, would qualify for such deduction) received from domestic corporations.
In order to qualify for the dividends-received deduction, a corporate
shareholder must hold the fund shares paying the dividends upon which the
deduction is based for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who
31
<PAGE>
are not exempt from Federal income taxes as long-term capital gains, regardless
of how long the shareholders have held the Funds' shares and whether such gains
are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal paid at maturity or specified call dates. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage-backed securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), parallel pay CMOs, planned
amortization class CMOs ("PAC Bonds") and stripped mortgage-backed securities
("SMBS"), including interest-only and principal-only SMBS. SMBS may be more
volatile than other debt securities. For additional information concerning
mortgage-backed securities, see the related SAI.
32
<PAGE>
Non-mortgage asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under 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
33
<PAGE>
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 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.
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 objective. 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.
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<PAGE>
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the executive of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
for-
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<PAGE>
ward contracts and movements in the prices of the securities or currencies being
hedged; the possible absence of a liquid secondary market for any particular
instrument at any time; and the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences. A Fund may not purchase put
and call options which are traded on a national stock exchange in an amount
exceeding 5% of its net assets. Further information on the use of futures,
options and other derivative instruments, and the associated risks, is contained
in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold 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, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities, are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities which are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by the Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), 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 their
portfolios 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: Nations Equity Income Fund may invest in
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 market for lower-rated securities may be thinner and less active than that
for higher qual-
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<PAGE>
ity 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' Boards, 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
Obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax-exempt leases. Such loans
in most cases are not backed by the taxing authority of the issuers and may have
limited marketability or may be marketable only by virtue 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
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that municipal participation interests are considered to be "illiquid
securities," such instruments are subject to each Fund's limitation on the
purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, a Fund
may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in Municipal Securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if its assets were not so concentrated.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
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.
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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 indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government Obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government Obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
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.
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Appendix B -- Description of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
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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
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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 D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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
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more affected by external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
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 busi-
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ness, economic or financial conditions may lead to increased investment
risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
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<PAGE>
Prospectus
INVESTOR N SHARES
JULY 31, 1996
This Prospectus describes NATIONS SHORT-TERM INCOME
FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND,
NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND AND NATIONS DIVERSIFIED
INCOME FUND (the "Funds") of Nations Fund Trust and
Nations Fund, Inc., each an open-end management
investment company in the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes one class of shares of the
Funds -- Investor N Shares.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor N Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that 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 and
Nations Fund, Inc., each dated July 31, 1996, 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 the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations
Short-Term
Income Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations
Strategic Fixed
Income Fund
Nations Diversified
Income Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND logo
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 7
Objectives 11
How Objectives Are Pursued 12
How Performance Is Shown 16
How The Funds Are Managed 17
Organization And History 21
About Your Investment
How To Buy Shares 22
Shareholder Servicing And Distribution Plans 24
How To Redeem Shares 25
How To Exchange Shares 28
How The Funds Value Their Shares 29
How Dividends And Distributions Are Made;
Tax Information 29
Appendix A -- Portfolio Securities 30
Appendix B -- Description Of Ratings 40
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUNDS' SAI INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS 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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek current income consistent with modest
fluctuation of principal. The Fund will invest primarily in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment
objective is to seek current income by investing
primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment objective is
to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term
investment grade fixed income securities.
(Bullet) Nations Diversified Income Fund's investment objective is
to seek current income consistent with total return by
investing primarily in a diversified portfolio of fixed
income securities.
(Bullet) Nations Strategic Fixed Income Fund's investment
objective is to seek total return by investing
primarily in investment grade fixed income
securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities, including U.S. Government
Obligations, are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Funds'
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
3
<PAGE>
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") Investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor N Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
Nations
Short- Nations
Nations Intermediate Government Nations
Short-Term Government Securities Strategic Fixed
SHAREHOLDER TRANSACTION EXPENSES Income Fund Fund Fund Income Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Charge (as a percentage of the
lower of the original purchase price or
redemption proceeds)1 None None None None
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
SHAREHOLDER TRANSACTION EXPENSES Income Fund
<S> <C>
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of the
lower of the original purchase price or
redemption proceeds)1 None
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Short- Nations
Nations Intermediate Government Nations
Short-Term Government Securities Strategic Fixed
Income Fund Fund Fund Income Fund
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .30% .40% .50% .50%
Rule 12b-1 Fees (After Fee Waivers) .10% .35% .40% .40%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses (After Expense Reimbursements) .25% .23% .30% .22%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) .90% 1.23% 1.45% 1.37%
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
Income Fund
<S> <C>
Management Fees (After Fee Waivers) .50%
Rule 12b-1 Fees (After Fee Waivers) .50%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .27%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) 1.52%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge, if any, applicable at the time of
purchase. See "How To Redeem Shares -- Contingent Deferred Sales Charge."
EXAMPLES:
An investment of $1,000 would incur the following expenses, assuming (1) a 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations
Short- Nations
Nations Intermediate Nations Strategic
Short-Term Government Government Fixed
Income Fund Fund Securities Fund Income Fund
<S> <C> <C> <C> <C>
1 Year $ 9 $ 13 $ 15 $ 14
3 Years $ 29 $ 39 $ 46 $ 43
5 Years $ 50 $ 68 $ 79 $ 75
10 Years $ 111 $ 149 $ 174 $ 165
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
Income Fund
<S> <C>
1 Year $ 15
3 Years $ 48
5 Years $ 83
10 Years $ 181
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in the
Funds will bear either directly or indirectly. Certain figures contained in the
above table are based on amounts incurred during the Funds' most
5
<PAGE>
recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. Long-term shareholders of the Funds could pay more in sales
charges than the economic equivalent of the maximum front-end sales charges
applicable to mutual funds sold by members of the National Association of
Securities Dealers, Inc. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed." Absent fee waivers and expense
reimbursements, "Management Fees," "Rule 12b-1 Fees" and "Total Operating
Expenses" for the following Funds would have been as follows: Nations Short-Term
Income Fund: .60%, .75% and 1.85%, respectively; Nations Short-Intermediate
Government Fund -- .60%, .75%, and 1.83%, respectively; and Nations Strategic
Fixed Income Fund -- .60%, .75% and 1.82%, respectively. Absent fee waivers and
expense reimbursements, "Management Fees," "Rule 12b-1 Fees," "Other Expenses"
and "Total Operating Expenses" for the following Funds would have been as
follows: Nations Diversified Income Fund -- .60%, .75%, .27% and 1.87%,
respectively; and Nations Government Securities Fund -- .64%, .75%, .30% and
1.94%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal year
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization and History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS SHORT-TERM INCOME FUND
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.94
Net investment income 0.19 0.57 0.47 0.22
Net realized and unrealized gain/(loss) on investments (0.08) 0.36 (0.51) 0.07
Net increase/(decrease) in net asset value from operations 0.11 0.93 (0.04) 0.29
Distributions:
Dividends from net investment income (0.19) (0.57) (0.45) (0.22)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.19) (0.57) (0.49) (0.22)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.08% 10.10% (0.46)% 2.96%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7,339 $ 8,873 $ 16,550 $ 39,861
Ratio of operating expenses to average net assets 0.90%+ 0.91% 0.85% 0.72%+
Ratio of net investment income to average net assets 5.72%+ 5.97% 4.88% 4.92%+
Portfolio turnover rate 73% 224% 293% 121%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.23%+ 1.21% 1.17% 1.14%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.18 $ 0.54 $ 0.44 $ 0.21
</TABLE>
* Nations Short-Term Income Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
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.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b)# 11/30/95# 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.26
Net investment income 0.07 0.21 0.20 0.09
Net realized and unrealized gain/(loss) on investments (0.07) 0.21 (0.33) 0.02
Net increase/(decrease) in net asset value from
operations 0.00 0.42 (0.13) 0.11
Distributions:
Dividends from net investment income (0.07) (0.21) (0.20) (0.09)
Distributions in excess of net investment income (0.00)(a) (0.00)(a) (0.00)(a) --
Distributions from net realized capital gains -- -- (0.02) --
Total dividends and distributions (0.07) (0.21) (0.22) (0.09)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28
Total return++ (0.13)% 11.02% (2.81)% 2.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,789 $ 14,893 $ 10,974 $ 8,847
Ratio of operating expenses to average net assets 1.23%+ 1.20% 1.19% 1.15%+
Ratio of net investment income to average net assets 4.72%+ 5.28% 5.16% 4.80%+
Portfolio turnover rate 189% 328% 133% 92%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.46%+ 1.40% 1.40% 1.39%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.06 $ 0.20 $ 0.19 $ 0.09
</TABLE>
* Nations Short-Intermediate Government Fund Investor N Shares commenced
operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately represents the per share data for the period
since use of the undistributed income method did not accord with the results
of operations.
(a) Value represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
8
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b)# 05/31/95# 05/31/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.49
Net investment income 0.47 0.58 0.54
Net realized and unrealized gain/(loss) on investments (0.19) 0.06 (0.64)
Net increase/(decrease) in net asset value from operations 0.28 0.64 (0.10)
Distributions:
Dividends from net investment income (0.45) (0.54) (0.49)
Dividends in excess of net investment income (0.02) -- (0.01)
Distributions from net realized capital gains -- -- --
Distributions in excess of net realized capital gains -- -- (0.05)
Distributions from capital -- (0.04) (0.04)
Total dividends and distributions (0.47) (0.58) (0.59)
Net asset value, end of period $ 9.67 $ 9.86 $ 9.80
Total return++ 2.85% 6.86% (1.09)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 50,958 $ 56,155 $ 56,313
Ratio of operating expenses to average net assets 1.45%+ 1.41% 1.38%+
Ratio of net investment income to average net assets 5.71%+ 6.04% 5.43%+
Portfolio turnover rate 199% 413% 56%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.60%+ 1.59% 1.59%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.46 $ 0.56 $ 0.52
</TABLE>
* Nations Government Securities Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Per Share numbers have been calculated using the monthly 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.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
9
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 10.39
Net investment income 0.16 0.53 0.47 0.21
Net realized and unrealized gain/(loss) on investments (0.29) 0.90 (0.89) 0.17
Net increase/(decrease) in net asset value from operations (0.13) 1.43 (0.42) 0.38
Distributions:
Dividends from net investment income (0.16) (0.53) (0.45) (0.21)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.16) (0.53) (0.81) (0.22)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.26)% 15.70% (4.21)% 3.64%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,496 $ 2,578 $ 2,145 $ 1,620
Ratio of operating expenses to average net assets 1.37%+ 1.36% 1.33% 1.26%+
Ratio of net investment income to average net assets 4.84%+ 5.40% 4.78% 4.75%+
Portfolio turnover rate 133% 228% 307% 161%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.48%+ 1.46% 1.41% 1.42%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.16 $ 0.52 $ 0.46 $ 0.21
</TABLE>
* Nations Strategic Fixed Income Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
10
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94# 11/30/93#*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 10.59
Net investment income 0.21 0.66 0.67 0.30
Net realized and unrealized gain/(loss) on investments (0.40) 1.15 (1.06) 0.29
Net increase/(decrease) in net asset value from operations (0.19) 1.81 (0.39) 0.59
Distributions:
Dividends from net investment income (0.21) (0.66) (0.67) (0.30)
Distributions in excess of net investment income -- -- (0.00)(a) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.21) (0.66) (0.82) (0.30)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.83)% 19.22% (3.77)% 5.58%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 84,692 $ 90,887 $ 55,058 $ 24,630
Ratio of operating expenses to average net assets 1.52%+ 1.55% 1.49% 1.30%+
Ratio of net investment income to average net assets 5.74%+ 6.28% 6.56% 6.27%+
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.62%+ 1.68% 1.70% 1.70%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.21 $ 0.65 $ 0.65 $ 0.27
</TABLE>
* Nations Diversified Income Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
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.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guar-
11
<PAGE>
anteed by the U.S. Government, its agencies or instrumentalities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing primarily in
investment grade fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities.
How Objectives Are Pursued
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity and duration of the Fund's portfolio will not exceed three
years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the following six nationally recognized statistical rating organizations,
Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service, Inc.
("Fitch"), Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), IBCA Limited or its affiliate, IBCA Inc. (collectively,
"IBCA") or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs"), or,
if not so rated, determined by the Adviser to be of comparable quality to
instruments so rated; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments and mortgage-related
securities of governmental issuers 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
and municipal 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.
The Fund also may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
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 invest in "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.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund
12
<PAGE>
invests substantially all of its assets in U.S. Government Obligations and
repurchase agreements relating to such obligations. Under normal market
conditions, it is expected that the average weighted maturity of the Fund's
portfolio will not exceed seven years and the duration will not exceed five
years. 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.
The Fund also 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; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will be greater than four
years and the Fund's duration is expected to be in a range of 3.5 to 6 years.
The Fund also 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; dollar-denominated
debt obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade debt obligations. It is expected that
the average weighted maturity of the Fund's portfolio will be ten years or less
and under no circumstances will it exceed 15 years.
The 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; mortgage-backed securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund also may invest in dividend-paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities
13
<PAGE>
located within the United States. The Fund may invest up to 25% of its assets in
foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
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 invest in "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.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity of the Fund's portfolio will be greater than five years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed- and variable-rate bonds; U.S. Government Obligations;
dollar-denominated and non-dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
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." They 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.
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 "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 aggreements and cash. Such
obligations may include those issued
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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.
GENERAL: Each of the Funds may invest in certain specified derivative
securities, including: interest rate swaps, caps and floors for hedging
purposes; exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures and options
thereon approved by the Commodity Futures Trading Commission ("CFTC") for market
exposure risk-management. Each of the Funds also may lend its portfolio
securities to qualified institutional investors and may invest in restricted,
private placement and other illiquid securities. Each of the Funds may engage in
reverse repurchase agreements and in dollar roll transactions. Additionally,
each Fund may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity of the Funds.
For more information concerning these and other instruments in which the Funds
may invest their investment practices, see "Appendix A".
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the Funds'
investment objectives, 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.
The value of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than shorter-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
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.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index or
reference rate. There are certain types of derivative securities that can, under
certain circumstances, significantly increase a purchaser's exposure to market
or other risks. The Adviser, however, only purchases derivative securities in
circumstances where it believes such purchases are consistent with such Fund's
investment objectives 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 fol-
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lowing 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 to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund 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 investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares of the Funds may be calculated on an average annual total return basis or
an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gains distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring period
again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of any applicable CDSC.
"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 by the maximum
public offering price per share on the last day of that period. The yield on a
class of shares does not reflect the deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market
condi-
16
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tions, the composition of the Funds' portfolio and the Funds' operating
expenses. Investment performance also often reflects the risks associated with
the Fund's investment objective and policies. These factors should be considered
when comparing 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 Investor N Shares, the Funds offer Primary A, Primary B, Investor
A and Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any fees charged by a selling agent and/or servicing agent
directly to its customers' accounts in connection with investments in the Funds
will not be included in calculations of total return or yield. The Funds' annual
report contains additional performance information and is available upon request
without charge from the Funds' distributor or an investor's selling agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
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.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
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., through its investment
management division, serves as investment adviser to the Funds. NBAI is a wholly
owned subsidiary of NationsBank, which in turn is a wholly owned banking
subsidiary of NationsBank Corporation, a bank holding company organized as a
North Carolina corporation. NBAI has its principal offices at One NationsBank
Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
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
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in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rate of: 0.60% of the average daily net assets
of each of Nations Short-Term Income Fund, Nations Diversified Income Fund,
Nations Stategic Fixed Income Fund and Nations Short-Intermediate Government
Fund; 0.65% of the first $100 million of 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.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.15% of Nations Short-Intermediate Government
Fund's, Nations Government Securities Fund's, Nations Short-Term Income Fund's,
Nations Strategic Fixed Income Fund's and Nations Diversified Income Fund's
average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.15% of the average daily net assets of Nations Short-
Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund, and Nations
Government Securities Fund.
David M. Hetherington, CFA, is a Director of TradeStreet and Managing Director
of Fixed Income Management. Mr. Hetherington is responsible for overseeing all
fixed income product management and is Senior Portfolio Manager for Nations
Short-Term Income Fund. Mr. Hetherington has been Portfolio Manager for the
Nations Short-Term Income Fund since 1995. Prior to assuming his position with
TradeStreet, he was Senior Vice President and Director of Fixed Income for the
Investment Management Group at NationsBank. Mr. Hetherington has worked in the
investment community since 1975. His past experience includes working as a
portfolio manager, a trust investment officer and a securities analyst for First
Citizens Bank and Deposit Guarantee as well as working as an Economist for the
U.S. Department of Labor in the Bureau of Labor Statistics. Mr. Hetherington
received a B.A. in Economics from Duke University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research.
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Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud has
been Portfolio Manager for Nations Diversified Income Fund since 1992. Prior to
assuming his position with TradeStreet, he was Senior Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Ahnrud
has worked for the Investment Management Group at NationsBank since 1985 where
his responsibilities initially included institutional investment management
sales and later involved high yield credit analysis. Mr. Ahnrud received a dual
B.S. in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company, Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised NationsBank and Nations Fund that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Funds 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.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pur-
19
<PAGE>
suant to a Co-Administration Agreement. Under the Co-Administration Agreement,
First Data 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 shares 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 First Data 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 period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the rate of 0.10% of the
following Funds' average daily net assets: Nations Short-Intermediate Government
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of 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 a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor N Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas N.A., ("NationsBank of Texas" or the "Custodian") serves as
the Funds' custodian. NationsBank of Texas is located at 1401 Elm Street,
Dallas, Texas 75202 and is a wholly owned subsidiary of NationsBank Corporation.
In return for providing custodial services, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees payable monthly (i) at the
rate of 1.25% of 1% of the average daily net assets of the Funds, (ii) $10.00
per repurchase collateral transaction by the Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor N Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor N Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor N Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and sales support costs. Any general expenses of
Nations Fund Trust and/or
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Nations Fund, Inc. that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bear to the assets of Nations Fund
Trust or Nations Fund, Inc. or in such other manner as the Board of Trustees or
the Boards of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. This Prospectus relates only to
the Investor N Shares of Nations Short-Term Income Fund, Nations Diversified
Income Fund, Nations Strategic Fixed Income Fund and Nations Short-Intermediate
Government Fund of Nations Fund Trust. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact your Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share 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 the related SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 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. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. 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
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<PAGE>
Investor N Shares of Nations Government Securities Fund of Nations Fund, Inc. To
obtain additional information regarding the Fund's other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 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 the Nations Fund, Inc. 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.
Because this Prospectus combines disclosure on two 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 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 this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor N Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into sales support agreements
("Sales Support Agreements") with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retire-
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<PAGE>
ment Accounts ("SAR-IRAs"). However, the assets of such plans must reach an
asset value of $1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs, within one year of
the account open date. If the assets of such plans do not reach the minimum
asset size within one year, Nations Fund reserves the right to redeem the shares
held by such plans on 60 days' written notice. The minimum subsequent investment
is $100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor N Shares are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected on days on which the New
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
The Selling Agents have entered into Sales Support Agreements with Stephens
whereby they will provide various sales support services to their customers
("Customers") who own Investor N Shares. In addition, banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into shareholder servicing agreements ("Servicing Agreements") with
Nations Fund ("Servicing Agents") will provide various shareholder services for
their Customers who own Investor N Shares. Servicing Agents and Selling Agents
are sometimes referred to hereafter as "Agents." From time to time the Agents,
Stephens and Nations Fund may agree to voluntarily reduce the maximum fees
payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor N Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor N Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Selling Agent placing the order. Payment for orders which
are not received or accepted will be returned after prompt inquiry to the
sending Selling Agent.
The Selling Agents are responsible for transmitting orders for purchases of
Investor N Shares by their Customers, and delivering required funds, on a timely
basis. Stephens is responsible for transmitting orders it receives to Nations
Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
shareholders may automatically purchase Investor N Shares. On a bi-monthly or
quarterly basis, shareholders may direct cash to be transferred automatically
from their checking or savings account at any bank to their Fund account.
Transfers will occur on or about the 15th and/or 30th day of the applicable
month. The systematic investment amount may be in any amount from $25 to
$100,000. For more information concerning the SIP, contact your Selling Agent.
REINVESTMENT PRIVILEGE: Within 120 days after a redemption of Investor N Shares
of a Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor N Shares of the same Fund at the net asset value next
determined after a reinvestment request is received by the Transfer Agent,
together with the proceeds. A shareholder exercising this privilege would
receive a pro-rata credit for any CDSC paid in connection with the redemption. A
shareholder may not exercise this privilege with the proceeds of a redemption of
shares previously purchased through the reinvestment privilege.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
23
<PAGE>
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
Shareholder Servicing And Distribution
Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits the Funds to compensate Servicing Agents for services provided to
their Customers that own Investor N Shares. Payments under the Servicing Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by the Funds, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Investor N Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor N Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor N
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor N Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the relevant SAI
for more details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees of
Nations Fund Trust and the Directors of Nations Fund, Inc. have approved a
Distribution Plan with respect to Investor N Shares of the Funds. Pursuant to
the Distribution Plan, the Funds may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Funds'
Investor N Shares. Payments under the Distribution Plan will be calculated daily
and paid monthly at a rate or rates set from time to time by the Trustees or
Directors provided that the annual rate may not exceed 0.75% of the average
daily net asset value of the Funds' Investor N Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing and
dis-
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<PAGE>
tributing prospectuses, sales literature and advertising materials; commissions,
incentive compensation or other compensation to, and expenses of, account
executives or other employees of Stephens or Selling Agents; overhead and other
office expenses; opportunity costs relating to the foregoing; and any other
costs and expenses relating to distribution or sales support activities. The
overhead and other office expenses referenced above may include, without
limitation, (i) the expenses of operating Stephens' or the Selling Agents'
offices in connection with the sale of Fund shares, including rent, the salaries
and employee benefit costs of administrative, operations and support personnel,
utility costs, communications 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.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Agents may charge fees to their Customers who own
Investor N Shares for various services provided in connection with a Customer's
account. These fees would be in addition to any amounts received by a Selling
Agent under its Sales Support Agreement with Stephens or by a Servicing Agent
under its Servicing Agreement with Nations Fund. The Sales Support Agreements
and Servicing Agreements require Agents to disclose to their Customers any
compensation payable to the Agent by Stephens or Nations Fund and any other
compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent. The Selling Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting a Customers' accounts with the redemption
proceeds on a timely basis. Except for any CDSC which may be applicable upon the
redemption of Investor N Shares, as described below, there is no redemption
charge. No charge for wiring redemption payments is imposed by Nations Fund.
Redemption proceeds are normally wired to the redeeming Selling Agent within
three Business Days after receipt of the order by Stephens or by the Transfer
Agent. However, redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately.
Nations Fund may redeem a shareholder's Investor N Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of the Funds involuntarily or
make payment for redemption in readily marketable securities or other property
under certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor N Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or
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<PAGE>
accompanied by a signed stock power, in each instance with the signature
guaranteed by a commercial bank or a member of a major stock exchange, unless
other arrangements satisfactory to Nations Fund have previously been made.
Nations Fund may require any additional information reasonably necessary to
evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor N Shares purchased prior to January 1, 1996 may be subject to a CSDC if
such shares of each such Fund (other than Nations Short-Term Income Fund) are
redeemed within six years of the date of purchase. No CDSC is imposed on
increases in net asset value above the initial purchase price, including shares
acquired by reinvestment of distributions. Subject to the exclusions described
below, the amount of the CDSC is determined as a percentage of the lesser of the
net asset value or the purchase price of the shares being redeemed. The amount
of the CDSC on shares of Nations Diversified Income Fund, Nations Strategic
Fixed Income Fund and Nations Government Securities Fund will depend on the
number of years since you invested, according to the following table:
<TABLE>
<CAPTION>
<S> <C>
Contingent Deferred
Sales Charge as a
Percentage of Dollar
Year Since Purchase Amount Subject to Charge
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
The amount of CDSC on shares of Nations Short-Intermediate Government Fund will
depend on the number of years since you invested, according to the following
table:
<TABLE>
<CAPTION>
<S> <C>
Contingent Deferred
Sales Charge as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Fund will first
redeem shares not subject to any charge, and then shares held the longest during
the six year period. This will result in you paying the lowest possible CDSC.
