As filed with the Securities and Exchange Commission
on July 31, 1997
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. 34 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 35 |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>
<CAPTION>
<S> <C>
|X| Immediately upon filing pursuant to Rule 485(b); or |_| on (date), 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,
1997 on May 21, 1997.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 34 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
Part A
Item No