Solely for purposes of determining the number of years from the date of purchase
of shares, all purchases are deemed to have been made on the trade date of the
transaction.
The CDSC will be waived on redemptions of Investor N Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an IRA or Custodial
Account under Section 403(b)(7) of the Code following attainment of age 59 1/2;
(c) a tax-free return of an excess contribution to an IRA; and (d) distributions
from a qualified retirement plan that are not subject to the 10% additional
Federal with-
26
<PAGE>
drawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected pursuant to
Nations Fund's right to liquidate a shareholder's account, including instances
where the aggregate net asset value of the Investor N Shares held in the account
is less than the minimum account size, (iv) in connection with the combination
of Nations Fund with any other registered investment company by a merger,
acquisition of assets or by any other transaction, and (v) effected pursuant to
the Automatic Withdrawal Plan discussed below, provided that such redemptions do
not exceed, on an annual basis, 12% of the net asset value of the Investor N
Shares in the account. In addition, the CDSC will be waived on Investor N Shares
purchased before September 30, 1994 by current or retired employees of
NationsBank and its affiliates or by current or former Trustees or Directors of
Nations Fund or other management companies managed by NationsBank. Shareholders
are responsible for providing evidence sufficient to establish that they are
eligible for any waiver of the CDSC.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the plan adopted pursuant to Rule 12b-1 under the 1940
Act, pay a bonus or other consideration or incentive to Agents who sell a
minimum dollar amount of shares of the Funds during a specified period of time.
Stephens also may, from time to time, pay additional consideration to Agents not
to exceed 0.75% of the offering price per share on all sales of Investor N
Shares as an expense of Stephens or for which Stephens may be reimbursed under
the plan adopted pursuant to Rule 12b-1 or upon receipt of a CDSC. Any such
additional consideration or incentive program may be terminated at any time by
Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
Within 120 days after a redemption of Investor N Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor N Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor N
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor N Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor N Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor N Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor N Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals may reduce principal and will
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. AWPs may be terminated by shareholders on 30 days' written notice to
their Selling Agent or by Nations Fund at any time.
27
<PAGE>
How To Exchange Shares
The exchange feature enables a shareholder to exchange funds as specified below
when the shareholder believes that a shift between funds is an appropriate
investment decision. The exchange feature enables a shareholder of Investor N
Shares of a fund offered by Nations Fund to acquire shares of the same class
that are offered by any other fund of Nations Fund (except Nations Short-Term
Income Fund and Nations Short-Term Municipal Income Fund), Investor A Shares of
the Nations Short-Term Income Fund or Nations Short-Term Municipal Income Fund,
or Investor C Shares of a Nations Fund money market fund. Additionally, the
exchange feature enables a shareholder of Investor N Shares of Nations
Short-Term Income Fund to exchange such shares for Investor N Shares of Nations
Short-Term Municipal Income Fund. A qualifying exchange is based on the next
calculated net asset value per share of each fund after the exchange order is
received.
No CDSC will be imposed in connection with an exchange of Investor N Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor N Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996) to the
original shares purchased will be applied to any redemption of the acquired
shares. If a shareholder exchanges Investor N Shares of a fund for Investor C
Shares of a money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund, the acquired shares will
remain subject to the CDSC schedule applicable to the Investor N Shares
exchanged. The holding period (for purposes of determining the applicable rate
of the CDSC) does not accrue while the shares owned are Investor C Shares of a
Nations Fund money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund. As a result, the CDSC that is
ultimately charged upon a redemption is based upon the total holding period of
Investor N Shares of a fund that charges a CDSC.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor N Shares exchanged must have a current value of at least $1,000.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange. An investor may telephone an exchange request by
calling the investor's Selling Agent which is responsible for transmitting such
request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling Agent through which the original shares were
purchased. An investor should consult his/her Selling Agent or Stephens for
further information regarding exchanges.
28
<PAGE>
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor N Shares will be reduced by the amount of any
dividend or distribution. Certain Selling Agents may provide for the
reinvestment of dividends in the form of additional Investor N Shares of the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the month to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor N Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Funds of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gain) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not exempt
from Federal income tax, whether such income is received in cash or reinvested
in additional shares. (Federal income tax for distributions to an IRA are
generally deferred under the Code.) Corporate investors may be entitled to the
dividends received deduction on a portion of the dividends paid by those Funds
investing in the stock of domestic corporation.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year.
29
<PAGE>
Such dividends and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this 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 may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates other economic and demographic
factors. For example, falling interest rates generally result in an increase in
the rate of prepayments of mortgage loans while rising interest rates generally
decrease the rate of prepayments. An acceleration in prepayments in response to
sharply falling interest rates will shorten the security's average maturity and
limit the potential appreciation in the security's value relative to a
conventional debt security. Consequently, asset-backed securities may not be as
effective in locking in high, long-term yields. Conversely, in periods of
sharply rising rates, prepayments are generally slow, increasing the security's
average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
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<PAGE>
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.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs," are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
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
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<PAGE>
from a pool of mortgage assets. A Fund will only invest in SMBS whose mortgage
assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments, mortgage refinancings, or foreclosures.
The rate of mortgage prepayments, and hence the average life of the
certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined by
the Adviser and used for the purpose of determining the average weighted
maturity and duration of the Funds. For additional information concerning
mortgage-backed securities, see the related SAI.
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. Such securities also
may include instruments issued by trusts or certain partnerships, including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such trusts or partnerships.
Non-mortgage backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the
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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.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities a
Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to
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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
U.S. 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.
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Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted. The Funds will generally
not enter into forward contracts with terms of greater than one year.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by 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 such Funds against adverse market movements by investing
in futures, options and other derivative instruments. These include the purchase
and writing of options on securities
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(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 SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold 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, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) 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 and
Section 4(2), 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 their
portfolios 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
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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: Nations Diversified Income Fund may invest in
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. Each
Fund that may invest in lower-rated debt securities intends 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' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
Obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the
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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
securities. 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. The Funds will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in Municipal Securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that
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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.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of, and therefore backed by the full faith and
credit 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.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S.
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Government Obligations are subject to fluctuations in yield or value due to
their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective ele-
40
<PAGE>
ments are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is
41
<PAGE>
unlikely to be affected by reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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
42
<PAGE>
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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is
43
<PAGE>
strong, the relative degree of safety is not as high as for issues rated
"TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess 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.
44
<PAGE>
Prospectus
INVESTOR N SHARES
JULY 31, 1996
This Prospectus describes three equity
portfolios -- NATIONS INTERNATIONAL EQUITY FUND,
NATIONS EMERGING MARKETS FUND and NATIONS PACIFIC
GROWTH FUND -- and one bond portfolio -- NATIONS
GLOBAL GOVERNMENT INCOME FUND (each, a
"Fund") -- of Nations Fund, Inc. and Nations Fund
Portfolios, Inc. ("Nations Portfolios"), each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Fund -- Investor N Shares.
This Prospectus sets forth concisely the
information about each Fund that a prospective
purchaser of Investor N Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund, Inc. and
Nations Portfolios is contained in separate
Statements of Additional Information (the "SAIs"),
that 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, Inc. and
Nations Portfolios, each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the Funds. As used herein
the "Adviser" shall mean NBAI and/or Gartmore as
the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations International
Equity Fund
Nations Emerging
Markets Fund
Nations Pacific
Growth Fund
Nations Global
Government Income
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 9
How Objectives Are Pursued 10
How Performance Is Shown 15
How The Funds Are Managed 16
Organization And History 20
About Your Investment
How To Buy Shares 21
Shareholder Servicing And Distribution Plans 23
How To Redeem Shares 24
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 34
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations International Equity Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of non-United States companies in Europe,
Australia, the Far East and other areas, including some
developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective
is to seek long-term capital growth by investing
primarily in equity securities of companies in
emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far
East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of companies in the Pacific Basin and the Far East
(excluding Japan).
(Bullet) Nations Global Government Income Fund's investment objective
is to maximize total return by investing primarily in high
quality debt securities issued by governments, banks and
supranational entities located throughout the world.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. Gartmore
Global Partners provides sub-advisory services to the Funds. See "How
The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations International Equity, Nations
Emerging Markets and Nations Pacific Growth Funds declare and pay
dividends from net investment income each calendar quarter and the
Nations Global Government Income Fund declares dividends daily and pays
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: The Funds are designed for long-term investors seeking
international diversification and who are willing to bear the risks
associated with international investing, such as foreign currency
fluctuations and economic and political risks. For a discussion of
these and other factors, see "How Objectives Are Pursued -- Special
Risk Considerations Relevant to an Investment in the Funds."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor N Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
Nations
International Nations Nations
Equity Emerging Markets Pacific Growth
Fund Fund Fund
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of
the original purchase price or redemption proceeds)1 None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90% 1.10% .90%
Rule 12b-1 Fees .75% .75% .75%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .27% 1.03% .86%
Total Operating Expenses (After Expense
Reimbursements) 2.17% 3.13% 2.76%
</TABLE>
<TABLE>
<CAPTION>
Nations Global
Government
Income Fund
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of the lower of
the original purchase price or redemption proceeds)1 None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .70%
Rule 12b-1 Fees .75%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .62%
Total Operating Expenses (After Expense
Reimbursements) 2.32%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
EXAMPLES:
An investment of $1,000 would incur the following expenses, assuming (1) a 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations Nations
International Emerging Pacific
Equity Markets Growth
Fund Fund Fund
<S> <C> <C> <C>
1 Year $ 22 $ 32 $ 28
3 Years $ 68 $ 97 $ 86
5 Years $ 116 $ 164 $ 146
10 Years $ 250 $ 344 $ 309
</TABLE>
<TABLE>
<CAPTION>
Nations Global
Government
Income Fund
<S> <C>
1 Year $ 24
3 Years $ 72
5 Years $ 124
10 Years $ 266
</TABLE>
4
<PAGE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in the
Funds will bear either directly or indirectly. The figures contained in the
above tables for the Funds are based on amounts incurred during the Funds' most
recent fiscal year and have been adjusted as necessary to reflect current
service provider fees and waivers. The "Other Expenses" figures in the above
table are based on estimates for the current fiscal year. Long-term shareholders
of the Funds could pay more in sales charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund, Inc. and Nations Portfolios. Price
Waterhouse LLP is the independent accountant to Nations Fund, Inc. and Nations
Portfolios. The reports of Price Waterhouse LLP for the most recent fiscal
years of Nations Fund, Inc. and Nations Portfolios accompany the financial
statements for such periods and are incorporated by reference in the SAIs,
which are available upon request. For more information see "Organization And
History." Shareholders of the Funds will receive unaudited semi-annual reports
describing the Funds' investment operations and annual financial statements
audited by the Funds' independent accountant.
5
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a)# 05/31/95# 05/31/94*#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.56 $ 11.96 $ 10.51
Net investment income/(loss) (0.02) 0.05 (0.00)**
Net realized and unrealized gain/(loss) on investments 1.78 (0.22) 1.51
Net increase/(decrease) in net asset value from operation 1.76 (0.17) 1.51
Distributions:
Dividends from net investment income -- (0.01) (0.04)
Distributions in excess of net investment income (0.03) -- --
Distributions from net realized capital gains (0.02) (0.12) (0.02)
Distributions in excess of net realized capital gains -- (0.10) --
Total dividends and distributions (0.05) (0.23) (0.06)
Net asset value, end of period $ 13.27 $ 11.56 $ 11.96
Total return++ 15.25% (1.30)% 14.32%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $ 40,426 $ 31,372 $ 17,349
Ratio of operating expenses to average net assets 1.99%+ 1.78% 1.92%+
Ratio of net investment income/(loss) to average net assets (0.17)%+ 0.42% (0.00)%+**
Portfolio turnover rate 26% 92% 39%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 2.00%+ 1.79% 1.93%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.02) $ 0.05 $ (0.00)**
Average commission rate paid (b) $ 0.0272 -- --
</TABLE>
* Nations International Equity Fund Investor N Shares commenced operations on
June 7, 1993.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share amounts have been calculated using the monthly 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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
6
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.11)
Net realized and unrealized gain on investments 0.37
Net increase in net asset value from operations 0.26
Dividends from net investment income --
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.26
Total return++ 2.60%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $ 1,209
Ratio of operating expenses to average net assets 3.13%+
Ratio of net investment loss to average net assets (1.38)%+
Portfolio turnover rate 17%
Average commission rate paid (a) $ 0.0004
</TABLE>
* Nations Emerging Markets Fund Investor N Shares commenced operations on June
30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately represents the per share data for the
period, since the use of the undistributed income method did not accord with
the results of operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
7
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.10)
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net asset value from operations 0.19
Dividends from net investment income --
Distributions in excess of net investment income (0.01)
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total dividends and distributions (0.01)
Net asset value, end of period $ 10.18
Total return++ 1.88%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $ 2,324
Ratio of operating expenses to average net assets 2.76%+
Ratio of net investment income/(loss) to average net assets (1.27)%+
Portfolio turnover rate 23%
Average commission rate paid (b) $ 0.0178
</TABLE>
* Nations Pacific Growth Fund Investor N Shares commenced operations on June
30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly 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.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
8
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR N SHARES 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.32
Net realized and unrealized gain on investments 0.11
Net increase in net asset value from operations 0.43
Distributions:
Dividends from net investment income (0.30)
Distributions in excess of net investment income (0.02)
Distributions from net realized capital gains (0.04)
Total dividends and distributions (0.36)
Net asset value, end of period $ 10.07
Total return++ 4.27%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 193
Ratio of operating expenses to average net assets 2.32%+
Ratio of net investment income to average net assets 4.17%+
Portfolio turnover rate 213%
</TABLE>
* Nations Global Government Income Fund Investor N Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately represents the per share data for the
period, since the use of the undistributed income method did not accord with
the results of operations.
Objectives
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality 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 it will be able to do so. No single
9
<PAGE>
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
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 companies 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 companies 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 may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities.
The Fund also may invest in certain specified derivative securities including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return and forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures and options thereon. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in 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 the Fund.
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
equity securities of companies in emerging markets. 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.
Emerging markets include, but are not limited to: Argentina, Brazil, Chile,
China, Czech Republic, Colombia, Ecuador, Greece, Hong Kong, Indonesia, India,
Malaysia, Mexico, the Philippines, Poland, Portugal, Peru, Russia, Singapore,
South Africa, Thailand, Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. 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
10
<PAGE>
50%) of its revenues or profits from goods produced or sold, investments made,
or services performed in such country, market or region or has at least 50% of
its assets situated in such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("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 Funds," 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 also may invest in certain specified derivative securities, including:
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; 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. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
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 in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. 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 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
11
<PAGE>
and real estate investment trust securities. Debt obligations acquired by the
Fund will be rated investment grade at the time of purchase by Moody's or S&P
or, if unrated, determined by the Adviser to be comparable in quality to
instruments so rated. Obligations with the lowest investment grade rating (E.G.,
rated "Baa" by Moody's or "BBB" by S&P) have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade debt obligations. See "Appendix B" for a description of these
ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in 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 Funds," 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. The Fund also may invest in
certain specified derivative securities, including: exchange-traded options;
over-the-counter options executed with primary dealers, including long calls and
puts and covered calls and forward foreign exchange contracts; and U.S. and
foreign exchange-traded financial futures approved by the CFTC and options
thereon for market exposure risk management. The Fund may lend its portfolio
securities to qualified institutional investors. The Fund may invest in
restricted, private placement and other illiquid securities, and also may invest
in securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
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 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 Funds," 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.
12
<PAGE>
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various countries and currencies will vary in accordance with the
Adviser's assessment of the relative yield and appreciation of such securities.
Fundamental economic strength, credit quality and interest rate trends are the
principal factors considered by the Adviser in determining whether to increase
or decrease the emphasis placed upon a particular country or particular type of
security within the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by the Adviser. The Fund also may invest in securities rated
"Baa" by Moody's or "BBB" by S&P, but does not, as a general matter, intend to
invest more than 10% of its total assets in such securities. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such event in determining whether the Fund should continue
to hold the obligation. In no event will the Fund hold more than 5% of its total
net assets in securities rated below investment grade. See "Appendix B" below
for a description of these rating designations. The Adviser expects that the
Fund's 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.
The Fund also may invest in money market instruments, forward foreign currency
exchange contracts, futures and options and other instruments. The Fund also may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUNDS: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, each Fund presents unique risks that investors should be
aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in 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.
The same is true, but even more so, for the emerging market countries in which
Nations Emerging Markets Fund invests. Although the
13
<PAGE>
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.
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.
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. For the Funds' portfolio turnover rates, see "Financial
Highlights." If a Fund's portfolio turnover rate exceeds 100%, it may result in
higher costs to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences.
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 a Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in each
Fund's respective SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of a
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.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such
instru-
14
<PAGE>
ments 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.
Nations International Equity Fund, Nations Emerging Markets Fund and Nations
Pacific Growth 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 such Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
Nations 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 current position and
needs.
In order to permit the sale of a Fund's shares 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 interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average 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 (reflecting the deduction of any applicable contingent
deferred sales charge ("CDSC")), and assuming the reinvestment of all dividend
and capital gains distributions. Aggregate total return reflects the total
percentage change in the value of the investment over the measuring period again
assuming the reinvestment of all dividends and capital gains distributions.
Total return may also be presented for other periods or may not reflect a
deduction of the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolio and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with the Funds' investment objective and policies. These factors
should be considered when comparing the Funds' investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data
15
<PAGE>
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor N Shares, the Funds offer Primary A, Primary B, Investor
A and Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in the Funds will not be included in calculations of
total return or yield. The Funds' annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investors' selling agent.
How The Funds Are Managed
The business and affairs of Nations Fund, Inc. and Nations Portfolios are
managed under the direction of their respective Boards of Directors. Nations
Fund, Inc.'s and Nations Portfolios' SAIs contain the names of and general
background information concerning each Director of Nations Fund, Inc. and
Nations Portfolios, 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., through its investment
management division, serves as investment adviser to the Funds. NBAI is an
indirect wholly owned subsidiary of NationsBank, which in turn is a wholly owned
banking subsidiary of NationsBank Corporation, a bank holding company organized
as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as sub-investment adviser to the Funds
pursuant to sub-advisory agreements. 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, an indirect, wholly owned subsidiary of
Gartmore Investment Management plc ("Gartmore plc"), a UK company which is the
holding company for a leading UK based international fund management group of
companies. National Westminster Bank plc and affiliated entities (collectively,
"Natwest") own 100% of the equity of Gartmore Investment Management plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management ("Nations Gartmore", the
predecessor to Gartmore), pursuant to sub-advisory agreements among NBAI,
Nations Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively, on
behalf of the Funds. Nations Gartmore was a joint venture structured as a
general partnership between NB Partner Corp. and Gartmore U.S. Limited. On April
10, 1996, NatWest acquired a controlling interest in Gartmore plc from Compagnie
de Suez and affiliated entities ("Compagnie de Suez") through a direct purchase
from Compagnie de Suez of its indirect subsidiary Indosuez UK Asset Management
Limited, which held 75% of Gartmore plc's outstanding voting securities (the
"Acquisition"). NatWest acquired the remaining portion of Gartmore plc's shares
held by public shareholders through a tender
16
<PAGE>
offer. Gartmore is the successor entity resulting from the Acquisition and
change of control of Nations Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in the personnel who provide services under the
new Sub-Advisory Agreements, and the Funds receive the same sub-advisory
services, provided in the same manner and at the same fee levels, as they
received under the Previous Sub-Advisory Agreements.
Subject to the general supervision of 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. 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 has a lending
relationship. For the services provided and expenses assumed pursuant to various
Investment Advisory Agreements, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: 0.90% of each of
Nations International Equity Fund's and Nations Pacific Growth Fund's average
daily net assets; 1.10% of the average daily net assets of Nations Emerging
Markets Fund, and 0.70% of the average daily net assets of the Nations Global
Government Income Fund.
For services provided and expenses assumed pursuant to sub-advisory agreements,
NationsBank will pay Gartmore sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.70% of Nations International Equity Fund's
average daily net assets; 0.85% of Nations Emerging Markets Fund's average daily
net assets; 0.70% of Nations Pacific Growth Fund's average daily net assets and
0.54% of Nations Global Government Income Fund's average daily net assets.
From time to time, NBAI (and/or Gartmore) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.22% of the average daily net assets of Nations
International Equity Fund.
For the fiscal period from June 30, 1995 to December 31, 1995, after waivers,
Nations Portfolios paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth Fund --
0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.22% of the average daily net assets of Nations
International Equity Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid
17
<PAGE>
Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors sub-advisory fees at the indicated rates of the following
Funds' average daily net assets: Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income
Fund -- 0.54%.
Philip Ehrmann is Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Gartmore Emerging Markets Team. He has been Portfolio
Manager for Nations Emerging Markets Fund since 1995. Prior to joining Gartmore,
Mr. Ehrmann was the Director of Emerging Markets for Invesco in London. Mr.
Ehrmann has over 15 years of investment management experience.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager for Nations Global Government Income
Fund since the Fund's inception. 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 Institute of
Investment Management and Research.
Seok Teoh is Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been Portfolio Manager for Nations Pacific Growth Fund since the Fund's
inception. She has been associated with the Gartmore Group since 1990 as the
London based manager on its Far East desk. Prior to that, Ms. Teoh worked for
Overseas Union Bank Securities in Singapore where she was responsible for
Singaporean and Malaysian equity sales and then subsequently for Rothschild as a
Fund Manager in Singapore and later in Tokyo, Ms. Teoh, who is a native of
Singapore, is fluent in Mandarin and Cantonese and received an Economics degree
from the University of Durham in 1985.
Stephen Watson has been Principal Portfolio Manager for 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.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements and this prospectus, without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements,
18
<PAGE>
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.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc. 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, First Data
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 shares 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 First Data 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 period from June 1, 1995 to March 31, 1996, after waivers, Nations Fund,
Inc. paid its administrator combined fees at the rate of 0.10% of the average
daily net assets of Nations International Equity Fund.
For the fiscal period from June 30, 1995 to March 31, 1996, after waivers,
Nations Portfolios paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Pacific Growth Fund --
0.10%; Nations Emerging Markets Fund -- 0.10%; and Nations Global Government
Fund -- 0.10%.
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, out
of its own resources, service fees or commissions to selling agents which assist
customers in purchasing Investor N Shares of the Funds. See "Shareholder
Servicing And Distribution Plans."
Bank of New York (the "Custodian"), Avenue des Arts, 35, 1040 Brussels, Belgium,
serves as custodian for the assets of the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor N Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor N Shares, are deducted from accrued income before
dividends are declared. These Fund expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor N Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional
share-
19
<PAGE>
holder service and sales support costs. Any general expenses of Nations Fund,
Inc. and/or Nations Portfolios that are not readily identifiable as belonging to
a particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund,
Inc. and Nations Portfolios or in such other manner as the Boards of Directors
deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional
Reserves. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor N Shares of Nations International Equity Fund of Nations Fund, Inc. To
obtain additional information regarding the Fund's other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund
or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 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 the SAI of Nations Fund, Inc. 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
28, 1995. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Investor N Shares of Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund of Nations Portfolios. To obtain additional information regarding
the Funds' other classes of shares
20
<PAGE>
which may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class or allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of July 15, 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 two 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, Inc. and
Nations Portfolios have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor N Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into sales support agreements
("Sales Support Agreements") with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the
21
<PAGE>
assets of such plans must reach an asset value of $1,000 ($500 for SEPs,
SAR-SEPs and SAR-IRAs) within one year of the account open date. If the assets
of such plans do not reach the minimum asset size within one year, Nations Fund
reserves the right to redeem the shares held by such plans on 60 days' written
notice. The minimum subsequent investment is $100, except for investments
pursuant to the Systematic Investment Plan described below.
Investor N Shares are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected on days on which the New
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
The Selling Agents have entered into Sales Support Agreements with Stephens
whereby they will provide various sales support services to their customers
("Customers") who own Investor N Shares. In addition, banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into shareholder servicing agreements ("Servicing Agreements") with
Nations Fund ("Servicing Agents") will provide various shareholder services for
their Customers who own Investor N Shares. Servicing Agents and Selling Agents
are sometimes referred to hereafter as "Agents." From time to time the Agents,
Stephens and Nations Fund may agree to voluntarily reduce the maximum fees
payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor N Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor N Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Selling Agent placing the order. Payment for orders which
are not received or accepted will be returned after prompt inquiry to the
sending Selling Agent.
The Selling Agents are responsible for transmitting orders for purchases of
Investor N Shares by their Customers, and delivering required funds, on a timely
basis. Stephens is responsible for transmitting orders it receives to Nations
Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor N Shares. On a bi-monthly,
monthly or quarterly basis, shareholders may direct cash to be transferred
automatically from their checking or savings account at any bank to their Fund
account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Selling
Agent.
REINVESTMENT PRIVILEGE: Within 120 days after a redemption of Investor N Shares
of a Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor N Shares of the same Fund at the net asset value next
determined after a reinvestment request is received by the Transfer Agent,
together with the proceeds. A shareholder exercising this privilege would
receive a pro-rata credit for any CDSC paid in connection with the redemption. A
shareholder may not exercise this privilege with the proceeds of a redemption of
shares purchased through the reinvestment privilege.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires the telephone transaction
feature after opening an account, a
signa-
22
<PAGE>
ture guarantee will be required. Shareholders should be aware that by using the
telephone transaction feature, such shareholders may be giving up a measure of
security that they may have if they were to request such transactions in
writing. A shareholder may bear the risk of any resulting losses from a
telephone transaction. Nations Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine, and if Nations Fund and
its service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
Shareholder Servicing And Distribution
Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits the Funds to compensate Servicing Agents for services provided to
their Customers that own Investor N Shares. Payments under the Servicing Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by the Funds, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Investor N Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor N Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor N
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor N Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Directors have
approved a Distribution Plan with respect to Investor N Shares of the Funds.
Pursuant to the Distribution Plan, the Funds may compensate or reimburse
Stephens for any activities or expenses primarily intended to result in the sale
of the Funds' Investor N Shares. Payments under the Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Directors provided that the annual rate may not exceed 0.75% of the average
daily net asset value of the Funds' Investor N Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing and
distributing prospectuses, sales literature and advertising materials,
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or the Selling Agents;
overhead
23
<PAGE>
and other office expenses; opportunity costs relating to the foregoing; and any
other costs and expenses relating to distribution or sales support activities.
The overhead and other office expenses referenced above may include, without
limitation, (i) the expenses of operating Stephens' or the Selling Agents'
offices in connection with the sale of Fund shares, including rent, the salaries
and employee benefit costs of administrative, operations and support personnel,
utility costs, communications 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.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreements
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor N Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent, less any applicable
CDSC. The Selling Agents are responsible for transmitting redemption orders to
Stephens or to the Transfer Agent and for crediting their Customers' accounts
with the redemption proceeds on a timely basis. No charge for wiring redemption
payments is imposed by Nations Fund. Except for any CDSC which may be applicable
upon redemption of Investor N Shares, as described below, there is no redemption
charge.
Redemption proceeds are normally wired to the redeeming Selling Agent within
three Business Days after receipt of the order by Stephens or by the Transfer
Agent. However, redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately.
Nations Fund may redeem a shareholder's Investor N Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of the Funds involuntarily or
make payment for redemption in readily marketable securities or other property
under certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor N Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements
satisfac-
24
<PAGE>
tory to Nations Fund have previously been made. Nations Fund may require any
additional information reasonably necessary to evidence that a redemption has
been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor N Shares purchased prior to January 1, 1996 may be subject a CDSC if
such shares are redeemed within six years of the date of purchase. No CDSC is
imposed on increases in net asset value above the initial purchase price,
including shares acquired by reinvestment of distributions. Subject to the
exclusions described below, the amount of the CDSC is determined as a percentage
of the lesser of the net asset value or the purchase price of the shares being
redeemed. The amount of the CDSC will depend on the number of years since you
invested, according to the following table:
<TABLE>
<CAPTION>
<S> <C>
Contingent Deferred
Sales Charge as a
Year Since Purchase Percentage of Dollar
Made Amount Subject to Charge
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Funds will first
redeem shares not subject to any charge, and then shares held longest during the
six year period. This will result in you paying the lowest possible CDSC. Solely
for purposes of determining the number of years from the date of purchase of
shares, all purchases are deemed to have been made on the trade date of the
transaction.
The CDSC will be waived on redemptions of Investor N Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an IRA or Custodial
Account under Section 403(b)(7) of the Code following attainment of age 59 1/2;
(c) a tax-free return of an excess contribution to an IRA; and (d) distributions
from a qualified retirement plan that are not subject to the 10% additional
Federal withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected
pursuant to Nations Fund's right to liquidate a shareholder's account, including
instances where the aggregate net asset value of the Investor N shares held in
the account is less than the minimum account size, (iv) in connection with the
combination of Nations Fund with any other registered investment company by a
merger, acquisition of assets or by any other transaction, and (v) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor N Shares in the account. In addition, the CDSC will be waived on
Investor N Shares purchased before September 30, 1994 by current or retired
employees of NationsBank and its affiliates or by current or former Trustees or
Directors of Nations Fund or other management companies managed by NationsBank.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the plan adopted pursuant to Rule 12b-1 under the 1940
Act, pay a bonus or other consideration or incentive to Agents who sell a
minimum dollar amount of shares of the Funds during a specified period of time.
Stephens also may, from time to time, pay additional consideration to Agents not
to exceed 0.75% of the offering price per share on all sales of Investor N
Shares as an expense of Stephens or for which Stephens may be reimbursed under
the plan adopted pursuant to Rule 12b-1 or upon receipt of a CDSC. Any such
additional consideration or incentive program may be terminated at any time by
Stephens.
25
<PAGE>
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may be
amended or terminated at any time by Stephens.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor N Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor N Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor N Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor N Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling Agent or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder to exchange funds as specified below
when the shareholder believes that a shift between funds is an appropriate
investment decision. The
exchange feature enables a shareholder of Investor N Shares of a fund offered by
Nations Fund to acquire shares of the same class that are offered by any other
fund of Nations Fund (except Nations Short-Term Income Fund and Nations
Short-Term Municipal Income Fund), Investor A Shares of Nations Short-Term
Income Fund or Nations Short-Term Municipal Income Fund, or Investor C Shares of
a Nations Fund money market fund. A qualifying exchange is based on the next
calculated net asset value per share of each fund after the exchange order is
received.
No CDSC will be imposed in connection with an exchange of Investor N Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor N Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996) to the
original shares purchased will be applied to any redemption of the acquired
shares. If a shareholder exchanges Investor N Shares of a fund for Investor C
Shares of a money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund, the acquired shares will
remain subject to the CDSC schedule applicable to the Investor N Shares
exchanged. The holding period (for purposes of determining the applicable rate
of the CDSC) does not accrue while the shares owned are Investor C Shares of a
Nations Fund money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund. As a result, the CDSC that is
ultimately charged upon a redemption is based upon the total holding period of
Investor N Shares of a fund that charges a CDSC.
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
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share certificate or certificates, no exchanges may be made until all applicable
share certificates have been received by the Transfer Agent and deposited in the
shareholder's account. An exchange will be treated for Federal income tax
purposes the same as a redemption of shares, on which the shareholder may
realize a capital gain or loss. However, the ability to deduct capital losses on
an exchange may be limited in situations where there is an exchange of shares
within 90 days after the shares are purchased.
The Investor N Shares exchanged must have a current value of at least $1,000.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange. An investor may telephone an exchange request by
calling the investor's Selling Agent which is responsible for transmitting such
request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling Agent through which the original shares were
purchased. An investor should consult his/her Selling Agent or Stephens for
further information regarding exchanges.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid each calendar quarter by Nations International Equity Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund and are declared daily and
paid monthly by Nations Global Government Income Fund. Each Fund's net realized
capital gains (including net short-term capital gains) are distributed at least
annually. Distributions from capital gains are made after applying any available
capital loss carryovers. Distributions paid by the Funds with respect to one
class of shares may be greater or less than those paid with respect to another
class of shares due to the different expenses of the different classes.
The net asset value of Investor N Shares will be reduced by the amount of any
dividend or distribution. Certain Selling Agents may provide for the
reinvestment of dividends in the form of additional Investor N Shares of the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the month or quarter to which the dividend relates.
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Dividends and distributions payable to a shareholder are paid in cash within
five Business Days after a shareholder's complete redemption of his/her Investor
N Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Funds of liability for
Federal income taxes on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional shares. (Federal income taxes for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
these Funds to the extent that a Fund's income is derived from dividends (which,
if received directly, would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Portions of Nations International Equity Fund, Nations Emerging Markets Fund's,
Nations Pacific Growth Fund's 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 be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
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The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
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.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When 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. Nations International Equity Fund is a party 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. 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.
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
adjust-
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ments in the interest rate, and variable- and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: To the extent provided
under "How Objectives Are Pursued," the Funds may invest in debt securities
convertible into or exchangeable for equity securities, preferred stocks or
warrants. Preferred stocks are securities that represent an ownership interest
in a corporation providing the owner with claims on a company's earnings and
assets before common stock owners, but after bond or other debt security owners.
Warrants are options to buy a stated number of shares of common stock at a
specified price any time during the life of the warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. dollar. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract is an
obligation by a Fund to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of a
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the executive of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted. The Funds will generally
not enter into a forward contract with a term of greater than one year.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) 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,
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reporting, and record keeping standards than those applicable to domestic
companies, and securities of foreign issuers may be less liquid and their prices
more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued," the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold 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, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Directors or the Adviser, acting under
guidelines approved and monitored by the Fund's Board, after considering trading
activity, availability of reliable price information and other relevant
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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 and Section 4(2),
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 their
portfolios 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: Each 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
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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.
SECURITIES LENDING: To increase return on portfolio securities, 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 NationsBank or Nations Gartmore to be credit worthy
and when, in their judgment, the income to be earned from the loan justifies the
attendant risks. The aggregate of all outstanding loans of a Fund may not exceed
30% of the value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued,"
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"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
34
<PAGE>
susceptibility to impairment sometime in the future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by Duff & Phelps Credit
Rating Co. ("D&P") for bonds, each of which denotes that the securities are
investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may 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 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
35
<PAGE>
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the 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
36
<PAGE>
Prime-1 (or related supporting institutions) are considered to have a superior
capacity for repayment of senior short-term promissory obligations. Issuers
rated Prime-2 (or related supporting institutions) are considered to have a
strong capacity for repayment of senior short-term promissory obligations. This
will normally be evidenced by many of the characteristics of issuers rated
Prime-1, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
Thomson BankWatch Inc. ("BankWatch") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries. BankWatch ratings do not
constitute a recommendation to buy or sell securities of any of these companies.
Further, BankWatch does not suggest specific investment criteria for individual
clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA Limited
and its affiliate, IBCA (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.
37
<PAGE>
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
38
<PAGE>
Prospectus
INVESTOR D SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
(each a "Fund" and collectively, the "Money Market
Funds"), listed in the column to the right, of
Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Money Market Fund -- Investor D
Shares.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET
ASSET VALUE OF $1.00 PER SHARE. INVESTMENTS IN THE
FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT
THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor D Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc., each an open-end management
investment company, is contained in separate
Statements of Additional Information (the "SAIs"),
that 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 bear the same date as this
Prospectus and 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
the Funds. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Prime Fund
Nations Treasury Fund
Nations Government
Money Market Fund
Nations Tax Exempt
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 8
How Objectives Are Pursued 8
How Performance Is Shown 11
How the Funds Are Managed 11
Organization And History 15
About Your Investment
How To Buy Shares 16
Shareholder Servicing And Distribution Plans 18
How To Redeem Shares 19
How To Exchange Shares 20
How The Funds Value Their Shares 21
How Dividends And Distributions Are Made; Tax
Information 22
Appendix A -- Portfolio Securities 23
Appendix B -- Description Of Ratings 30
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
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent
consistent with the preservation of capital and the
maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment objective
is to seek as high a level of current income as is consistent
with liquidity and stability of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to seek as
high a level of current interest income exempt from Federal
income taxes as is consistent with liquidity and stability of
principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains, are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. Investor C Shares exchanged for Investor D Shares must
have a current value of at least $1,000. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor D Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
Nations
Nations Nations Treasury Government Money
SHAREHOLDER TRANSACTION EXPENSES Prime Fund Fund Market Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge .00%(1) .00%(1) .00%(1)
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Sales Load Imposed on Purchases None
Deferred Sales Charge .00%(1)
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Nations Nations Treasury Government Money
Prime Fund Fund Market Fund
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .14% .14% .12%
Rule 12b-1 Fees (After Fee Waivers) .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .16% .16% .18%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .80% .80% .80%
</TABLE>
<TABLE>
<CAPTION>
Nations
Tax Exempt
Fund
<S> <C>
Management Fees (After Fee Waivers) .13%
Rule 12b-1 Fees (After Fee Waivers) .25%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .17%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .80%
</TABLE>
1 Shares acquired through an exchange remain subject to the contingent deferred
sales charge ("CDSC") schedule applicable to the shares exchanged. See "How To
Buy Shares" and "How To Sell Shares -- Contingent Deferred Sales Charge"
below.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor D 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 Government
Prime Treasury Money
Fund Fund Market Fund
<S> <C> <C> <C>
1 Year $ 8 $ 8 $ 8
3 Years $26 $26 $26
</TABLE>
<TABLE>
<CAPTION>
Nations
Tax Exempt
Fund
<S> <C>
1 Year $ 8
3 Years $26
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in each
Fund will bear either directly or indirectly. Because Investor D Shares were not
offered during the Funds' most recent fiscal year, the "Other Expenses" figures
contained in the above table are based on estimated amounts for the Funds'
current fiscal year and reflect anticipated fee waivers and reimbursements.
There is no assurance that these 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 a Fund 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
4
<PAGE>
of Securities Dealers, Inc. For more complete descriptions of the Funds'
operating expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees," "Rule 12b-1
Fees" and "Total Operating Expenses" for Investor D Shares of the indicated
Fund would be as follows: Nations Prime Fund -- .20%, .45% and 1.06%,
respectively; Nations Treasury Fund -- .20%, .45% and 1.06%,
respectively; Nations Government Money Market Fund -- .40%, .45% and
1.28%, respectively; and Nations Tax Exempt Fund -- .40%, .45% and 1.27%,
respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited and, where indicated, unaudited financial information on the
following pages has been derived from the financial statements of Nations Fund
Trust and Nations Fund, Inc. Price Waterhouse LLP is the independent accountant
to Nations Fund Trust and Nations Fund, Inc. The reports of Price Waterhouse LLP
for the most recent fiscal years of Nations Fund Trust and Nations Fund, Inc.
accompany the financial statements for such periods and are incorporated by
reference in the SAIs, which are available upon request. Shareholders of a Fund
will receive unaudited semi-annual reports describing the Fund's investment
operations and annual financial statements audited by the Funds' independent
accountant.
FOR AN INVESTOR D SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR D SHARES 03/31/96(a) 05/31/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0439 0.0173
Distributions from net investment income (0.0439) (0.0173)
Total dividends and distributions $ (0.0439) $ (0.0173)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 4.49% 1.74%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 40 $ 2
Ratio of operating expenses to average net assets 0.67%+ 0.55%+
Ratio of net investment income to average net assets 5.25%+ 4.98%+
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.74%+ 0.63%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0434 $ 0.0165
</TABLE>
* Nations Prime Fund Investor D Shares commenced operations on February 9,
1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR AN INVESTOR D SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR D SHARES 03/31/96(a) 05/31/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0404 0.0167
Distributions from net investment income (0.0404) (0.0167)
Distributions from net realized capital gains -- --
Total dividends and distributions (0.0404) (0.0167)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 4.09% 1.67%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 2 $ 2
Ratio of operating expenses to average net assets 0.64%+ 0.55%+
Ratio of net investment income to average net assets 5.18%+ 4.74%+
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.71%+ 0.60%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0399 $ 0.0162
</TABLE>
* Nations Treasury Fund Investor D Shares commenced operations on February 9,
1995.
+ Annualized.
++ Total return represents aggregate total return for the period
indicated and does not reflect the deduction of any applicable sales
charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
6
<PAGE>
FOR AN INVESTOR D SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR D SHARES 03/31/96(a) 11/30/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0157 0.0418
Distributions:
Dividends from net investment income (0.0157) (0.0418)
Total dividends and distributions (0.0157) (0.0418)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 1.58% 4.38%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2 $ 2
Ratio of operating expenses to average net assets 0.71%+ 0.55%+
Ratio of net investment income to average net assets 4.79%+ 5.33%+
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.00%+ 0.82%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0147 $ 0.0397
</TABLE>
* Nations Government Money Market Fund Investor D Shares commenced operations
on February 10, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR D SHARES 03/31/96(a) 11/30/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0090 0.0243
Distributions from net investment income (0.0090) (0.0243)
Total dividends and distributions (0.0090) (0.0243)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 0.91% 2.61%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2 $ 2
Ratio of operating expenses to average net assets 0.69%+ 0.45%+
Ratio of net investment income to average net assets 2.96%+ 3.47%+
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.97%+ 0.72%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0081 $ 0.0225
</TABLE>
* Nations Tax Exempt Fund Investor D Shares commenced operations on February
10, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, the Fund may invest in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("U.S. Treasury Obligations"), other obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Obligations"), bank and
commercial instruments that may be available in the money markets, high quality
short-term taxable obligations issued by state and local governments, their
agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified First Tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and in instruments issued by trusts or certain partnerships, including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such trusts or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in obligations the
principal and interest of which are backed by the full faith and credit of the
United States Government, provided that such Fund shall, under normal market
conditions, invest at least 65% of its total assets in U.S. Treasury bills,
notes and bonds and other instruments issued directly by the U.S. Government.
The Fund may lend its portfolio securities to qualified institutional investors.
For more information concerning these instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund may lend its
portfolio securities to qualified institutional investors. For
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more information concerning these instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: In pursuing its investment objective, the Fund invests
in a diversified portfolio of obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel to the issuer or bond counsel, is
exempt from regular Federal income tax ("Municipal Securities"). The Fund will
not knowingly purchase securities the interest on which is subject to such tax.
A portion of the Fund's assets, however, may be invested in private activity
bonds, the interest on which may be treated as a specific tax preference item
under the Federal alternative minimum tax. See "How Dividends And Distributions
Are Made; Tax Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation
("S&P"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"), or
Thomson BankWatch, Inc. ("BankWatch") or Aa or higher by Moody's Investors
Service, Inc. ("Moody's"), in the case of bonds; rated "A" or higher by D&P,
Fitch, S&P, IBCA, BankWatch or Moody's in the case of certain bonds which are
unrated securities (I.E., lacking a short-term rating from the requisite number
of nationally recognized statistical rating organizations); rated "D-1" or
higher by D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or "MIG-1" by Moody's in
the case of notes; rated "D-1" or higher by D&P, "F-1" or higher by Fitch, or
"VMIG-1" by Moody's in the case of variable-rate demand notes; or rated "D-1" or
higher by D&P, "F-1" or higher by Fitch, "A-1" or higher by S&P, or "Prime-1" by
Moody's in the case of tax-exempt commercial paper. D&P, Fitch, S&P, Moody's,
IBCA and BankWatch are the six nationally recognized statistical rating
organizations (collectively, "NRSROs"). Securities that are unrated at the time
of purchase will be determined to be of comparable quality by the Adviser
pursuant to guidelines approved by Nations Fund Trust's Board of Trustees. The
applicable Municipal Securities ratings are described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by trusts or certain partnerships, including pass-through certificates
representing participations in, or debt instruments backed by, the securities
and other assets owned by such trusts or partnerships. For more information
concerning the Fund's investments, see "Appendix A."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds'
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investments in particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments 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 are privately
placed), may enter into repurchase agreements and may lend portfolio securities
in accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of such 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.
In addition, as a matter of non-fundamental policy, Nations Tax Exempt Fund may
not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations. The investment objectives and policies of the Funds, unless
otherwise specified, may be changed without shareholder approval. 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 positions and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in its best interests, it may consider terminating sales
of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost (see "How The Funds Value Their
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the Investment Company Act of 1940, as amended (the "1940 Act"), some of
which are described below. A Money Market Fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with a
remaining maturity of more than 397 days, provided such obligations are subject
to demand features or resets, and to maintaining a dollar-weighted average
portfolio maturity of 90 days or less. Quality requirements generally limit
investments to U.S. dollar denominated instruments determined to present minimal
credit risks and that, at the time of acquisition, are rated in the first or
second rating categories (known as "first tier" and "second tier" securities,
respectively) by the required number of NRSROs (at least two or, if only one
NRSRO has rated the security, that one NRSRO) or, if unrated by any NRSRO, are
(i) comparable in priority and security to a class of short-term securities of
the same issuer that has the required rating, or (ii) determined to be
comparable in quality to securities having the required rating. The
diversification requirements provide generally that a Money Market Fund may not
at the time of acquisition invest more than 5% of its assets in securities of
any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
(except for Nations Tax Exempt Fund) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second
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tier securities of one issuer is limited to the greater of 1% of total assets or
one million dollars. Securities issued by the U.S. Government, its agencies,
authorities or instrumentalities are exempt from the quality requirements, other
than minimal credit risk. In the event that a Fund's investment restrictions or
permissible investments are more restrictive than the requirements of Rule 2a-7,
the Fund's own restrictions will govern.
How Performance Is Shown
From time to time, a Fund may advertise the "yield" and "effective yield" of a
class of shares, and Nations Tax Exempt Fund may advertise the "tax equivalent
yield" of a class of shares. YIELD, EFFECTIVE YIELD AND TAX-EQUIVALENT YIELD
FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in such class over a seven-day period identified in the
advertisement. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares in a Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of each class of shares in Nations Tax Exempt Fund shows
the level of taxable yield needed to produce an after-tax equivalent to such
class's tax-free yield. This is done by increasing the class's yield (calculated
as above) by the amount necessary to reflect the payment of Federal income tax
at a stated tax rate. The tax-equivalent yield will always be higher than the
"yield" of a class of shares in Nations Tax Exempt Fund.
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. Any fees charged by selling and/or servicing
agents to their customers' accounts for automatic investment or other cash
management services will not be included in calculations of yield.
In addition to Investor D Shares, the Funds offer Primary A, Primary B, Investor
A, Investor B and Investor C 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
the Funds' shares. The Funds' annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investor's selling agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
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.'s SAIs contain the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and
invest-
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ment analysts. These policies substantially comply in all material respects with
the recommendations set forth in the May 9, 1994 Report of the Advisory Group on
Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board 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 Nations Tax Exempt Fund,
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 Fund, if the Adviser believes that the quality of
the transactions 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 has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus 0.20% of the combined average daily net assets of such Funds
in excess of $250 million; and 0.40% of the average daily net assets of each of
Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; and Nations Treasury Fund -- 0.18%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily
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net assets: Nations Prime Fund -- 0.18%; and Nations Treasury Fund -- 0.18%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- 0.055%; Nations Tax Exempt Fund -- 0.055%;
Nations Prime Fund -- 0.055%; and Nations Treasury Fund -- 0.055%.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. She has worked in the
investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysts.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager of the Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations 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.
First Data Services Group, Inc. ("First Data"), formerly The Shareholder
Services Group, Inc., a wholly owned subsidiary of First Data Corporation, with
principal offices at One Exchange
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Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to Co-Administration Agreements. Under the Co-Administration
Agreements, First Data provides various administrative and accounting services
to the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Funds. For the services rendered pursuant to the Administration and
Co-Administration Agreements, Stephens and First Data 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 period from December 1, 1995 to March 31, 1996, after
waivers, Nations Fund Trust paid its administrators combined fees at the
indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund, Nations Tax Exempt Fund -- 0.09%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
and Nations Treasury Fund -- 0.05%.
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 0.01% 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 that provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor D Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A., serves as each Fund's custodian (the "Custodian").
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of each Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
Investor D Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor D Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
Directors' or Trustees' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor D Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and distribution costs. Any general expenses of
Nations Fund Trust and/or of Nations Fund, Inc. that are not readily
identifiable as belonging to a particular investment
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portfolio are allocated among all portfolios in the proportion that the assets
of a portfolio bears to the assets of Nations Fund Trust and/or of Nations Fund,
Inc. or in such other manner as the Board of Trustees or Board of Directors
deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six separate classes of shares -- Investor A, Investor B, Investor C,
Investor D, Primary A and Primary B Shares. This Prospectus relates only to the
Investor D Shares of Nations Government Money Market Fund and Nations Tax Exempt
Fund of Nations Fund Trust. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund and
shareholders of a fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the SAI for examples of instances where the 1940
Act requires voting by fund.
As of July 15, 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. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. 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 portfolios, each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor D Shares of Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To
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obtain additional information regarding the Funds' other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of Directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of Nations Fund, Inc.'s outstanding shares.
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 July 15, 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, except when required by
the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company might become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus 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 this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor D Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into sales support agreements
("Sales Support Agreements") with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual
Retire-
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ment Accounts ("SAR-IRAs"). However, the assets of such plans must reach an
asset value of $1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of
the account open date. If the assets of such plans do not reach the minimum
asset size within one year, Nations Fund reserves the right to redeem the shares
held by such plans on 60 days' written notice. The minimum subsequent investment
is $100, except for investments pursuant to the Systematic Investment Plan
described below.
Shares acquired through an exchange of Investor C Shares of a non-money market
fund must have a current value of at least $1,000. No sales load or exchange fee
is imposed upon the purchase of Investor D Shares of a Fund through an exchange.
Purchases may be effected only on days on which the Federal Reserve Bank of New
York is open for business (a "Business Day").
The Selling Agents have entered into Sales Support Agreements with Stephens
under which they will provide sales support assistance to their Customers who
own Investor D Shares. In addition, the Servicing Agents have entered into
shareholder servicing agreements ("Servicing Agreements") under which they will
provide various shareholder services for their Customers who own Investor D
Shares ("Servicing Agents"). Selling Agents and Servicing Agents are sometimes
referred to hereafter as "Agents." From time to time the Agents, Stephens, and
Nations Fund may agree to voluntarily reduce the fees payable for shareholder
services and sales support services. See "Shareholder Servicing And Distribution
Plans."
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor D Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund). Absent prior arrangement with Stephens or the Transfer Agent,
purchase orders received after such time on any given day will not be accepted;
notice thereof will be given to the Selling Agent transmitting the order, and
any funds received will be returned promptly to the sending Selling Agent. Any
late purchase orders that are not rejected pursuant to such a prior arrangement
will be executed on the following Business Day. If federal funds are not
available by 4:00 p.m., Eastern time, the order will be canceled. Investor D
Shares are purchased at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent.
The Selling Agents are responsible for transmitting orders for purchases by
their Customers and delivering required funds on a timely basis. Stephens is
responsible for transmitting orders it receives to Nations Fund.
TELEPHONE TRANSACTIONS: An investor may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A Shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
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Shareholder Servicing And
Distribution Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits each Fund to compensate Servicing Agents for certain shareholder
support services that are provided by the Servicing Agents to their Customers
that own Investor D Shares. Payments under the Servicing Plan will be calculated
daily and paid monthly at a rate set from time to time by the Board of Trustees
or the Board of Directors, provided that the annual rate may not exceed 0.25% of
the average daily net asset value of a Fund's Investor D Shares. The shareholder
services provided by Servicing Agents may include general shareholder liaison
services; processing purchase, exchange and redemption requests from Customers
and placing orders with Stephens or the Transfer Agent; processing dividend and
distribution payments from a Fund on behalf of Customers; providing sales
information periodically to Customers, including information showing their
positions in Investor D Shares; providing sub-accounting with respect to
Investor D Shares beneficially owned by Customers or the information necessary
for sub-accounting; responding to inquiries from Customers concerning their
investment in Investor D Shares; arranging for bank wires; and providing such
other similar services as may be reasonably requested.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Funds' Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and
Directors also have approved a Distribution Plan with respect to Investor D
Shares of the Funds. Pursuant to the Distribution Plan, each Fund may compensate
or reimburse Stephens for any activities or expenses primarily intended to
result in the sale of Investor D Shares. Payments under the Distribution Plan
will be calculated daily and paid monthly at a rate or rates set from time to
time by the Board of Trustees or Board of Directors provided that the annual
rate may not exceed 0.45% of the average daily net asset value of a Fund's
Investor D Shares. Payments to Stephens pursuant to the Distribution Plan will
be used primarily to compensate or reimburse Stephens for distribution services
provided by Stephens and related expenses incurred by Stephens, including
payments by Stephens to compensate or reimburse Selling Agents for sales support
services provided, and related expenses incurred by, such Selling Agents.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the Funds'
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Selling Agents and/or Servicing Agents may charge
fees to their Customers who are the owners of Investor D Shares for various
services provided in connection with a Customer's account. These fees would be
in addition to any amounts received by a Selling Agent under its Sales Support
Agreement with Stephens or by a Servicing Agent under its Shareholder Servicing
Agreement with Nations Fund. The Sales Support Agreements and Shareholder
Servicing Agreements require Agents to disclose to their Customers any
compensation payable to the Agents by Stephens or Nations Fund and any other
compensation payable by the Customers for various services provided in
connection with their accounts. Customers of Agents should read this Prospectus
in light of the terms governing their accounts with their Agents.
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<PAGE>
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share, less any applicable CDSC,
next determined after receipt of the order by Stephens or by the Transfer Agent.
The Selling Agents are responsible for transmitting redemption orders to
Stephens or to the Transfer Agent and for crediting their Customers' accounts
with the redemption proceeds on a timely basis. No charge for wiring redemption
payments is imposed by Nations Fund.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), and payment will normally be wired the
same day to Selling Agents. Nations Fund reserves the right to wire redemption
proceeds within three Business Days after receiving the redemption orders if, in
the judgment of NationsBank, an earlier payment could adversely impact a Fund.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Redemption orders received by Stephens or by the Transfer Agent after 3:00 p.m.,
Eastern time (12:00 noon, Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), will be processed on the next
Business Day.
Nations Fund may redeem a shareholder's Investor D Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of a Fund involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor D Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor D Shares of a Fund that were purchased prior to January 1, 1996 will be
subject to a CDSC of 1.00% if redeemed within one year of the initial purchase
of the Investor C Shares exchanged for the Investor D Shares being redeemed.
Investor D Shares purchased after January 1, 1996 through an exchange from
Investor C Shares will be subject to a CDSC of .50% if redeemed within one year
of the initial purchase of the Investor C Shares exchanged. Investor D Shares
purchased directly are not subject to a CDSC. The CDSC is imposed on the lesser
of the net asset value of the Investor D Shares redeemed or the initial purchase
price of the Investor C Shares exchanged to acquire the Investor D Shares being
redeemed. No CDSC is imposed on increases in net asset value above the initial
purchase price of the exchanged Investor C Shares, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
initial purchase of any Investor C Shares, all purchases are deemed to have been
on the trade date of the transaction. In determining whether a CDSC is
applicable to a redemption, the calculation will be made in the manner that
results in the lowest possible charge being assessed. In this regard, it
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<PAGE>
will be assumed that the redemption is first of shares held for the longest
period of time or shares acquired pursuant to reinvestment of dividends or
distributions. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of initial purchase of Investor C
Shares.
The CDSC will be waived on redemptions of Investor D Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986 (the
"Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations), (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor D Shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC. Nations Fund may terminate any
waiver of the CDSC by providing notice in the Prospectus, but any such
termination would affect only shares purchased after such termination.
Within 120 days after a redemption of Investor D Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor D Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor A
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a shareholder of a Fund if the value of the Investor Shares in
his/her accounts within the Nations Fund Family (valued at the net asset value
at the time of the establishment of the AWP) equals $10,000 or more.
Shareholders who elect to establish an AWP may receive a monthly, quarterly or
annual check or automatic transfer to a checking or savings account in a stated
amount of not less than $25 on or about the 10th or 25th day of the applicable
month of withdrawal. Investor D Shares will be redeemed as necessary to meet
withdrawal payments. Withdrawals will reduce principal and may eventually
deplete the shareholder's account. If a shareholder desires to establish an AWP
after opening an account, a signature guarantee will be required. An AWP may be
terminated by a shareholder on 30 days' written notice to his/her Selling Agent
or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor D Shares of a Money
Market Fund to exchange such shares for Investor C Shares of a Non-Money Market
Fund or Investor D Shares of another Money Market Fund when that shareholder
believes that a shift between funds is an appropriate investment decision. An
exchange of Investor D Shares for shares of another fund is made on the basis of
the next
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<PAGE>
calculated net asset value per share of each fund after the exchange order is
received.
No CDSC will be imposed in connection with an exchange of Investor D Shares that
meets the requirements discussed in this section. If a shareholder acquires
shares in exchange for Investor D Shares of a Fund, the acquired shares will
remain subject to the CDSC applicable to the Investor C Shares exchanged to
acquire the subject Investor D Shares. In addition, the remaining period of time
(if any) that the CDSC will be in effect will be computed from the time of the
initial purchase of the previously held Investor C Shares.
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.
Investor D Shares may be exchanged by directing a request directly to the Agent
through which the original Investor D Shares were purchased or in some cases
Stephens or the Transfer Agent. During periods of significant economic or market
change, telephone exchanges may be difficult to complete. In such event, shares
may be exchanged by mailing your request directly to the Agent through which the
original shares were purchased. Investors should consult their Agent or Stephens
for further information regarding exchanges. Your exchange feature may be
governed by your account agreement with your Agent.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), on each Business Day. Currently, the days
on which the Federal Reserve Bank of New York is closed (other than weekends)
are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day, Thanksgiving Day and
Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Fund seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of each Fund
are declared daily to shareholders at 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund), on the day of declaration. Investor D Shares begin earning
dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Investor D
Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Funds' Transfer Agent and will become
effective with respect to dividends paid after its receipt. Your dividend
election may be governed by your account agreement with your Selling Agent.
Dividends are paid in cash within five Business Days after a shareholder's
complete redemption of his/her Investor D Shares in a Fund. To the extent that
there are any net short-term capital gains, they will be paid at least annually.
Each Fund's net investment income available for distribution to the holders of
Investor D Shares will be reduced by the amount of sales support and shareholder
servicing fees paid to Selling Agents and Servicing Agents, respectively. Each
Fund's net investment income available for distribution to the holders of
Investor D Shares will be reduced by the amount of retail transfer agency fees
allocated to Investor D Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an IRA
is generally deferred under the Code.) These distributions will not qualify for
the dividends received deduction for corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends (and capital gains, if applicable) paid during the prior year.
Such dividends (and capital gains) may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the 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, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account
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<PAGE>
is incorrect according to its records, or that the shareholder is subject to
backup withholding. Amounts withheld are applied to the shareholder's Federal
tax liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, Nations Tax Exempt
Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund may be taxable to investors under state or local law even though a
substantial portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
If Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. To the extent, if any, dividends paid to
shareholders are derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from Federal income tax and
also may be subject to state and local tax.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this 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
organiza-
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tions of loans, receivables, or other assets originated by various lenders.
Asset-backed securities consist of both mortgage- and non-mortgage-backed
securities. Interests in pools of these assets differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Instead,
asset-backed securities provide periodic payments which generally consist of
both interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the related SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Prime Fund may invest up to 100% of its assets in obligations issued by
banks. All other 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. Nations
Prime Fund may invest in U.S. dollar-denominated obligations issued by foreign
branches of domestic banks ("Eurodollar" obligations) and domestic branches of
foreign banks ("Yankee dollar" obligations).
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
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<PAGE>
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 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 Funds may use reverse repurchase agreements
for the purpose of investing the proceeds in tri-party repurchase agreements.
Generally, the effect of such a transaction is that a Fund can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while it will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, a Fund's use of
proceeds of the agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities. 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. A 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 a Fund does not establish and maintain a
segregated account (as described above). Under the requirements of the 1940 Act,
a Fund is required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
a Fund's asset coverage and other factors at the time of a reverse repurchase,
the Fund may not establish a segregated account when the Adviser believes it is
not in the best interests of the Funds to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations Prime Fund
will limit purchases of commercial instruments to instruments that: (a) if rated
by at least two 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.
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Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. 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.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) 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 securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers that, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
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 hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be
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required by the states in which the Funds sells their shares. Repurchase
agreements, time deposits and GICs that do not provide for payment to a Fund
within seven days after notice, and illiquid restricted securities are subject
to the limitation on illiquid securities. In addition, interests in privately
arranged loans acquired by the Nations Prime Fund may be subject to this
limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by the Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), 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 their
portfolios 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.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less, or instruments
subject to demand features or resets if the remaining maturity is more than 397
days. 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.
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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 instrument. 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. 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 also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Fund's Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Fund's expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. 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 without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have
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value to the Fund. In certain cases a premium may be paid for put features. A
premium paid will have the effect of reducing the yield otherwise payable on the
underlying security. The purpose of engaging in transactions involving puts is
to maintain flexibility and liquidity to permit the Fund to meet redemptions and
remain as fully invested as possible in municipal securities. The Funds will
limit their put transactions to institutions which the Adviser believes present
minimal credit risk, pursuant to guidelines adopted by the Boards. Nations Tax
Exempt Fund may invest more than 40% of its portfolio in puts or other
securities guaranteed by bank and other financial institutions. Accordingly,
changes in the credit quality of these institutions could cause losses to the
Fund and affect its share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Fund's total assets are invested in municipal securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested 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.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
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-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
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U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
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 and foreign 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. The Funds will invest
in securities with demand features where (a) the security or its issuer has
received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) 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 three ratings used by S&P for corporate and
municipal bonds:
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 strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse
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effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. 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 and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
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
princi-
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pal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher
ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
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 two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
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+.
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.
For commercial paper, D&P uses the short-term ratings described above.
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For commercial paper, Fitch uses the short-term ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
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.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
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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 Primary Shares
July 31, 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
July 31, 1996 (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 Fund c/o
Stephens Inc., One NationsBank Plaza, 33rd Floor, Charlotte, North Carolina
28255, or by calling Nations Fund at (800) 321-7854.
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TABLE OF CONTENTS
<TABLE>
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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.............................................................. 4
ADDITIONAL INFORMATION ON FUND INVESTMENTS .................................................. 4
General.............................................................................. 4
When-Issued Securities .............................................................. 5
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 ....................................................... 18
Securities Lending................................................................... 19
Short Sales.......................................................................... 19
Guaranteed Investment Contracts ..................................................... 19
Illiquid Securities.................................................................. 20
Lower Rated Debt Securities.......................................................... 20
Commercial Instruments............................................................... 21
Municipal Securities................................................................. 22
Real Estate Investment Trusts........................................................ 23
Additional Investment Limitations ................................................... 23
NET ASSET VALUE.............................................................................. 25
Purchases and Redemptions............................................................ 25
Net Asset Value Determination........................................................ 25
Exchanges............................................................................ 27
DESCRIPTION OF SHARES........................................................................ 27
Dividends and Distributions.......................................................... 27
ADDITIONAL INFORMATION CONCERNING TAXES...................................................... 28
Qualification as a Regulated Investment
Company........................................................................ 28
Excise Tax on Regulated Investment Companies......................................... 30
Distributions........................................................................ 30
Sale or Redemption of Shares ........................................................ 32
Foreign Shareholders ................................................................ 33
Effect of Future Legislation: Local Tax Considerations............................... 33
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DIRECTORS AND OFFICERS....................................................................... 33
Compensation Table................................................................... 37
Nations Funds Retirement Plan........................................................ 38
Nations Funds Deferred Compensation Plan ............................................ 39
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING AND
DISTRIBUTION AGREEMENTS ..................................................................... 39
The Company and Its Common Stock..................................................... 39
Investment Adviser................................................................... 40
Investment Styles.................................................................... 44
Administrator and Co-Administrator................................................... 45
Distribution Plans and Shareholder Servicing
Arrangements for Investor Shares................................................. 46
Shareholder Servicing Agreements-Money Market Funds
(Primary B Shares)............................................................... 56
Shareholder Administration Plan-Non-Money Market Funds
(Primary B Shares)............................................................... 57
Expenses............................................................................. 57
Transfer Agents and Custodians....................................................... 58
DISTRIBUTOR ................................................................................. 59
INDEPENDENT ACCOUNTANT AND REPORTS........................................................... 59
COUNSEL...................................................................................... 59
ADDITIONAL INFORMATION ON PERFORMANCE........................................................ 60
Yield Calculations................................................................... 60
Total Return Calculations............................................................ 62
MISCELLANEOUS ............................................................................... 64
Certain Record Holders............................................................... 64
SUITABILITY OF NATIONS TREASURY FUND FOR
INVESTMENT BY MUNICIPAL INVESTORS............................................................ 67
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 Primary A (formerly called Trust A), Primary B
(formerly called the 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 Primary A, Primary 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 Primary A
and Primary B Shares are collectively referred to herein as "Primary 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 to all of the Funds except Nations International Equity Fund. Gartmore
Global Partners ("Gartmore") serves as sub-investment adviser to Nations
International Equity Fund. As used herein, "Adviser" shall mean NBAI,
TradeStreet and/or 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, Equity Income Fund and
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, Equity
Income Fund paid $71,240 in brokerage commissions to Dean Witter. During the
fiscal period ended March 31, 1996, Equity Income Fund paid $9,944 in brokerage
commissions to Dean Witter. During the fiscal year ended May 31, 1995 the
percentage of 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
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payment of commissions effected through Dean Witter was .37%. During the fiscal
period ended May 31, 1996 the percentage of Equity Income Fund's aggregate
brokerage commissions paid to Dean Witter was 1.72% and the percentage of the
Company's aggregate dollar amount of transactions involving the payment of
commissions effected through Dean Witter was 2.19%.
During the fiscal years ended May 31, 1993, 1994, and 1995, and for the
fiscal period ended March 31, 1996, the Company did not pay brokerage
commissions to NationsBanc Securities, Inc., NationsBanc Capital Markets, Inc.,
Nations Securities or Stephens.
As of the fiscal period ended May 31, 1995, Equity Income Fund and the
International Equity Fund did not hold any securities of the Company's regular
brokers or dealers. As of the fiscal period ended May 31,1996, Equity Income
Fund did not hold any securities of the Company's regular brokers or dealers,
and the International Equity Income Fund held $3,686,865 in securities issued by
Development Bank of Singapore.
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.
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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.
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 its
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 its services to other advisory clients, including the investment
companies which it advises. 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 its 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.
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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), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided ...viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision making responsibilities." Accordingly,
the price to 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.
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
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yield as high a level of current income as longer term or lower grade
securities, which generally have less liquidity and 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 tax. The value of when-issued securities on the settlement date may be
more or less than the purchase price.
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Delayed Delivery Transactions
In a delayed delivery transaction, the Fund relies on the other party to
complete the transaction. If the transaction is not completed, the Fund may miss
a price or yield considered to be advantageous.
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
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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 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.
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For example, if long-term bonds are held by a Fund, and interest rates were
expected to increase, the Fund might enter into futures contracts for the sale
of debt securities. Such a sale would have much the same effect 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.
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In the event that an option is exercised, the parties will be subject to all the
risks associated with the trading of futures contracts, such as payment of
variation margin deposits. In addition, the writer of an option on a futures
contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
Options on Futures Contracts on Fixed Income Securities and Related
Indices. 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.
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Although a Fund will only engage in options and futures transactions for limited
purposes, these activities will involve certain risks which are described below
under "Risk Factors Associated with Futures and Options Transactions." A Fund
will not engage in options and futures transactions 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 future time for a special price. A currency futures contract purchase
creates an obligation by a Fund, as purchaser, to take delivery of an amount of
currency at a specified future time at a specified price. Although the terms of
currency futures contracts specify actual delivery or receipt, in most instances
the contracts are closed out before the settlement date without the making or
taking of delivery of the currency. Closing out of a currency futures contract
is effected by entering into an offsetting purchase or sale transaction. Unlike
a currency futures contract, which requires the parties to buy and sell currency
on a set date, an option on a currency futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract. If the
holder decides not to enter into the contract, the premium paid for the option
is fixed at the point of sale.
The Fund will write (sell) only covered put and call options on currency
futures. This means that a Fund will provide for its obligations upon exercise
of the option by segregating sufficient cash or short-term obligations or by
holding an offsetting position in the option or underlying currency future, or a
combination of the foregoing. A Fund will, so long as it is obligated as the
writer of a call option on currency futures, own on a contract-for-contract
basis an equal long position in currency futures with the same delivery date or
a call option on stock index futures with the difference, if any, between the
market value of the call written and the market value of the call or long
currency futures purchased maintained by a Fund in cash, Treasury bills, or
other high grade short-term obligations in a segregated account with its
custodian. If at the close of business on any day the market value of the call
purchased by a Fund falls below 100% of the market value of the call written by
the Fund, a Fund will so segregate an amount of cash, Treasury bills or other
high grade short-term obligations equal in value to the difference.
Alternatively, a Fund may cover the call option through segregating with the
custodian an amount of the particular foreign currency equal to the amount of
foreign currency per futures contract option times the number of options written
by a Fund. In the case of put options on currency futures written by the Fund,
the Fund will hold the aggregate exercise price in cash, Treasury bills, or
other high grade short-term obligations in a segregated account with its
custodian, or own put options on currency futures or short currency futures,
with the difference, if any, between the market value of the put written and the
market value of the puts purchased or the currency futures sold maintained by a
Fund in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its custodian. If at the close of business on any day
the market value of the put options purchased or the currency futures by a Fund
falls below 100% of the market value of the put options written by the Fund, a
Fund will so segregate an amount of cash, Treasury bills or other high grade
short-term obligations equal in value to the difference.
If other methods of providing appropriate cover are developed, a Fund
reserves the right to employ them to the extent consistent with applicable
regulatory and exchange requirements. In connection with transactions in stock
index options, stock index futures, interest rate futures, foreign currency
futures and related options on such futures, a Fund will be required to deposit
as "initial margin" an amount of cash or short-term government securities equal
to from 5% to 8% of the contract amount. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from the broker to reflect
changes in the value of the futures contract.
Limitations on Purchase of Options. The staff of the SEC has taken the
position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid and, therefore, together with
other illiquid securities, cannot exceed 15% of a Fund's assets. The Adviser
intends to limit a Fund's writing of over-the-counter options in accordance with
the following procedure. Each Fund intends to write over-the-counter options
only with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. Also, the contracts which a Fund has in place with
such primary dealers will provide that the Fund has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as
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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 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 may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
Mortgage-Backed Securities. Mortgage-backed securities represent an
ownership interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in
pools of residential mortgage loans originated by U.S. governmental or private
lenders and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest
may include those issued or guaranteed by GNMA, 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.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal invested far
in advance of the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from
their coupon rates for the following reasons: (i) Certificates may be issued at
a premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly, which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
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Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs
to be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any has
been paid. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis.
The principal and interest payments on the Mortgage Assets may be
allocated among the various classes of CMOs in several ways. Typically, payments
of principal, including any prepayments, on the underlying mortgages are applied
to the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. A Fund will only invest in SMBS that are obligations backed
by the full faith and credit of the U.S. Government. SMBS are usually structured
with two classes that receive different proportions of the interest and
principal distributions from a pool of mortgage assets. A Fund will only invest
in SMBS whose mortgage assets are U.S. Government obligations.
A common type of SMBS will be structured so that one class receives some
of the interest and most of the principal from the mortgage assets, while the
other class receives most of the interest and the remainder of the principal. If
the underlying mortgage assets experience greater than anticipated prepayments
of principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities
of the underlying mortgage instruments. The average life is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities as the result of mortgage prepayments, mortgage refinancings, or
foreclosures. The rate of mortgage prepayments, and hence the average life of
the certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined by
the Adviser and used for the purpose of determining the average weighted
maturity and duration of the Funds.
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. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating
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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.
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
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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, investment contracts or funding agreements
(each referred to as a "GIC") are investment instruments issued by highly rated
insurance companies. Pursuant to such contracts, a Fund may make cash
contributions to a deposit fund of the insurance company's general or separate
accounts. The insurance company then credits to a Fund guaranteed interest. The
insurance company may assess periodic charges against a GIC for expense and
service costs allocable to it, and the charges will be deducted from the value
of the deposit fund. The purchase price paid for a GIC generally becomes part of
the general assets of the issuer, and the contract is paid from the general
assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase,
meet quality and credit standards established by the Adviser. Generally, GICs
are not assignable or transferable without the permission of the issuing
insurance companies, and an active secondary market in GICs does not currently
exist. Also, a Fund may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less, at which point the GIC may be
considered to be an illiquid investment.
A Money Market Fund will acquire GlCs so that they, together with other
instruments in such Fund's portfolio which are not readily marketable, will not
exceed 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.
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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.
Lower Rated Debt Securities
The yields on lower rated debt and comparable unrated fixed-income
securities generally are higher than the yields available on higher-rated
securities. However, investments in lower rated debt and comparable unrated
securities generally involve greater volatility of price and risk of loss of
income and principal, including the probability of default by or bankruptcy of
the issuers of such securities. Lower rated debt and comparable unrated
securities (a) will likely have some quality and protective characteristics
that, in the judgment of the rating organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. Accordingly,
it is possible that these types of factors could, in certain instances, reduce
the value of securities held in a Fund's portfolio, with a commensurate effect
on the value of the Fund's shares. Therefore, an investment in the Fund should
not be considered as a complete investment program and may not be appropriate
for all investors.
The market prices of lower rated securities may fluctuate more than higher
rated securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower rated securities, the Adviser
will try to minimize the risks inherent in investing in lower rated debt
securities by engaging in credit analysis, diversification, and attention to
current developments and trends affecting interest rates and economic
conditions. The Adviser will attempt to identify those issuers of high-yielding
securities whose financial condition is to meet future obligations, have
improved, or are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated
securities, but they may not be attractive to as may buyers. Each Fund's
policies regarding lower rated debt securities is not fundamental and may be
changed at any time without shareholder approval.
While the market values of lower rated debt and comparable unrated
securities tend to react less to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain lower
rated debt and comparable unrated securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, lower rated debt securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
lower rated debt and comparable unrated securities often are highly leveraged
and may not have more traditional methods of financing available to them so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. The risk of
loss due to default by such issuers is significantly greater because lower rated
debt and comparable unrated securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness. A Fund may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings. The
existence of limited markets for lower rated debt and comparable unrated
securities may diminish a Fund's ability to (a) obtain accurate market
quotations for purposes of valuing such securities and calculating its net asset
value and (b) sell the securities at fair value either to meet redemption
requests or to respond to changes in the economy or in financial markets.
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Fixed-income securities, including lower rated debt securities and
comparable unrated securities, frequently have call or buy-back features that
permit their issuers to call or repurchase the securities from their holders,
such as a Fund. If an issuer exercises these rights during periods of declining
interest rates, a Fund may have to replace the security with a lower yielding
security, thus resulting in a decreased return to a Fund.
The market for certain lower rated debt and comparable unrated securities
is relatively new and has not weathered a major economic recession. The effect
that such a recession might have on such securities is not known. Any such
recession, however, could disrupt severely the market for such securities and
adversely affect the value of such securities. Any such economic downturn also
could adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon.
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.
Variable- and floating-rate instruments are unsecured instruments that
permit the indebtedness thereunder to vary. While there may be no active
secondary market with respect to a particular variable or floating rate
instrument purchased by a Fund, a Fund may, from time to time as specified in
the instrument, demand payment of the principal or may resell the instrument to
a third party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of an instrument if the issuer defaulted on its
payment obligation or during periods when a Fund is not entitled to exercise its
demand rights, and a Fund could, for these or other reasons, suffer a loss. 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.
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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 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.
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In addition, certain of the Funds may acquire "stand-by commitments" from
banks or broker/dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified Municipal Securities at a specified price. 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
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
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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 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.
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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.
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 Funds also are available for a variety of retirement plans, including
IRAs, that allow investors to shelter some of their income from taxes. Investors
should contact their Selling Agents for details concerning retirement plans.
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
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
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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 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.
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Exchanges
By use of the exchange privilege, the holder of Investor Shares and/or
Primary 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 Primary 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 Primary B Shares of each Fund
describe the exchange privileges available to holders of such Investor Shares
and Primary 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 Primary B Shares of each such Fund shall accrue an
additional expense not borne by the Primary A Shares as a result of the Rule
12b-1 Plans and/or the Shareholder Servicing Plans or Shareholder Administration
Plan and/or Shareholder Administration Agreements applicable to each such class
of shares. Consequently, a separate calculation shall be made to arrive at the
dividends of each class of shares. Dividends normally accrue on the first day
that a purchase order is effective but not on the date that a redemption order
is effective. Thus, if a purchase order is accepted prior to 12:00 noon Eastern
Standard Time, the shareholder will receive dividends beginning that day. All
dividends declared during a month will be paid in cash within five business days
after the end of the month. If a shareholder of record redeems all of the shares
in its account at any time during the month, all dividends declared through the
date of redemption are paid to the shareholder along with the proceeds of the
redemption within five business days of the redemption.
Equity Income Fund 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 Primary B Shares of the Funds shall
accrue an additional expense not borne by the Primary A Shares as a result of
the applicable Rule 12b-1 Plan and/or Shareholder Servicing Plan or Shareholder
Administration Plan and/or Shareholder Administration Agreements. Consequently,
a separate calculation shall be made to arrive at the net asset value per share
and dividends of each class of shares of the Funds.
Government Securities Fund. 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 Primary B Shares of the Fund shall accrue an additional expense
not borne by the Primary A Shares as a result of the 12b-1 Plans and the
Shareholder Servicing Plan or Shareholder Administration Plan and/or Shareholder
Administration Agreements. Consequently, a separate calculation shall be made to
arrive at the net asset value per share and dividends of each class of shares of
the Fund.
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
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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 Primary A, Primary
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 the Internal 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. 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
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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 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.
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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
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
30
<PAGE>
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 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.
31
<PAGE>
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 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.
32
<PAGE>
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. 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(*).
33
<PAGE>
<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, 59 Director Director, President and Treasurer,
Saunders & Benson, Inc. Saunders & Benson, Inc. (Insurance);
728 East Main Street Trustee, Nations Institutional Reserves
Suite 400 and Nations Fund Trust, Director,
Richmond, VA 23219 Nations Fund, Inc. and Nations Fund
Portfolios, Inc.
James Ermer, 53 Director Senior Vice President- Finance, CSX
13705 Hickory Nut Point Corporation (transportation and natural
Midlothian, VA 23112 resources); Director, National Mine
Service; Director, Lawyers Title
Corporation; Trustee, Nations
Institutional Reserves and Nations Fund
Trust; Director, Nations Fund, Inc. and
Nations Fund Portfolios, Inc.
William H. Grigg, 63 Director Since April 1994, Chairman and Chief
Duke Power Co. Executive Officer; November 1991 to
422 South Church Street April 1994, Vice Chairman, Duke Power
PB04G Co.; from April 1988 to November 1991,
Charlotte, NC 28242-0001 Executive Vice President Customer Group,
Duke Power Co.; Director Inc., Nations
Government Income Term Trust 2004, Inc.,
Nations Balanced Target Maturity Fund,
Inc., Nations Fund, Inc. and Nations
Fund Portfolios, Inc.; Trustee, Nations
Institutional Reserves and Nations Fund
Trust.
Thomas F. Keller, 64 Director R.J. Reynolds Industries Professor
Fuqua School of Business of Business Administration and
P.O. Box 90120 Dean, Fuqua School of Business,
Duke University Duke University; Director, LADD
Durham, NC 27708 Furniture, Inc.; Director,
Wendy's International Mentor
Growth Fund, and Cambridge
Trust; Director, Hatteras Income
Securities, Inc., Nations
34
<PAGE>
Government Income Term Trust
2003, Inc., Nations Government
Income Term Trust 2004, Inc.,
Nations Balanced Target
Maturity Fund, Inc., Nations
Fund, Inc. and Nations Fund
Portfolios, Inc.; Trustee, Nations
Institutional Reserves and
Nations Fund Trust.
Carl E. Mundy, Jr., 61 Director Commandant, United States
9308 Ludgate Drive Marine Corps, from July 1991 to
Alexandria, VA 22309 July 1995; Commanding General,
Marine Forces Atlantic, from
June 1990 to June 1991; Director,
Nations Fund, Inc. and Nations
Fund Portfolios, Inc.; Trustee,
Nations Institutional Reserves
and Nations Fund Trust.
A. Max Walker*, 74 President, Director and Financial consultant; Formerly,
4580 Windsor Gate Court Chairman of the Board President, A. Max Walker, Inc.;
Atlanta, GA 30342 Director and Chairman of the
Board, Hatteras Income
Securities, Inc., Nations
Government Income Term Trust
2003, Inc., Nations Government
Income Term Trust 2004, Inc.,
Nations Balanced Target
Maturity Fund, Inc., Nations
Fund, Inc. and Nations Fund
Portfolios. Inc.; President and
Chairman of the Board of
Trustees, Nations Institutional
Reserves and Nations Fund Trust.
Charles B. Walker, 57 Director Since 1989, Director, Executive
Ethyl Corporation Vice President, Chief Financial
330 South Fourth Street Officer and Treasurer, Ethyl
Richmond, VA 23219 Corporation (chemicals, plastics,
and aluminum manufacturing);
since 1994, Vice Chairman, Ethyl
Corporation and Vice Chairman,
Chief Financial Officer and
Treasurer, Albemarle
Corporation, Director, Nations
Fund, Inc. and Nations Fund
Portfolios, Inc.; Trustee, Nations
Institutional Reserves and
Nations Fund Trust.
35
<PAGE>
Thomas S. Word, Jr.*, 58 Director Partner, McGuire Woods Battle
McGuire, Woods, Battle & Boothe & Boothe (law); Director,
One James Center Vaughan Bassett Furniture
Richmond, VA 23219 Company, Director VB Williams
Furniture Company, Inc.;
Director, Nations Fund, Inc. and
Nations Fund Portfolios, Inc.;
Trustee, Nation Institutional
Reserves and Nations Fund Trust.
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.; Secretary, Nations
Institutional Reserves, Nations
Fund Trust, Nations Fund, Inc.
and Nations Fund Portfolios, Inc.
Michael W. Nolte, 35 Assistant Secretary Associate, Financial Services
Group of Stephens Inc.
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,
First Data Investors Services Group, Inc. Division Manager, First Data
(formerly, The Shareholder Services Investors Services Group, Inc.
Group, Inc.) (formerly, The Shareholder
One Exchange Place Services Group, Inc.) since 1988,
Boston, MA 02109 Senior Vice President, The
Boston Company Advisors. Inc.;
Treasurer, Nations Institutional
Reserves, Nations Fund Trust,
Nations Fund, Inc. and Nations
Fund Portfolios, Inc.
Joseph C. Viselli, 32 Assistant Treasurer Director, The Shareholder
First Data Investors Services Group Service Group, Inc. since 1995
(formerly, The Shareholder Services and Assistant Vice President, The
Group, Inc.) Boston Company Advisors, Inc.
One Exchange Place Since April 1992.
Boston, MA 02109
36
<PAGE>
COMPENSATION TABLE
</TABLE>
<TABLE>
<CAPTION>
Aggregate Estimated
Compensation Pension or Retirement Annual Benefits Total Compensation
Name of Person from Benefits Accrued as Upon from Registrant and
Position(1) Registrant (2) Part of Fund Expenses Retirement Fund Complex 1
<S> <C> <C> <C> <C>
Edmund L. Benson, III,
Trustee $ 10,570 $19,488 $21,000 $ 42,119
James Ermer $ 9,000 $19,488 $21,000 $ 44,250
Trustee
William H. Grigg $ 10,599 $19,488 $21,000 $ 66,397
Trustee
Thomas F. Keller $11,689 $19,488 $21,000 $ 68,597
Trustee
A. Max Walker $ 11,500 $19,488 $25,000 $ 75,250
Chairman of the Board
Charles B. Walker $ 8,500 $19,488 $21,000 $ 43,750
Trustee
Thomas S. Word $11,681 $19,488 $21,000 $ 51,579
Trustee
Carl E. Mundy, Jr. $ 5,750 $0 $21,000 $ 25,875
Trustee
</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 the twelve-month period ended March 31, 1996. 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.
- --------
1 Total compensation amounts include deferred compensation (including interest)
payable to or accrued for the following Directors: Edmund L. Benson, III
($28,994.19); William H. Grigg ($54,397.01); Thomas F. Keller ($58,096.19); and
Thomas S. Word ($58,078.37).
37
<PAGE>
Mr. Rose serves as Treasurer to certain other investment companies for
which First Data Investors Services Group, Inc.(formerly, 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. e
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. e
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.
38
<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 was submitted to and approved by 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. 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's fiscal year end is
March 31; prior to 1996, the Company's fiscal year end was May 31. 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 (Primary A Shares, Primary B Shares, Investor A Shares, Investor B,
Investor C and Investor D Shares) of the Money Market Funds and (Primary A
Shares, Primary 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."
Primary 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
39
<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.
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. Gartmore also serves
as sub-investment adviser to Nations Fund Portfolios, Inc.
NBAI and TradeStreet are each wholly owned 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. Gartmore is a joint venture structured as a Delaware general
partnership between NB Partner Corp., a wholly owned subsidiary of NationsBank
and Gartmore U.S. Limited, an indirect wholly owned subsidiary of Gartmore
Investment Management plc ("Gartmore plc"), a publicly listed U.K. company.
National Westminster Bank plc and affiliated parties (collectively, "NatWest)
own 100% of the equity of Gartmore plc. Gartmore is a registered investment
adviser in the United States and a member of the Investment Management
Regulatory Organization Limited, a U.K. regulatory authority. The respective
principal offices of NBAI, TradeStreet and Gartmore are located at One
NationsBank Plaza, Charlotte, N.C. 28255.
Prior to April 10, 1996, the predecessor to Gartmore, Nations Gartmore
Investment Management ("Nations Gartmore"), provided sub-advisory services to
NBAI and Nations International Equity Fund. Nations Gartmore was a joint venture
structured as a general partnership between NB Partner Corp. and Gartmore
U.S.Limited. On April 10, 1996, NatWest purchased control of Gartmore plc from
Compagnie de Suez, S.A. and affiliated entities (collectively, "Compagnie de
Suez") through a two-part transaction involving (1) the direct purchase from
Compagnie de Suez of its indirect subsidiary Indosuez UK Asset Management
Limited, which held 75% of the outstanding voting shares of Gartmore plc; and
(2) the acquisition of the remaining portion of Gartmore plc's shares held by
public shareholders through a tender offer. This acquisition resulted in the
change
40
<PAGE>
of control of Nations Gartmore and the creation of a successor entity, Gartmore.
On July 17, 1996, the shareholders of Nations International Equity Fund approved
the new sub-advisory arrangements with Gartmore. There were no material changes
to the personnel who provided service to Nations International Equity Fund, and
the change in ownership did not result in a change in the level of service
provided Nations International Equity Fund or the level of sub-advisory fees.
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 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 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 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
41
<PAGE>
outstanding voting securities" of a Fund (as defined in Section 2(a)(42) of the
1940 Act), and (b) the affirmative vote of a majority of the Company's Directors
who are not parties to such Agreement or "interested persons" (as defined in the
1940 Act) of a party to such Agreement (other than as Directors of the Company),
by votes cast in person at a meeting specifically called for such purpose. The
Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable with respect to a Fund at any time without penalty
by the Company (by vote of the Board of Directors or by vote of a majority of
the outstanding voting securities of the Fund), or by NBAI, or by TradeStreet on
60 days' written notice.
The Sub-Advisory Agreement with Gartmore provides that Gartmore shall not
be liable to the Company or to its shareholders for any act or omission by
Gartmore or for any loss sustained by the Company or by its shareholders except
in the case of Gartmore's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty on the part of Gartmore, as the case may be.
NBAI, TradeStreet and 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 Gartmore will be required to reduce their fees
from the Funds, in direct proportion to the fees payable by the Funds to NBAI,
TradeStreet, Gartmore 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 and/or its wholly-owned affiliate NBAI, received fees from the
Funds for its services as outlined in the following chart, which states the net
advisory fees paid to NationsBank and/or its wholly-owned affiliate NBAI, the
advisory fees waived and expense reimbursements where applicable for the period
from June 1, 1995 to March 31, 1996.
ADVISORY FEES
Period Ended March 31, 1996
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
Nations Prime Fund $ 6,265,471.00 $ 726,242.00 $ 0
Nations Treasury Fund $ 4,417,264.00 $ 552,985.00 $ 0
Nations Equity Income
Fund $ 2,329,896.00 $ 0 $ 0
Nations International
Equity Fund $ 5,291,343.00 $ 84,472.00 $ 0
Nations Government
Securities Fund $ 468,579.00 $ 147,897.00 $ 0
Subject to reduction in accordance with the expense limitation provisions
which may be imposed by states in which the Funds' shares are qualified for
sale, NBAI received fees from the Funds for its services as outlined in the
following chart, which states the net sub-advisory fees paid to
42
<PAGE>
TradeStreet on
behalf of each Fund (except the International Equity Fund), and Gartmore on
behalf of the International Equity Fund, the sub-advisory fees waived and
expense reimbursements where applicable for the fiscal period from January 1,
1996 to March 31, 1996.
ADVISORY FEES
Period Ended March 31, 1996
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
Nations Prime Fund $ 563,821.51 $ 0 $ 0
Nations Treasury Fund $ 356,560.15 $ 0 $ 0
Nations Equity Income
Fund $ 212,221.62 $ 0 $ 0
Nations International
Equity Fund $5,375,815.00 $ 0 $ 0
Nations Government
Securities Fund $ 468,579.00 $ 147,897.00 $ 0
Subject to reduction in accordance with the expense limitation provisions
which may be imposed by states in which the Funds' shares are qualified for
sale, NBAI received fees from the Funds for its services as outlined in the
following chart, which states the net advisory fees paid to NationsBank, the
advisory fees waived and expense reimbursements where applicable for the fiscal
period ended March 31, 1996.
ADVISORY FEES
Period Ended March 31, 1996
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
Nations Prime Fund $ 6,265,471.00 $ 726,242.00 $ 0
Nations Treasury Fund $ 4,417,264.00 $ 552,985.00 $ 0
Nations Equity Income
Fund $ 2,329,896.00 $ 0 $ 0
Nations International
Equity Fund $ 5,291,343.00 $ 84,472.00 $ 0
Nations Government
Securities Fund $ 468,579.00 $ 147,897.00 $ 0
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, which states the net advisory fees paid to NationsBank, the
advisory fees waived and expense reimbursements where applicable for the fiscal
years ended May 31, 1995, 1994, and 1996 where applicable.
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, which states the net advisory fees paid to NationsBank, the
advisory fees waived and expense reimbursements where applicable for the fiscal
years ended May 31, 1995, 1994, and 1996 where applicable.
ADVISORY FEES
<TABLE>
<CAPTION>
FY 1995 FY 1994 FY 1993
43
<PAGE>
Net Amt. Amount Reimbsd. Net Amt. Amount Reimbsd. Net Amt. Amount Reimbsd
Paid Waived by Advsr. Paid Waived by Advsr. Paid Waived by Advsr.
<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
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 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.
44
<PAGE>
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 First Data
Investors Services Group, Inc.(formerly, 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, 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
45
<PAGE>
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 period from June 1, 1995 to March 31, 1996 ending May 31,
1995, 1994 and 1993.
ADMINISTRATION FEES
Period Ended March 31, 1996
Net Administration
Admin. Fees
Fees Waived
Nations Prime Fund $ 1,924,496.00 $ 1,537,278.00
Nations Treasury Fund 1,405,372.00 1,126,831.00
Nations Equity Income
Fund 346,633.00 $ 0
Nations International
Equity Fund 597,450.00 $ 0
Nations Government
Securities Fund 96,960.00 $ 0
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.
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
46
<PAGE>
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.
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
47
<PAGE>
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--$83,892; 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.
During the fiscal period ended March 31,1996, the distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
A Shares of the Money Market Funds: $972,685 and $10 respectively. Of these
amounts, the prior distributor retained $ 0 and $0, respectively, and paid the
balance to selling dealers.
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.
48
<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.
49
<PAGE>
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.
During the fiscal period ended March 31,1996, the distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
C Shares of the Money Market Funds: $39,487 and $65,117 respectively. Of these
amounts, the prior distributor retained $ 6,351.42 and $ 468.12, respectively,
and paid the balance to selling dealers.
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
50
<PAGE>
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)
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.
During the fiscal period ended March 31,1996, the distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
N Shares of the Non-Money Market Funds: $796,535 and $503,334 respectively. Of
these amounts, the prior distributor retained $ 0 and $ 0, respectively, and
paid the balance to selling dealers.
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
51
<PAGE>
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 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
52
<PAGE>
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 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.
During the fiscal period ended March 31,1996, the distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
D Shares of the Money Market Funds: $0 and $26, respectively. Of these amounts,
the prior distributor retained $ 0 and $0, respectively, and paid the balance to
selling dealers.
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,
53
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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, 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.
54
<PAGE>
Fees Paid Pursuant to Shareholder Servicing/Distribution Plans
Investor A Shares
<TABLE>
<CAPTION>
Net
Fees Paid (Shareholder Servicing Component)
FUND Net Period ended 3/31/96 )
Fees Paid (12b-1 Component)
Period ended 3/31/96
<S> <C> <C>
Nations Prime Fund $ 757,296.00 $ 1,893,241.92
Nations Treasury Fund $ 98,631.34 $ 246,578.34
Nations Equity Income Fund $ 81,571.29 N/A
Nation International Equity Fund $ 12,544.61 N/A
Nations Government Securities
Fund $ 972,685.00 N/A
</TABLE>
Paid Pursuant to Distribution Plans
Investor C Shares - Non-Money Market Funds
Investor B Shares - Money Market Funds
<TABLE>
<CAPTION>
Net
Fees Paid (Shareholder Servicing Component)
FUND Net Period ended 3/31/96 )
Fees Paid (12b-1 Component)
Period ended 3/31/96
<S> <C> <C>
Nations Prime Fund $ 0 $ 610,503.20
Nations Treasury Fund $ 0 $ 1,321,456.59
Nations Equity Income Fund $ 22,139.03 $ 9,273.28
Nation International Equity Fund $ 3,213.26 $ 1,202.08
Nations Government Securities
Fund $ 14,134.53 $1,665.32
</TABLE>
NOTE: All fees paid under the Investor A and Investor C/B Shares Distribution
Plans were accrued as payments to broker/dealers and financial
institutions offering such shares to their customers.
55
<PAGE>
Fees Paid Pursuant to Distribution Plans
Investor D Shares - Money Market Funds
<TABLE>
<CAPTION>
Net Fees Paid (Shareholder Servicing Component)
Net Period ended 3/31/96 )
Fees Paid (12b-1 Component)
Period ended 3/31/96
FUND
<S> <C> <C>
Nations Prime Fund $ 24.97 $ 118.52
Nations Treasury Fund $ 1.31 $ 4.56
</TABLE>
Fees Paid Pursuant to Distribution Plans
Investor C Shares - Money Market Funds
Investor N Shares - Non-Money Market Funds
<TABLE>
<CAPTION>
Net
Fees Paid (Shareholder Servicing Component)
FUND Net Period ended 3/31/96 )
Fees Paid (12b-1 Component)
Period ended 3/31/96
<S> <C> <C>
Nations Prime Fund N/A $ 139,569.36
Nations Treasury Fund N/A $ 16,663.18
Nations Equity Income Fund $ 384,334.89 $ 19,167.45
Nation International Equity Fund $ 227,739.07 $ 24,719.41
Nations Government Securities
Fund $ 184,460.70 $ 11,5287.93
</TABLE>
Shareholder Servicing Agreements (Primary B Shares) - Money Market Funds
As stated in the Prospectuses for the Money Market Funds' Primary Shares,
the Company has a separate Shareholder Servicing Plan with respect to the
Non-Money Market Funds' Primary 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 Primary B Shares ("Customers") in
consideration for the payment of up to 0.25% (on an annualized basis) of the net
asset value of such shares. Such services may include: (i) aggregating and
processing purchase, exchange and redemption requests for Primary B Shares from
Customers and transmitting promptly net purchase and redemption orders with the
Distributor or the transfer agents; (ii) providing Customers with a service that
invests the assets of their accounts in Primary B Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Company on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customer inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding the Shareholder Servicing Agreements or Shareholder
56
<PAGE>
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 (Primary B Shares) - Non-Money Market Funds
As stated in the Prospectus for the Non-Money Market Funds' Primary 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 Primary B
Shares ("Servicing Agents"). The Administration Plan provides that pursuant to
the Administration Agreements, Servicing Agents shall provide the shareholder
support services as set forth therein to their customers who may from time to
time own of record or beneficially Primary B Shares ("Customers") in
consideration for the payment of up to 0.60% (on an annualized basis) of the net
asset value of such shares. Such services may include: (i) aggregating and
processing purchase, exchange and redemption requests for Primary B Shares from
Customers and transmitting promptly net purchase and redemption orders with the
Distributor or the transfer agents; (ii) providing Customers with a service that
invests the assets of their accounts in Primary B Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Company on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customer inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding an Administration Agreement; (x) employee benefit plan recordkeeping,
administration, custody and trustee services; (xi) general shareholder liaison
services and (xii) providing such other similar services as may reasonably be
requested to the extent permitted under applicable statutes, rules, or
regulations.
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 Primary 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 d 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 d 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
57
<PAGE>
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
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, Gartmore, and the
Administrator to reduce their fees to the extent required to satisfy any expense
limitations which may be imposed by the securities laws or regulations
thereunder of any state in which a Fund's shares are registered or qualified for
sale, as such limitations may be raised or lowered from time to time, and the
aggregate of all such investment advisory, sub-advisory, and administration fees
shall be reduced by the amount of such excess. The amount of any such reduction
to be borne by NBAI, TradeStreet, Gartmore or the Administrator shall be
deducted from the monthly investment advisory and administration fees otherwise
payable to NBAI, TradeStreet, Gartmore and the Administrator during such fiscal
year. If required pursuant to such state securities regulations, NBAI,
TradeStreet, Gartmore and the Administrator will reimburse the Company no later
than the last day of the first month of the next succeeding fiscal year, for any
such annual operating expenses (after reduction of all investment advisory and
administration fees in excess of such limitation).
Transfer Agents and Custodians
First Data Investors Services Group, Inc. (formerly, The Shareholder
Services Group, Inc.) is located at One Exchange Place, 53 State Street, Boston,
Massachusetts 02109, and acts as transfer agent for the Company's Primary Shares
and Investor Shares. Under the transfer agency agreements, the transfer agent
maintains shareholder account records for the Company, handles certain
communications between shareholders and the 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 Primary 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
58
<PAGE>
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.
Bank of New York, Avenue des Arts, 35 1040 Brussels, Belgium 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.
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 ACCOUNTANT 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 accountant. 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 period ended March 31, 1996 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.
59
<PAGE>
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.
From time to time, the yield and total return of a Fund's Investor Shares
and Primary Shares may be quoted in advertisements, shareholder reports, and
other communications to shareholders. Each Fund of the Company also may quote
information obtained from the Investment Company Institute in its advertising
materials and sales literature. In addition, certain potential benefits of
investing in world securities markets may be discussed in promotional materials.
Such benefits include, but are not limited to: a) the expanded opportunities for
investment in securities markets outside the U.S.; b) the growth of securities
markets outside the U.S. vis-a-vis U.S. markets; c) the relative return
associated with foreign securities markets vis-a-vis U.S. markets; and d) a
reduced risk of portfolio volatility resulting from a diversified securities
portfolio consisting of both U.S. and foreign securities. Performance
information is available by calling 1-800-321-7854 with respect to Investor
Shares and 1-800-621-2192 with respect to Primary Shares.
Yield Calculations
The current yield quotations for the Primary A, Primary B, Investor A,
Investor B, Investor C and 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 Primary A, Primary 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 Primary Shares and Investor Shares
of the Money Market Funds are computed by compounding the unannualized seven-day
base period return as follows: 1 is added to the base period return and this sum
is then raised to a power equal to (5/7), and 1 is then subtracted from the
result. Based on the seven-day period ended May 31, 1996, (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
Primary A Shares 5.15% 5.09% 5.27% 5.21%
Primary B Shares 4.90% 4.84% 5.01% 4.95%
Investor A Shares 4.80% 4.74% 4.91% 4.85%
Investor B Shares 4.90% 4.84% 4.91% 4.85%
Investor C Shares 4.90% 4.84% 5.01% 4.95%
Investor D Shares 4.65% 4.59% 4.75% 4.69%
60
<PAGE>
Nations Treasury Fund
Primary A Shares 5.16% 5.10% 5.28% 5.22%
Primary B Shares 4.91% 4.85% 5.02% 4.96%
Investor A Shares 4.81% 4.75% 4.92% 4.86%
Investor B Shares 4.91% 4.85% 5.02% 4.96%
Investor C Shares 4.91% 4.85% 5.02% 4.96%
Investor D Shares 4.49% 4.43% 4.59% 4.53%
</TABLE>
The yield of the Primary 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, 1996, the yields of the various shares of the Government
Securities Fund were as follows:
<TABLE>
<CAPTION>
Thirty Day Yield
Yield Without Fee
Yield Waivers
<S> <C> <C>
Nations Government Securities Fund
Primary A Shares 6.23% 6.13%
Investor A Shares 5.98% 5.84%
Investor C Shares 5.73% 5.34%
Investor N Shares 5.57% 5.08%
</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. Primary 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
- ---------
2 The Equity Fund does not disclose a 30-day yield because it is an equity fund.
61
<PAGE>
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.
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 Primary B Shares during the
period ended May 31, 1996. The following figures, for the period ended May 31,
1996, reflect the deduction of sales charges, if any, that would have been
deducted from a sale of shares.
Average Annual Total Return
Period Ended
3/31/96 Inception to 3/31/96
Equity Income Fund
Primary A Shares 24.29% 13.82%
Investor A 24.07% 13.45%
Investor C 22.75% 13.11%
Investor N 23.40% 12.74%
International Equity Fund
Primary A 19.78% 8.48%
Investor A 19.45% 8.13%
Investor C 18.22% 8.17%
Investor N 18.85% 9.79%
Government Securities Fund
Primary A 7.63% 6.38%
Investor A 7.36% 6.16%
62
<PAGE>
Investor C 6.40% 3.78%
Investor N 6.94% 3.01%
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.
<TABLE>
<CAPTION>
Cumulative Total Return
Period Ended 3/31/96 Inception to 3/31/96
Total Return Total Return
Total Without Sales Charge Without Sales
Return Total Return Charge
<S> <C> <C>
Equity Income Fund
Primary A Shares 24.29% N/A 90.27% N/A
Investor A 24.07% N/A 86.88% N/A
Investor C 23.25% 22.75% 59.44% N/A
Investor N 23.40% N/A 40.13% N/A
International Equity Fund
Primary A 19.78% N/A 42.25% N/A
Investor A 19.45% N/A 34.87% N/A
Investor C 18.72% 18.22% 34.64% N/A
Investor N 18.85% N/A 30.05% N/A
Government Securities Fund
Primary A 7.63% N/A 35.99% N/A
Investor A 7.36% N/A 34.44% N/A
Investor C 6.90% 6.40 14.88% N/A
Investor N 6.94% N/A 8.71% N/A
</TABLE>
* Primary A Shares of the Company do not carry a sales charge.
The Primary Shares and Investor Shares of the Equity Income Fund, Government
Securities Fund and International Equity Fund may also quote their distribution
rates, which express the historical amount of income dividends paid to their
shareholders during a one-month (in the case of the Government Securities Fund)
or a
63
<PAGE>
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 performance and yield of a class of shares in
the Nations International Equity Fund may be compared to the Europe, Far East
and Australia Index, a recognized unmanaged index of international stocks. Any
given performance comparison should not be considered representative of a Fund's
performance for any future period.
MISCELLANEOUS
Certain Record Holders
The following indicates those persons who owned 5% or more of the
indicated class of shares as of July 2, 1996. Unless otherwise indicated, the
address for each recordholder of Primary Shares is 1401 Elm Street, 11th Floor,
Dallas, Texas 75202.
Percentage of Shares
Name and Address Held of Record Only
Nations Prime Fund
Primary A Shares
None
Investor A Shares
None
Investor B Shares
Hare & Co., Bank of New York 17.79%
Attn. STIF/Master Note
One Wall Street, 5th Fl.
New York, NY 10286
Investor C Shares
Steven C. Poletti and 5.75%
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<PAGE>
Kathleen Morrow Poletti JTTEN
9 57th Ave.
Isle of Palms, SC 29451
Investor D Shares
William W. Jaeger & 89.91%
Randall T. Odeneal TTEES
FBO Sconnix Broadcasting Company
Retirement Savings Plan
1921 Gallows Rd., Ste. 850
Vienna, VA 22182
Nations Treasury Fund
Investor A Shares
Berman Family Investment LP 22.45%
GP Malcolm Berman President
4 North Park Drive
Hunt Valley, MD 21030
Kenneth E. Hester & 5.75%
J. Robert Wren, Jr. TTEES
Daniel J. Stowe REV TST DTD 8/2/95
P.O. Box 1046
Belmont, NC 28012
Investor B Shares
Hare & Co., Bank of New York 92.84%
Attn. STIF/MasterNote
One Wall Street, 5th Fl.
New York, NY 10286
Investor C Shares
Lois H. Bohler 24.83%
6 Bransford Place
Augusta, GA 30904-6131
Donald S. Pratt 13.28%
4911 Sentinel Post Road
Charlotte, NC 28226-7444
David S. Hungerford and 9.37%
UTA-Heide Hungerford Ten Enty
10715 Potspring Road
Cockeysville, MD 21030
Robert L. Hancock 8.22%
460 McLaws Circle
Williamsburg, VA 23185
65
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Nations Equity Income Fund
Investor C Shares
Dean Witter Reynolds Cust for 7.73%
Dale Morris
IRA Standard Dated 6/14/93
818 19th Avenue South
Nashville, TN 37203-3202
Phillip P. Brown and 6.82%
Sue N. Brown, JTWROS
518 Park Center Drive
Nashville, TN 37205
Nations Government Securities Fund
Investor A Shares
Southside Bank TTEE 21.57%
East Texas Regional
Health Facilities Trust
U/A DTD 10/20/89
P. O. Box 8444
Tyler, TX 75711
Dodson Brothers 12.48%
Exterminating Co. Inc.
Attn: H.P. Dawson
P.O. Box 10249
Lynchburg, VA 24506
Investor C Shares
Dean Witter Reynolds 7.71%
CUST FOR Gene H. Sloan
IRA Standard Dated 06/14/93
412 Lillard Rd.
Murfreesboro, TN 37130-3130
Nations International Equity Fund
Investor C Shares
Janet C. Howard 18.91%
for The Tidewater Heart Specialists
Profit Sharing Plan DTD 1/1/94
2112-B Hartford Road
Hampton, VA 23666
Nations Securities Margin Acct. FBO 14.90%
Diana Rhodes
3980 Ridgeway
San Antonio, TX 78259-1756
66
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As of July 2, 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.
67
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SCHEDULE A
DESCRIPTION OF RATINGS
The following summarizes the highest six ratings used by Standard & Poor's
Corporation ("S&P") for corporate and municipal bonds. The first four ratings
denote investment-grade securities.
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay principal.
AA - Debt rated AA is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in a
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B - Bonds rated BB and B are regarded, on balance as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. Debt rated
BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. Debt
rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
To provide more detailed indications of credit quality, the AA, A and BBB,
BB and B ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's Investors
Service, Inc. ("Moody's") for corporate and municipal bonds. The first four
denote investment grade securities.
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
A-1
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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 that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not as well safeguarded during both good times and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B - Bond that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate
bonds rated Aa through B. The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category. With regard to municipal bonds, those
bonds in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aal, A1 or Baal,
respectively.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds, each of which denotes that the securities
are investment grade.
AAA - Bonds that are rated AAA are of the highest credit quality.
The risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A - Bonds that are rated A have protection factors which are
average but adequate. However risk factors are more variable and greater
in periods of economic stress.
BBB - Bonds that are rated BBB have below average protection
factors but still are considered sufficient for prudent investment.
Considerable variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch Investors
Service, Inc. ("Fitch") for bonds, each of which denotes that the securities are
investment grade:
AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
A-2
<PAGE>
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 - Indicates very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.
SP-2 - Indicates satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of
which denotes that the securities are investment grade, are D-1, D-2, and D-3.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1 indicates high certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2 indicates good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch
for short-term obligations each of which denotes that the securities are
investment grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely
A-3
<PAGE>
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.
For commercial paper, D&P uses the short-term debt ratings described
above.
For commercial paper, Fitch uses the short-term debt ratings described
above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a qualitative
and quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries. BankWatch ratings do not
constitute a recommendation to buy or sell securities of any of these companies.
Further, BankWatch does not suggest specific investment criteria for individual
clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA - The highest category; indicates ability to repay principal
and interest on a timely basis is extremely high.
AA - The second highest category; indicates a very strong ability
to repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A - The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB - The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
Long-term debt ratings may include a plus (+) or minus (-) sign to
indicate where within a category the issue is placed.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1".
A-4
<PAGE>
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 four highest long-term debt ratings used by
IBCA Limited and its affiliate, IBCA Inc. (collectively "IBCA"):
AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest
is substantial such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk
significantly.
AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest
is substantial. Adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly.
A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may
lead to increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest
is adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the two highest short-term debt ratings used by
IBCA:
A1+ When issues possess a particularly strong credit feature, a
rating of A1+ is assigned.
A1 - Obligations supported by the highest capacity for timely
repayment.
A2 - Obligations supported by a good capacity for timely repayment.
A-5
<PAGE>
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 Co ntracts. 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
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Contract
Price = $2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future Hedge
Objective Protect Against Declining (Value of the Portfolio)
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1 0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Gain on Futures = $40,000
Value = $40 000
If, however, the market moved in the opposite direction, that is, market
value decreased and the Fund had entered into an anticipatory purchase hedge, or
market value increased and the Fund had hedged its stock portfolio, the results
of the Fund's transactions in stock index futures would be as set forth below.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objection: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Loss on Futures = $2,500
Price = $2,500 Contract
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors
Value of Stock Portfolio = $1,000,000 Value of Futures Contract = 125 x $500 =
$62,500 Portfolio Beta Relative to the Index - 1 0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
Value = $40 000
III. Margin Payments
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's Custodian an amount of cash or cash equivalents, the value, of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent
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payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying security or index fluctuates making
the long and short positions in the futures contract more or less valuable, a
process known as marking to the market. For example, when a Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where a Fund has purchased a
futures contract and the price of the futures contract has declined in response
to a decrease in the underlying instruments, the position would be less
valuable, the Fund would be required to make a variation margin payment to the
broker. At any time prior to expiration of the futures contract, the Adviser may
elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
IV. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by a Fund as
a hedging device. One risk arises because of the imperfect correlation between
movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of securities
being hedged has moved in an unfavorable direction, the Fund would be in a
better position than if it had not hedged at 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
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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
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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)
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if the gain arises as a result of a constructive sale under the
marking-to-market rules, and will be treated as being derived from a security
held for less than three months only if the contract or instrument is terminated
(or transferred) during 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.
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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
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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.
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NATIONS FUND, INC.
FILE NOS. 33-4038; 811-4614
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Per Share Income and Capital Changes
Included in Part B:
Audited Financial Statements for Nations Prime, Nations Treasury,
Nations Equity Income, Nations Government Securities and Nations
International Equity Portfolios:
Schedule of Investments for March 31, 1996 Statements of
Assets and Liabilities for March 31, 1996 Statements of
Operations for the fiscal period ended March 31, 1996
Statements of Changes in Net Assets for the fiscal period
ended March 31, 1996 and for the fiscal year ended May 31,
1995 Schedule of Capital Stock Activity for the fiscal period
ended March 31, 1996 Notes to Financial Statements Financial
Highlights
Report of Independent Accountants dated May 17, 1996
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
Exhibit
Number
(1)(a) Articles of Incorporation dated December 9, 1983 and filed
December 13, 1983, are incorporated by reference to
Post-Effective Amendment No. 29 filed on March 19, 1996.
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<PAGE>
(1)(b) Articles of Amendment dated March 10, 1986 and filed March 11,
1986 are incorporated by reference to Post-Effective Amendment
No. 29 filed on March 19, 1996.
(1)(c) Articles of Amendment dated July 31, 1986 are incorporated by
reference to Post-Effective Amendment No. 29 filed on March
19, 1996.
(1)(d) Articles Supplementary dated July 31, 1986 are incorporated by
reference to Post-Effective Amendment No. 29 filed on March
19, 1996.
(1)(e) Articles of Amendment dated October 4, 1989 are incorporated
by reference to Post-Effective Amendment No. 29 filed on March
19, 1996.
(1)(f) Articles Supplementary dated November 30, 1989 are
incorporated by reference to Post-Effective Amendment No. 29
filed on March 19, 1996.
(1)(g) Articles Supplementary dated March 26, 1991 are incorporated
by reference to Post-Effective Amendment No. 29 filed on March
19, 1996.
(1)(h) Articles Supplementary dated April 15, 1992 and filed April
24, 1992, are incorporated by reference to Post-Effective
Amendment No. 29 filed on March 19, 1996.
(1)(i) Articles Supplementary filed September 22, 1992 are
incorporated by reference to Post-Effective Amendment No. 29
filed on March 19, 1996.
(1)(j) Articles Supplementary dated February 18, 1993 are
incorporated by reference to Post-Effective Amendment No. 29
filed on March 19, 1996.
(1)(k) Articles Supplementary dated July 9, 1993 and filed July 12,
1993 are incorporated by reference to Post-Effective Amendment
No. 29 filed on March 19, 1996.
(1)(l) Articles Supplementary dated March 21, 1994 are incorporated
by reference to Post-Effective Amendment No. 29 filed on March
19, 1996.
(1)(m) Articles Supplementary filed December 21, 1994 are
incorporated by reference to Post-Effective Amendment No. 29
filed on March 19, 1996.
(1)(n) Articles Supplementary dated March 18, 1996 are incorporated
by reference to Post-Effective Amendment No. 29 filed on March
19, 1996.
(2)(a) By-Laws are incorporated by reference to Registrant's
Registration Statement, filed March 17, 1986.
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<PAGE>
(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 NationsBanc Advisors,
Inc ("NBAI") and Registrant is incorporated by reference to
Post-Effective Amendment No. 28, filed January 29, 1996.
(5)(b) Sub-Investment Advisory Agreement between TradeStreet
Investment Associates, Inc. ("TradeStreet") and Registrant is
incorporated by reference to Post-Effective Amendment No. 28,
filed January 29, 1996.
(5)(c) Sub-Advisory Agreement between Gartmore Global Partners
("Gartmore") and Registrant, filed herewith.
(6)(a) Distribution Agreement between Registrant and Stephens Inc.
dated March 31, 1993, is incorporated by reference to
Post-Effective Amendment No. 18, filed March 26, 1993.
(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) 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)(c) 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.
(9)(a) Transfer Agency Agreement between Registrant and NCNB Texas
National Bank, dated October 1, 1991, relating to
Institutional Classes (currently known as
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<PAGE>
Primary 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 Primary 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
Primary 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.
(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
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<PAGE>
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) Shareholder Administration Agreement for Primary B Shares is
incorporated by reference to Post-Effective Amendment No. 28,
filed January 29, 1996.
(9)(n) 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.
(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.
5
<PAGE>
(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 Primary B Shares is
incorporated by reference to Post-Effective Amendment No. 28,
filed January 29, 1996.
(16)(a) Schedules for Computation of Primary A Shares is incorporated
by reference to Post-Effective Amendment No. 21, filed March
29, 1994.
(16)(b) Schedules for Computation of Primary B Shares, shall be filed
by amendment.
(16)(c) Schedules for Computation of Investor A Shares is incorporated
by reference to Post-Effective Amendment No. 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
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 filed herewith.
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 May 30, 1996.
6
<PAGE>
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
<S> <C> <C>
Nations Prime Fund
- Primary A Shares 22,267
- Primary B Shares 247
- Investor A Shares 102,602
- Investor B Shares 902
- Investor C Shares 1,781
- Investor D Shares 8
Nations Treasury Fund
- Primary A Shares 4,449
- Primary B Shares 109
- Investor A Shares 1,851
- Investor B Shares 115
- Investor C Shares 79
- Investor D Shares 1
Nations Equity Income Fund
- Primary A Shares 1,561
- Primary B Shares 0
- Investor A Shares 2,352
- Investor C Shares 249
- Investor N Shares 7,186
Nations Government Securities Fund
- Primary A Shares 551
- Primary B Shares 0
- Investor A Shares 379
- Investor C Shares 140
- Investor N Shares 2,474
Nations International Equity Fund
- Primary A Shares 11,561
- Primary B Shares 0
- Investor A Shares 1,054
- Investor C Shares 72
- Investor N Shares 5,489
7
<PAGE>
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. Administration Agreement with Stephens Inc.;
2. Co-Administration Agreement with First Data Investors Services
Group, Inc.;
3. Distribution Agreement with Stephens;
4. Mutual Fund Custody Agreement with NationsBank Texas;
5. Custody Agreement with Bank of New York;
6. Transfer Agency Agreement with NationsBank Texas; and
7. Transfer Agency and Registrar Agreement with First Data Investors
Services Group, Inc.
The Registrant has entered into a Cross Indemnification Agreement with
Nations Fund Trust (the "Trust") and Nations 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 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
8
<PAGE>
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
To the knowledge of the Registrant, none of the directors or officers of
NBAI, TradeStreet or 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
9
<PAGE>
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 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 Gartmore
who are engaged in any other business, profession, vocation or
employment of a substantial nature.
(a) 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
Gartmore. The address for the individuals listed below is Gartmore,
Gartmore House, 16-18 Monument Street, London EC3R 8AJ, England and
NationsBank, N.A., One NationsBank Plaza, Charlotte, North Carolina
28255.
</TABLE>
<TABLE>
<CAPTION>
Position with
Name Gartmore Capital Principal Occupation
<S> <C> <C>
Charles G. Smith IV Chief Executive Officer Chief Executive Officer, Gartmore
Simon H. Davies Chief Investment Officer Chief Investment Officer, Gartmore;
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.
Mark H. Williamson Committee Member Senior Vice President, NationsBank, N.A.
Paul Myners Committee Member Executive Chairman, Gartmore plc
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
</TABLE>
10
<PAGE>
No officer or director of Nations Fund, Inc. is an officer, employee,
director, general partner or shareholder of 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.,
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, N.A., 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 Forms 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., 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.
Item 30. Location of Accounts and Records
(1) NationsBank Texas, 901 Main Street Dallas, Texas 75202 (records relating
to its function as custodian for Nations Prime, Nations Treasury,
Nations Government Securities and Nations Equity Income Funds, and
records relating to its function as transfer agent for the Primary A and
B Shares).
11
<PAGE>
(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) Gartmore, Gartmore House, 16-18 Monument Street, London EC3R 8AJ,
England (records relating to its functions as sub-adviser for 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) First Data Investors Services Group, Inc., One Exchange Place, Boston,
Massachusetts 02109 (records relating to its functions as
Co-Administrator and Transfer Agent.
(8) NationsBank of Texas, 1401 Elm Street, Dallas, Texas 75202 (records
relating to its function as Sub-Transfer Agent for the Primary A and B
Shares and custodian).
(9) Bank of New York, 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 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.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and 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 23rd day of July, 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:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
* President and Chairman July 23, 1996
- ---------------------------------- of the Board of Directors
(A. Max Walker) (Principal Executive Officer)
* Treasurer July 23, 1996
- ---------------------------------- Vice President
(Richard H. Rose) (Principal Financial and
Accounting Officer)
* Director July 23, 1996
- ----------------------------------
(Edmund L. Benson, III)
* Director July 23, 1996
- ----------------------------------
(James Ermer)
* Director July 23, 1996
- ----------------------------------
(William H. Grigg)
* Director July 23, 1996
- ----------------------------------
(Thomas F. Keller)
* Director July 23, 1996
- ----------------------------------
(Carl E. Mundy, Jr.)
* Director July 23, 1996
- ----------------------------------
(Charles B. Walker)
* Director July 23, 1996
- ----------------------------------
(Thomas S. Word)
/s/ Richard H. Blank, Jr.
- ----------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
<S> <C> <C>
EX-27.011 Financial Data Schedules - Nations Emerging Markets Fund - Investor A
EX-27.012 Financial Data Schedules - Nations Emerging Markets Fund - Investor C
EX-27.013 Financial Data Schedules - Nations Emerging Markets Fund - Investor N
EX-27.014 Financial Data Schedules - Nations Emerging Markets Fund - Primary A
EX-27.021 Financial Data Schedules - Nations Global Government Income Fund -
Investor A
EX-27.022 Financial Data Schedules - Nations Global Government Income Fund -
Investor C
EX-27.023 Financial Data Schedules - Nations Global Government Income Fund -
Investor N
EX-27.024 Financial Data Schedules - Nations Global Government Income Fund -
Primary A
EX-27.031 Financial Data Schedules - Nations Pacific Growth Fund - Investor A
EX-27.032 Financial Data Schedules - Nations Pacific Growth Fund - Investor C
EX-27.033 Financial Data Schedules - Nations Pacific Growth Fund - Investor N
EX-27.034 Financial Data Schedules - Nations Pacific Growth Fund - Primary A
EX-99.B5(d) ADVSR CONTR
EX-99.B10 OPIN COUNS
EX-99.B11 OTH CONSNT
EX-99.B18 18F3 PLAN
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> NATIONS FUND PRIME PR-A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 4,065,719,905
<INVESTMENTS-AT-VALUE> 4,065,719,905
<RECEIVABLES> 59,825,995
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 253,780
<TOTAL-ASSETS> 4,125,799,680
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,026,319
<TOTAL-LIABILITIES> 24,026,319
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,472,646,450
<SHARES-COMMON-STOCK> 2,472,744,594
<SHARES-COMMON-PRIOR> 2,873,396,651
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (469,985)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,472,468,796
<DIVIDEND-INCOME> 3,748,827
<INTEREST-INCOME> 201,289,459
<OTHER-INCOME> 0
<EXPENSES-NET> 14,092,933
<NET-INVESTMENT-INCOME> 190,945,353
<REALIZED-GAINS-CURRENT> (42,433)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 190,902,920
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (130,059,809)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,343,459,930
<NUMBER-OF-SHARES-REDEEMED> (2,744,598,959)
<SHARES-REINVESTED> 486,972
<NET-CHANGE-IN-ASSETS> 133,772,753
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (427,552)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,991,713
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,356,453
<AVERAGE-NET-ASSETS> 2,772,480,803
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> NATIONS FUND PRIME PR-B
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 4,065,719,905
<INVESTMENTS-AT-VALUE> 4,065,719,905
<RECEIVABLES> 59,825,995
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 253,780
<TOTAL-ASSETS> 4,125,799,680
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,026,319
<TOTAL-LIABILITIES> 24,026,319
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96,315,951
<SHARES-COMMON-STOCK> 96,315,951
<SHARES-COMMON-PRIOR> 126,133,392
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (469,985)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 96,305,208
<DIVIDEND-INCOME> 3,748,827
<INTEREST-INCOME> 201,289,459
<OTHER-INCOME> 0
<EXPENSES-NET> 14,092,933
<NET-INVESTMENT-INCOME> 190,945,353
<REALIZED-GAINS-CURRENT> (42,433)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 190,902,920
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,121,793)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 363,309,249
<NUMBER-OF-SHARES-REDEEMED> (393,126,690)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 133,772,753
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (427,552)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,991,713
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,356,453
<AVERAGE-NET-ASSETS> 114,247,220
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> NATIONS FUND PRIME INV-A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 4,065,719,905
<INVESTMENTS-AT-VALUE> 4,065,719,905
<RECEIVABLES> 59,825,995
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 253,780
<TOTAL-ASSETS> 4,125,799,680
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,026,319
<TOTAL-LIABILITIES> 24,026,319
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,099,723,449
<SHARES-COMMON-STOCK> 1,099,612,862
<SHARES-COMMON-PRIOR> 698,430,663
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (469,985)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,099,490,217
<DIVIDEND-INCOME> 3,748,827
<INTEREST-INCOME> 201,289,459
<OTHER-INCOME> 0
<EXPENSES-NET> 14,092,933
<NET-INVESTMENT-INCOME> 190,945,353
<REALIZED-GAINS-CURRENT> (42,433)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 190,902,920
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (39,740,146)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,357,983,129
<NUMBER-OF-SHARES-REDEEMED> (2,994,652,348)
<SHARES-REINVESTED> 37,851,418
<NET-CHANGE-IN-ASSETS> 133,772,753
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (427,552)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,991,713
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,356,453
<AVERAGE-NET-ASSETS> 911,117,617
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 024
<NAME> NATIONS FUND PRIME INV-B
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 4,065,719,905
<INVESTMENTS-AT-VALUE> 4,065,719,905
<RECEIVABLES> 59,825,995
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<OTHER-ITEMS-ASSETS> 253,780
<TOTAL-ASSETS> 4,125,799,680
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,026,319
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<PAID-IN-CAPITAL-COMMON> 358,686,426
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<SHARES-COMMON-PRIOR> 216,996,093
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<NET-ASSETS> 358,646,420
<DIVIDEND-INCOME> 3,748,827
<INTEREST-INCOME> 201,289,459
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<EXPENSES-NET> 14,092,933
<NET-INVESTMENT-INCOME> 190,945,353
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<NUMBER-OF-SHARES-SOLD> 1,738,995,404
<NUMBER-OF-SHARES-REDEEMED> (1,606,979,062)
<SHARES-REINVESTED> 9,673,991
<NET-CHANGE-IN-ASSETS> 133,772,753
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (427,552)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,991,713
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,356,453
<AVERAGE-NET-ASSETS> 292,983,522
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 025
<NAME> NATIONS FUND PRIME INV-C
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 4,065,719,905
<INVESTMENTS-AT-VALUE> 4,065,719,905
<RECEIVABLES> 59,825,995
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<OTHER-ITEMS-ASSETS> 253,780
<TOTAL-ASSETS> 4,125,799,680
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,026,319
<TOTAL-LIABILITIES> 24,026,319
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74,830,596
<SHARES-COMMON-STOCK> 74,830,596
<SHARES-COMMON-PRIOR> 53,456,886
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (469,985)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 74,822,250
<DIVIDEND-INCOME> 3,748,827
<INTEREST-INCOME> 201,289,459
<OTHER-INCOME> 0
<EXPENSES-NET> 14,092,933
<NET-INVESTMENT-INCOME> 190,945,353
<REALIZED-GAINS-CURRENT> (42,433)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 190,902,920
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,015,901)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 190,895,727
<NUMBER-OF-SHARES-REDEEMED> (172,135,257)
<SHARES-REINVESTED> 2,613,240
<NET-CHANGE-IN-ASSETS> 133,772,753
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (427,552)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,991,713
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,356,453
<AVERAGE-NET-ASSETS> 67,621,753
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 026
<NAME> NATIONS FUND PRIME INV-D
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 4,065,719,905
<INVESTMENTS-AT-VALUE> 4,065,719,905
<RECEIVABLES> 59,825,995
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 253,780
<TOTAL-ASSETS> 4,125,799,680
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,026,319
<TOTAL-LIABILITIES> 24,026,319
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,474
<SHARES-COMMON-STOCK> 40,474
<SHARES-COMMON-PRIOR> 2,032
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (469,985)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 40,470
<DIVIDEND-INCOME> 3,748,827
<INTEREST-INCOME> 201,289,459
<OTHER-INCOME> 0
<EXPENSES-NET> 14,092,933
<NET-INVESTMENT-INCOME> 190,945,353
<REALIZED-GAINS-CURRENT> (42,433)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 190,902,920
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,037)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 92,585
<NUMBER-OF-SHARES-REDEEMED> (56,212)
<SHARES-REINVESTED> 2,069
<NET-CHANGE-IN-ASSETS> 133,772,753
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (427,552)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,991,713
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,356,453
<AVERAGE-NET-ASSETS> 46,002
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> NATIONS FUND TREASURY PR-A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 3,027,605,848
<INVESTMENTS-AT-VALUE> 3,027,605,848
<RECEIVABLES> 7,011,407
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 80,922
<TOTAL-ASSETS> 3,034,698,177
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 542,762,327
<TOTAL-LIABILITIES> 542,762,327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 821,073,031
<SHARES-COMMON-STOCK> 821,031,279
<SHARES-COMMON-PRIOR> 2,896,826,781
<ACCUMULATED-NII-CURRENT> 10,103
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (56,954)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 821,030,346
<DIVIDEND-INCOME> 3,293,056
<INTEREST-INCOME> 140,016,486
<OTHER-INCOME> 0
<EXPENSES-NET> 9,203,553
<NET-INVESTMENT-INCOME> 134,105,989
<REALIZED-GAINS-CURRENT> (46,919)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 134,059,070
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (99,400,052)
<DISTRIBUTIONS-OF-GAINS> (6,502)
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<NUMBER-OF-SHARES-SOLD> 4,227,193,042
<NUMBER-OF-SHARES-REDEEMED> (6,302,999,018)
<SHARES-REINVESTED> 10,474
<NET-CHANGE-IN-ASSETS> (628,161,250)
<ACCUMULATED-NII-PRIOR> 1,109
<ACCUMULATED-GAINS-PRIOR> (1,041)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,970,249
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,883,369
<AVERAGE-NET-ASSETS> 2,137,025,464
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> NATIONS FUND TREASURY PR-B
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 3,027,605,848
<INVESTMENTS-AT-VALUE> 3,027,605,848
<RECEIVABLES> 7,011,407
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 80,922
<TOTAL-ASSETS> 3,034,698,177
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 542,762,327
<TOTAL-LIABILITIES> 542,762,327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,487,909
<SHARES-COMMON-STOCK> 47,487,909
<SHARES-COMMON-PRIOR> 56,814,340
<ACCUMULATED-NII-CURRENT> 10,103
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (56,954)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 47,487,855
<DIVIDEND-INCOME> 3,293,056
<INTEREST-INCOME> 140,016,486
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<EXPENSES-NET> 9,203,553
<NET-INVESTMENT-INCOME> 134,105,989
<REALIZED-GAINS-CURRENT> (46,919)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 134,059,070
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,534,994)
<DISTRIBUTIONS-OF-GAINS> (176)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 250,262,684
<NUMBER-OF-SHARES-REDEEMED> (259,589,115)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (628,161,250)
<ACCUMULATED-NII-PRIOR> 1,109
<ACCUMULATED-GAINS-PRIOR> (1,041)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,970,249
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,883,369
<AVERAGE-NET-ASSETS> 57,905,151
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES> 013
<NUMBER> 1
<NAME> NATIONS FUND TREASURY INV-A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 3,027,605,848
<INVESTMENTS-AT-VALUE> 3,027,605,848
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<OTHER-ITEMS-ASSETS> 80,922
<TOTAL-ASSETS> 3,034,698,177
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 542,762,327
<TOTAL-LIABILITIES> 542,762,327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89,586,820
<SHARES-COMMON-STOCK> 89,584,555
<SHARES-COMMON-PRIOR> 107,473,764
<ACCUMULATED-NII-CURRENT> 10,103
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (56,954)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 89,584,453
<DIVIDEND-INCOME> 3,293,056
<INTEREST-INCOME> 140,016,486
<OTHER-INCOME> 0
<EXPENSES-NET> 9,203,553
<NET-INVESTMENT-INCOME> 134,105,989
<REALIZED-GAINS-CURRENT> (46,919)
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<NET-CHANGE-FROM-OPS> 134,059,070
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,129,970)
<DISTRIBUTIONS-OF-GAINS> (362)
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<NUMBER-OF-SHARES-SOLD> 355,900,666
<NUMBER-OF-SHARES-REDEEMED> (378,549,853)
<SHARES-REINVESTED> 4,759,978
<NET-CHANGE-IN-ASSETS> (628,161,250)
<ACCUMULATED-NII-PRIOR> 1,109
<ACCUMULATED-GAINS-PRIOR> (1,041)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,970,249
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<GROSS-EXPENSE> 10,883,369
<AVERAGE-NET-ASSETS> 118,927,584
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES> 014
<NUMBER> 1
<NAME> NATIONS FUND TREASURY INV-B
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 3,027,605,848
<INVESTMENTS-AT-VALUE> 3,027,605,848
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<OTHER-ITEMS-LIABILITIES> 542,762,327
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<PAID-IN-CAPITAL-COMMON> 1,525,049,608
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<SHARES-COMMON-PRIOR> 52,563,022
<ACCUMULATED-NII-CURRENT> 10,103
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<ACCUMULATED-NET-GAINS> (56,954)
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<NET-ASSETS> 1,525,047,873
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<EXPENSES-NET> 9,203,553
<NET-INVESTMENT-INCOME> 134,105,989
<REALIZED-GAINS-CURRENT> (46,919)
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<DISTRIBUTIONS-OF-GAINS> (1,930)
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<NUMBER-OF-SHARES-SOLD> 7,051,467,524
<NUMBER-OF-SHARES-REDEEMED> (5,581,314,424)
<SHARES-REINVESTED> 2,333,486
<NET-CHANGE-IN-ASSETS> (628,161,250)
<ACCUMULATED-NII-PRIOR> 1,109
<ACCUMULATED-GAINS-PRIOR> (1,041)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,970,249
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,883,369
<AVERAGE-NET-ASSETS> 634,282,963
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 015
<NAME> NATIONS FUND TREASURY INV-C
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 3,027,605,848
<INVESTMENTS-AT-VALUE> 3,027,605,848
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<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 80,922
<TOTAL-ASSETS> 3,034,698,177
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 542,762,327
<TOTAL-LIABILITIES> 542,762,327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,783,220
<SHARES-COMMON-STOCK> 8,783,220
<SHARES-COMMON-PRIOR> 6,373,077
<ACCUMULATED-NII-CURRENT> 10,103
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (56,954)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 8,783,210
<DIVIDEND-INCOME> 3,293,056
<INTEREST-INCOME> 140,016,486
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<EXPENSES-NET> 9,203,553
<NET-INVESTMENT-INCOME> 134,105,989
<REALIZED-GAINS-CURRENT> (46,919)
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<DISTRIBUTIONS-OF-INCOME> (350,433)
<DISTRIBUTIONS-OF-GAINS> (24)
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<NUMBER-OF-SHARES-SOLD> 18,619,338
<NUMBER-OF-SHARES-REDEEMED> (16,555,187)
<SHARES-REINVESTED> 345,992
<NET-CHANGE-IN-ASSETS> (628,161,250)
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<ACCUMULATED-GAINS-PRIOR> (1,041)
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 4,970,249
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,883,369
<AVERAGE-NET-ASSETS> 8,037,254
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
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<PER-SHARE-DIVIDEND> (0.04)
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 016
<NAME> NATIONS FUND TREASURY INV-D
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 3,027,605,848
<INVESTMENTS-AT-VALUE> 3,027,605,848
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<OTHER-ITEMS-ASSETS> 80,922
<TOTAL-ASSETS> 3,034,698,177
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 542,762,327
<TOTAL-LIABILITIES> 542,762,327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,113
<SHARES-COMMON-STOCK> 2,113
<SHARES-COMMON-PRIOR> 2,031
<ACCUMULATED-NII-CURRENT> 10,103
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (56,954)
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<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,113
<DIVIDEND-INCOME> 3,293,056
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<EXPENSES-NET> 9,203,553
<NET-INVESTMENT-INCOME> 134,105,989
<REALIZED-GAINS-CURRENT> (46,919)
<APPREC-INCREASE-CURRENT> 0
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<DISTRIBUTIONS-OF-INCOME> (83)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 82
<NET-CHANGE-IN-ASSETS> (628,161,250)
<ACCUMULATED-NII-PRIOR> 1,109
<ACCUMULATED-GAINS-PRIOR> (1,041)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,970,249
<INTEREST-EXPENSE> 0
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<AVERAGE-NET-ASSETS> 2,069
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
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<PER-SHARE-NAV-END> 1.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 071
<NAME>Nations Fund Equity Income Pr-A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 383,175,109
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<TOTAL-LIABILITIES> 2,129,411
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<PAID-IN-CAPITAL-COMMON> 233,079,046
<SHARES-COMMON-STOCK> 21,548,744
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<ACCUMULATED-NII-CURRENT> 163,990
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<ACCUMULATED-NET-GAINS> 20,422,211
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47,076,422
<NET-ASSETS> 283,141,704
<DIVIDEND-INCOME> 8,724,166
<INTEREST-INCOME> 4,244,852
<OTHER-INCOME> 0
<EXPENSES-NET> 3,821,518
<NET-INVESTMENT-INCOME> 9,147,500
<REALIZED-GAINS-CURRENT> 30,003,301
<APPREC-INCREASE-CURRENT> 29,185,348
<NET-CHANGE-FROM-OPS> 68,336,149
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,311,787)
<DISTRIBUTIONS-OF-GAINS> (7,936,013)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,718,032
<NUMBER-OF-SHARES-REDEEMED> (6,643,314)
<SHARES-REINVESTED> 496,722
<NET-CHANGE-IN-ASSETS> 36,117,391
<ACCUMULATED-NII-PRIOR> 2,542,525
<ACCUMULATED-GAINS-PRIOR> 2,529,328
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,329,896
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,821,518
<AVERAGE-NET-ASSETS> 279,232,900
<PER-SHARE-NAV-BEGIN> 11.81
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 1.77
<PER-SHARE-DIVIDEND> (0.37)
<PER-SHARE-DISTRIBUTIONS> (0.37)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.14
<EXPENSE-RATIO> 0.90
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 072
<NAME>Nations Fund Equity Income Inv-A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 383,175,109
<INVESTMENTS-AT-VALUE> 430,251,450
<RECEIVABLES> 6,261,904
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,581
<TOTAL-ASSETS> 436,514,935
<PAYABLE-FOR-SECURITIES> 1,047,138
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,082,273
<TOTAL-LIABILITIES> 2,129,411
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,290,113
<SHARES-COMMON-STOCK> 3,249,950
<SHARES-COMMON-PRIOR> 3,017,091
<ACCUMULATED-NII-CURRENT> 163,990
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,422,211
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47,076,422
<NET-ASSETS> 42,605,872
<DIVIDEND-INCOME> 8,724,166
<INTEREST-INCOME> 4,244,852
<OTHER-INCOME> 0
<EXPENSES-NET> 3,821,518
<NET-INVESTMENT-INCOME> 9,147,500
<REALIZED-GAINS-CURRENT> 30,003,301
<APPREC-INCREASE-CURRENT> 29,185,348
<NET-CHANGE-FROM-OPS> 68,336,149
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,066,734)
<DISTRIBUTIONS-OF-GAINS> (1,171,580)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 563,095
<NUMBER-OF-SHARES-REDEEMED> (503,098)
<SHARES-REINVESTED> 172,862
<NET-CHANGE-IN-ASSETS> 36,117,391
<ACCUMULATED-NII-PRIOR> 2,542,525
<ACCUMULATED-GAINS-PRIOR> 2,529,328
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,329,896
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,821,518
<AVERAGE-NET-ASSETS> 39,610,051
<PER-SHARE-NAV-BEGIN> 11.78
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 1.77
<PER-SHARE-DIVIDEND> (0.34)
<PER-SHARE-DISTRIBUTIONS> (0.37)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.11
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 073
<NAME>Nations Fund Equity Income Inv-C
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 383,175,109
<INVESTMENTS-AT-VALUE> 430,251,450
<RECEIVABLES> 6,261,904
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,581
<TOTAL-ASSETS> 436,514,935
<PAYABLE-FOR-SECURITIES> 1,047,138
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,082,273
<TOTAL-LIABILITIES> 2,129,411
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,015,395
<SHARES-COMMON-STOCK> 349,635
<SHARES-COMMON-PRIOR> 361,464
<ACCUMULATED-NII-CURRENT> 163,990
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,422,211
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47,076,422
<NET-ASSETS> 4,611,719
<DIVIDEND-INCOME> 8,724,166
<INTEREST-INCOME> 4,244,852
<OTHER-INCOME> 0
<EXPENSES-NET> 3,821,518
<NET-INVESTMENT-INCOME> 9,147,500
<REALIZED-GAINS-CURRENT> 30,003,301
<APPREC-INCREASE-CURRENT> 29,185,348
<NET-CHANGE-FROM-OPS> 68,336,149
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (92,984)
<DISTRIBUTIONS-OF-GAINS> (131,358)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 51,611
<NUMBER-OF-SHARES-REDEEMED> (79,843)
<SHARES-REINVESTED> 16,403
<NET-CHANGE-IN-ASSETS> 36,117,391
<ACCUMULATED-NII-PRIOR> 2,542,525
<ACCUMULATED-GAINS-PRIOR> 2,529,328
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,329,896
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,821,518
<AVERAGE-NET-ASSETS> 4,450,020
<PER-SHARE-NAV-BEGIN> 11.83
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 1.78
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> (0.37)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.19
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 074
<NAME>Nations Fund Equity Income Inv-N
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 383,175,109
<INVESTMENTS-AT-VALUE> 430,251,450
<RECEIVABLES> 6,261,904
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,581
<TOTAL-ASSETS> 436,514,935
<PAYABLE-FOR-SECURITIES> 1,047,138
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,082,273
<TOTAL-LIABILITIES> 2,129,411
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 7,939,860
<SHARES-COMMON-PRIOR> 6,405,823
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,422,211
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47,076,422
<NET-ASSETS> 104,026,229
<DIVIDEND-INCOME> 8,724,166
<INTEREST-INCOME> 4,244,852
<OTHER-INCOME> 0
<EXPENSES-NET> 3,821,518
<NET-INVESTMENT-INCOME> 9,147,500
<REALIZED-GAINS-CURRENT> 30,003,301
<APPREC-INCREASE-CURRENT> 29,185,348
<NET-CHANGE-FROM-OPS> 68,336,149
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,897,032
<NUMBER-OF-SHARES-REDEEMED> (740,696)
<SHARES-REINVESTED> 377,701
<NET-CHANGE-IN-ASSETS> 36,117,391
<ACCUMULATED-NII-PRIOR> 2,542,525
<ACCUMULATED-GAINS-PRIOR> 2,529,328
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,329,896
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,821,518
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<PER-SHARE-NAV-BEGIN> 11.77
<PER-SHARE-NII> 0.22
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<PER-SHARE-DIVIDEND> (0.28)
<PER-SHARE-DISTRIBUTIONS> (0.37)
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<PER-SHARE-NAV-END> 13.10
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 091
<NAME>Nations Fund Govt Securities Pr-A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 121,472,703
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<RECEIVABLES> 1,857,588
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<OTHER-ITEMS-ASSETS> 1,632
<TOTAL-ASSETS> 121,826,215
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<OTHER-ITEMS-LIABILITIES> 686,485
<TOTAL-LIABILITIES> 686,485
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<SHARES-COMMON-PRIOR> 4,048,547
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<ACCUMULATED-NET-GAINS> (6,882,533)
<OVERDISTRIBUTION-GAINS> 0
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<EXPENSES-NET> 1,115,179
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<NET-CHANGE-IN-ASSETS> 11,202,574
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<GROSS-EXPENSE> 1,263,076
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<PER-SHARE-GAIN-APPREC> (0.19)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 092
<NAME>Nations Fund Govt Securities Inv-A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 121,472,703
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<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> (0.19)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 093
<NAME>Nations Fund Govt Securities Inv-C
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 121,472,703
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<OTHER-ITEMS-LIABILITIES> 686,485
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 094
<NAME>Nations Fund Govt Securities Inv-N
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 121,472,703
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<GROSS-EXPENSE> 1,263,076
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</TABLE>
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<NAME> Nations Fund Int'l Equity Pr-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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EX-99.B5(d)
SUB-ADVISORY AGREEMENT
NATIONS FUND, INC.
THIS AGREEMENT is made this 10th day of April, 1996, by and among
NATIONSBANC ADVISORS, INC., a North Carolina corporation (the "Adviser"),
GARTMORE GLOBAL PARTNERS, 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 to 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 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.
<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 and
holding other property received therefor, all as may be considered
appropriate by the Sub-Adviser; 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.
In carrying out its obligations under clauses (b) to (e),
inclusive, of this Paragraph 2, the Sub-Adviser shall act only as agent of the
Company and/or the Fund and shall not act as principal. The Sub-Adviser shall
not be responsible for the administration of the Fund, for the execution and
settlement of transactions in securities or derivative instruments nor for the
custody of any such securities or instruments or documents of title and the
Sub-Adviser shall not hold any money or other assets of the Fund or the Company.
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.
Without limiting the right of the Board of Directors of the Company to issue
directives, the Board of Directors shall take into consideration any views or
opinions that may be expressed by the Adviser of Sub-Adviser in formulating
policies, procedures and directives. The
2
<PAGE>
Sub-Adviser shall not be obligated to conform its activities to any directive of
the Board of Directors of the Company to the extent that compliance with such
directive would be in contravention of any law, rule or regulation applicable to
the Sub-Adviser.
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;
(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 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; and
(d) such policies and procedures that may be established by
the Board of Directors of the Company and communicated to the
Sub-Adviser from time to time.
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 Sub-Adviser's fees
shall be pro-rated for portions of months in which sub-advisory services are
provided.
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,
3
<PAGE>
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.
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 other 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 when
approved, and 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 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
4
<PAGE>
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. This Agreement shall
automatically terminate 120 days after its effectiveness if the Fund's
shareholders have not ratified and approved it within such period. The Agreement
shall automatically terminate upon the effectiveness of a Sub-Advisory Agreement
between the Company on behalf of the Fund and Gartmore Global Partners.
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. For purposes of
this paragraph and paragraph 13, brokers or dealers selected to execute
portfolio transactions for the Fund in accordance with Paragraph 2(c) hereof
shall not be considered agents of the Sub-Adviser.
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, (a) arising from the advertising, solicitation,
sale, purchase or pledge of securities, whether of the Funds or other
securities, undertaken by the Funds or the Company's officers, directors,
employees, agents or affiliates, or (b) resulting from any violations of the
securities laws, rules, regulations, statutes and codes, whether federal or of
any state, by the Funds, or the Company's officers, directors, employees or
affiliates.
14. Notices. Any notices under this Agreement shall be in writing
and shall be duly given if delivered, mailed (postage prepaid, effective upon
receipt) or telegraphed, telexed or transmitted by similar telecommunications
device (effective upon completion of transmission, with a confirming copy
delivered or mailed postage prepaid) to such address or number 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 and telefax number of the Company
shall be 111 Center Street, Little Rock, Arkansas 72201, Fax No. (501) 377-2331;
that of the Sub-Adviser shall be Gartmore House, 16-18 Monument Street, London
EC3R 8AJ, England, Fax No. 71-782-2075; and that of the Adviser shall be c/o
Mutual Fund Group, 33rd Floor, One NationsBank Plaza, Charlotte, North Carolina
28255, Fax No. (704) 388-2187.
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
5
<PAGE>
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.
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
By: /s/ A. Max Walker
A. Max Walker
President and Chairman of the
Board of Directors
NATIONSBANC ADVISORS, INC.
By: /s/ A. Max Walker
Mark H. Williamson
President and Director
GARTMORE GLOBAL PARTNERS
By: /s/ Charles G. Smith IV
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 alia, 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-1A,
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
8
<PAGE>
and the Sub-Adviser, upon advice of counsel, shall discuss alternatives and
determine 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 concerning the risks associated
with the Funds' permissible 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 permissible 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 form substantially similar to that which is set
forth in IMRO Rule 14.02(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
terms, 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 permitted 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,"
normally 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 information as at the last day of any semi-annual period for
which such reports relate. To the extent that any performance information is
included in such report, it shall conform to the standards set forth in the
Funds' Registration Statement.
10. Except as permitted by or pursuant to Section 17 of the 1940 Act and the
Rules promulgated thereunder, the Sub-Adviser, or an "affiliate" thereof (as
that term 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
information known to it relating to the Fund's business or affairs to the
Securities and Investment Board or to IMRO on the terms that the information
so disclosed shall not without its consent be further disclosed otherwise
than is permitted in respect of Restricted Information under the provisions
of Part VIII of the Financial Services Act of 1986.
10
<PAGE>
EX-99.B10
[MORRISON & FOERSTER LLP LETTERHEAD]
July 22, 1996
Nations Fund, Inc.
111 Center Street
Little Rock, AR 72201
Re: Shares of Common Stock in the Funds of Nations Fund, Inc.
Gentlemen:
We refer to Post-Effective Amendment No. 31 and Amendment No. 32 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 March 31, 1996. 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 Funds' 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 Funds, Inc.
July 22, 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, which are included as
part of the Registration Statement.
Very truly yours,
/S/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
<PAGE>
EX-99.B11
[PRICE WATERHOUSE LLP LETTERHEAD]
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. 31 under the Securities Act of 1933 to the registration statement
on Form N-1A (the "Registration Statement") of our report dated May 17, 1996,
relating to the financial statements and financial highlights appearing in the
March 31, 1996 Annual Reports to Shareholders of Nations Fund, Inc., which are
also incorporated by reference into the Registration Statement. We also consent
to the references to us under the headings "Financial Highlights" and "Other
Service Providers" in the Prospectuses and under the heading "Independent
Accountant and Reports" in the Statement of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
July 22, 1996
EX-99.B18
NATIONS FUND, INC.
RULE 18f-3 MULTI-CLASS PLAN
I. Introduction.
Pursuant to Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"), the following sets forth the method for allocating
fees and expenses among each class of shares in the investment portfolios of
Nations Fund, Inc. (the "Company"). In addition, this Rule 18f-3 Multi-Class
Plan (the "Plan") sets forth the shareholder servicing arrangements,
distribution arrangements, conversion features, exchange privileges and other
shareholder services of each class of shares in such portfolios.
The Company is an open-end series investment company registered
under the 1940 Act and the shares of which are registered on Form N-1A under the
Securities Act of 1933 (Registration Nos. 33-4038 and 811-4614). Upon the
effective date of Rule 18f-3, the Company hereby elects to offer multiple
classes of shares in its investment portfolios pursuant to the provisions of
Rule 18f-3 and this Plan. This Plan does not make any material changes to the
class arrangements and expense allocations previously approved by the Board of
Directors of the Company pursuant to the exemptive order issued by the
Securities and Exchange Commission to the Company under Section 6(c) of the 1940
Act on March 23, 1993 (1940 Act Release No. 19343).
The Company currently consists of the following five separate
investment portfolios: Nations Prime Fund, Nations Treasury Fund, Nations Equity
Income Fund, Nations International Equity Fund and Nations Government Securities
Fund.
The above-listed investment portfolios of the Company (the
"Funds") are authorized to issue the following classes of shares representing
interests in the Funds:
(i) Nations Prime Fund and Nations Treasury Fund (the "Money
Market Funds") -- Primary A Shares, Primary B Shares,
Investor A Shares, Investor B Shares, Investor C Shares and
Investor D Shares; and
(ii) Nations Equity Income Fund, Nations International Equity
Fund and Nations Government Securities Fund (the "Non-Money
Market Funds") -- Primary A Shares, Primary B Shares,
Investor A Shares, Investor C Shares and Investor N Shares.
II.Allocation of Expenses.
Pursuant to Rule 18f-3 under the 1940 Act, the Company shall
allocate to each class of shares in a Fund (i) any fees and expenses incurred by
the Company in connection with the distribution of such class of shares under a
distribution plan adopted for such class of shares
1
<PAGE>
pursuant to Rule 12b-1, and (ii) any fees and expenses incurred by the Company
under a shareholder servicing plan in connection with the provision of
shareholder services to the holders of such class of shares. In addition,
pursuant to Rule 18f-3, the Company may allocate the following fees and expenses
to a particular class of shares in a single Fund:
(i) transfer agent fees identified by the transfer agent as
being attributable to such class of shares;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses, reports, and proxies to current shareholders
of such class of shares or to regulatory agencies with
respect to such class of shares;
(iii) blue sky registration or qualification fees incurred by
such class of shares;
(iv) Securities and Exchange Commission registration fees
incurred by such class of shares;
(v) the expense of administrative personnel and services
(including, but not limited to, those of a portfolio
accountant, custodian or dividend paying agent charged with
calculating net asset values or determining or paying
dividends) as required to support the shareholders of such
class of shares;
(vi) litigation or other legal expenses relating solely to such
class of shares;
(vii) fees of the Company's Directors incurred as result of
issues relating to such class of shares; and
(viii) independent accountants' fees relating solely to such class
of shares.
The initial determination of the class expenses that will be
allocated by the Company to a particular class of shares and any subsequent
changes thereto will be reviewed by the Board of Directors and approved by a
vote of the Directors of the Company, including a majority of the Directors who
are not interested persons of the Company.
Income, realized and unrealized capital gains and losses, and any
expenses of Nations Prime Fund, Nations Treasury Fund and Nations Government
Securities Fund not allocated to a particular class of any such Fund pursuant to
this Plan shall be allocated to each class of the Fund on the basis of the
relative net assets (settled shares), as defined in Rule 18f-3, of that class in
relation to the net assets of the Fund.
Income, realized and unrealized capital gains and losses, and any
expenses of Nations Equity Income Fund and Nations International Equity Fund not
allocated to a particular class of any such Fund pursuant to this Plan shall be
allocated to each class of the Fund on the basis of the net asset value of that
class in relation to the net asset value of the Fund.
2
<PAGE>
III.Class Arrangements.
The following summarizes the front-end sales charges, contingent
deferred sales charges, Rule 12b-1 distribution fees, shareholder servicing
fees, conversion features, exchange privileges and other shareholder services
applicable to each class of shares of the Company. Additional details regarding
such fees and services are set forth in the relevant Fund's current Prospectus
and Statement of Additional Information.
A.Primary A Shares -- All Funds.
1. Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Rule 12b-1 Distribution Fees: None
4. Shareholder Servicing Fees: None
5. Conversion Features: None
6. Exchange Privileges:
(a) Primary A Shares of a Fund may be exchanged
for Primary A Shares of any other fund of
the Nations Fund Family.
(b) From time to time, the Board of Directors of
the Company may modify, or ratify
modifications to, the exchange privileges of
Primary A Shares of a Fund without amending
this Plan, provided that such exchange
privileges, as modified, are described in
the then-current prospectus for such shares
of such Fund.
7. Other Shareholder Services: None
B. Primary B Shares -- All Funds.
1. Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Rule 12b-1 Distribution Fees: None
3
<PAGE>
4. Maximum Shareholder Servicing/Administration Fees:
(a) Pursuant to a Shareholder Servicing Plan,
the Primary B Shares of Nations Prime Fund
and Nations Treasury Fund each may pay
shareholder servicing fees of up to 0.25% of
the average daily net assets of such shares.
(b) Pursuant to a Shareholder Administration
Plan, the Primary B Shares of Nations Equity
Income Fund, Nations International Equity
Fund and Nations Government Securities Fund
each may pay shareholder administration fees
of up to 0.60% of the average daily net
assets of such shares, 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 Primary B Shares of a Fund.
5. Conversion Features: Primary B Shares of a Fund
shall have such conversion features and exchange
privileges, if any, as are determined by or ratified
by the Board of Directors of the Company and
described in the then-current prospectus for such
shares of such Fund.
6. Exchange Privileges:
(a) Primary B Shares of a Fund may be exchanged
for Primary B Shares of any other fund of
the Nations Fund Family.
(b) From time to time, the Board of Directors of
the Company may modify, or ratify
modifications to, the exchange privileges of
Primary B Shares of a Fund without amending
this Plan, provided that such exchange
privileges, as modified, are described in
the then-current prospectus for such shares
of such Fund.
7. Other Shareholder Services: None
C. Investor A Shares -- All Funds.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
4
<PAGE>
3. Rule 12b-1 Distribution Fees: Pursuant to a
Shareholder Servicing and Distribution Plan adopted
under Rule 12b-1, Investor A Shares of the Money
Market Funds may pay distribution fees of up to
0.10% of the average daily net assets of such
shares.
4. Rule 12b-1 Distribution/Shareholder Servicing Fees:
Pursuant to the Shareholder Servicing and
Distribution Plan adopted under Rule 12b-1, Investor
A Shares of each Non-Money Market Fund may pay a
combined distribution and shareholder servicing fee
of up to 0.25% of the average daily net assets of
such shares.
5. Shareholder Servicing Fees: Pursuant to a
Shareholder Servicing Plan, Investor A Shares of the
Money Market Funds may pay shareholder servicing
fees of up to 0.25% of the average daily net assets
of such shares.
6. Conversion Features: None
7. Exchange Privileges:
a. Money Market Funds:
(i) Investor A Shares of the Money
Market Funds may be exchanged for
Investor A Shares of any other money
market fund offered by the Nations
Fund Family (collectively, the
"Nations Fund Money Market Funds").
(ii) Investor A Shares of the Money
Market Funds acquired through a
Nations Fund Individual Retirement
Account ("IRA") may be exchanged for
Investor A or Investor N Shares of
any non-money market fund offered by
the Nations Fund Family
(collectively, the "Nations Fund
Non-Money Market Funds").
(iii) Investor A Shares of the Money
Market Funds acquired through a
permissible exchange of Investor A
Shares of a Nations Fund Non-Money
Market Fund may be re-exchanged for
Investor A Shares of any Nations
Fund Money Market Fund or Nations
Fund Non-Money Market Fund.
b. Non-Money Market Funds: Investor A Shares of
the Non-Money Market Funds may be exchanged
for Investor A Shares of any other Nations
Fund Non-Money Market Fund or any Nations
Fund Money Market Fund.
5
<PAGE>
8. Other Shareholder Services. The Company offers a
Systematic Investment Plan and Automatic Withdrawal
Plan to holders of Investor A Shares of the Funds.
In addition, the Company offers check-writing
privileges to holders of Investor A Shares of the
Money Market Funds.
D. Investor B Shares -- Money Market Funds Only.
1. Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Rule 12b-1 Distribution Fees: Pursuant to a
Distribution Plan adopted under Rule 12b-1, the
Investor B Shares of the Money Market Funds may pay
distribution fees of up to 0.10% of the average
daily net assets of such shares.
4. Shareholder Servicing Fees: Pursuant to a
Shareholder Servicing Plan, the Investor B Shares of
the Money Market Funds may pay shareholder servicing
fees of up to 0.25% of the average daily net assets
of such shares.
5. Conversion Features: None
6. Exchange Privileges: Investor B Shares of a Money
Market Fund may be exchanged for Investor B Shares
of any other Nations Fund Money Market Fund.
7. Other Shareholder Services: The Company offers
check-writing services, a Systematic Investment Plan
and an Automatic Withdrawal Plan to holders of
Investor B Shares of the Money Market Funds.
E. Investor C Shares -- All Funds.
1. Initial Sales Load: None
2. Contingent Deferred Sales Charge (as a percentage of
the lower of the purchase price or redemption
proceeds):
(a) Money Market Funds: None
(b) Non-Money Market Funds: 0.50% if redeemed
within one year of purchase and eliminated
thereafter
3. Rule 12b-1 Distribution Fees:
6
<PAGE>
(a) Money Market Funds: Pursuant to a
Distribution Plan adopted under Rule 12b-1,
Investor C Shares of the Money Market Funds
may pay distribution fees of up to 0.10% of
the average daily net assets of such shares.
(b) Non-Money Market Funds: Pursuant to a
Distribution Plan adopted under Rule 12b-1,
Investor C Shares of the Non-Money Market
Funds may pay distribution fees of up to
0.75% of the average daily net assets of
such shares.
4. Shareholder Servicing Fees: Pursuant to a
Shareholder Servicing Plan, the Investor C Shares of
each Fund may pay shareholder servicing fees of up
to 0.25% of the average daily net assets of such
shares.
5. Conversion Features: None
6. Exchange Privileges:
(a) Money Market Funds.
(i) Investor C Shares of a Money Market
Fund that are purchased directly may
not be exchanged for shares of any
other fund offered by the Nations
Fund Family.
(ii) Investor C Shares of a Money Market
Fund acquired through a permissible
exchange of Investor N Shares of a
Nations Fund Non-Money Market Fund
or Investor A Shares of Nations
Short-Term Income Fund or Nations
Short-Term Municipal Income Fund may
be re-exchanged for Investor C
Shares of any other Nations Fund
Money Market Fund, Investor N Shares
of a Nations Fund Non-Money Market
Fund (except Nations Short-Term
Income Fund or Nations Short-Term
Municipal Income Fund) or Investor A
Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal
Income Fund.
(b) Non-Money Market Funds.
(i) Investor C Shares of a Non-Money
Market Fund may be exchanged for
Investor C Shares of any other
Nations Fund Non-Money Market Fund.
However, Investor C Shares of a
Non-Money Market Fund may not be
exchanged for Investor C Shares of
Nations Short-Term Income Fund,
Nations Short-Term Municipal Income
Fund or Nations
7
<PAGE>
Adjustable Rate Government Fund
until one year after purchase.
(ii) In addition, Investor C Shares of a
Non-Money Market Fund may be
exchanged for Investor D Shares of
any Nations Fund Money Market Fund.
7. Other Shareholder Services. The Company offers a
Systematic Investment Plan and Automatic Withdrawal
Plan to holders of Investor C Shares of the
Non-Money Market Funds.
F. Investor N Shares -- Non-Money Market Funds Only.
1. Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Rule 12b-1 Distribution Fees: Pursuant to a
Distribution Plan adopted under Rule 12b-1, the
Investor N Shares of each Non-Money Market Fund may
pay distribution fees of up to 0.75% of the average
daily net assets of such shares.
4. Shareholder Servicing Fees: Pursuant to a
Shareholder Servicing Plan, the Investor N Shares of
each Non-Money Market Fund may pay shareholder
servicing fees of up to 0.25% of the average daily
net assets of such shares.
5. Conversion Features: None
6. Exchange Privileges: Investor N Shares of a
Non-Money Market Fund may be exchanged for Investor
N Shares of any other Nations Fund Non-Money Market
Fund (except Nations Short-Term Income Fund and
Nations Short-Term Municipal Income Fund), Investor
A Shares of the Nations Short-Term Income Fund or
Nations Short-Term Municipal Income Fund or Investor
C Shares of any Nations Fund Money Market Fund.
7. Other Shareholder Services: The Company offers a
Systematic Investment Plan and an Automatic
Withdrawal Plan to holders of Investor N Shares of
the Non-Money Market Funds.
G. Investor D Shares -- Money Market Funds Only.
1. Initial Sales Load: None
8
<PAGE>
2. Contingent Deferred Sales Charge: None
3. Rule 12b-1 Distribution Fees: Pursuant to a
Distribution Plan adopted under Rule 12b-1, Investor
D Shares of the Money Market Funds may pay
distribution fees of up to 0.45% of the average
daily net assets of such shares.
4. Shareholder Servicing Fees: Pursuant to a
Shareholder Servicing Plan, Investor D Shares of the
Money Market Funds may pay shareholder servicing
fees of up to 0.25% of the average daily net assets
of such shares.
5. Conversion Features: None
6. Exchange Privileges: Investor D Shares of a Money
Market Fund may be exchanged for Investor D Shares
of any other Nations Fund Money Market Fund or
Investor C Shares of any Nations Fund Non-Money
Market Fund. However, Investor D Shares of a Money
Market Fund may not be exchanged for Investor C
Shares of Nations Short-Term Income Fund, Nations
Short-Term Municipal Income Fund or Nations
Adjustable Rate Government Fund until one year after
purchase of the shares exchanged to acquire the
subject Investor D Shares.
7. Other Shareholder Services: The Company offers an
Automatic Withdrawal Plan to holders of Investor D
Shares of the Money Market Funds.
IV. Board Review.
The Board of Directors of the Company shall review this Plan as
frequently as they deem necessary. Prior to any material amendment(s) to this
Plan, the Company's Board of Directors, including a majority of the Directors
that are not interested persons of the Company, shall find that the Plan, as
proposed to be amended (including any proposed amendments to the method of
allocating class and/or fund expenses), is in the best interest of each class of
shares of the Company individually and the Company as a whole. In considering
whether to approve any proposed amendment(s) to the Plan, the Directors of the
Company shall request and evaluate such information as they consider reasonably
necessary to evaluate the proposed amendment(s) to the Plan.
Adopted effective April 3, 1995
Amended: January 1, 1996
9
<PAGE>
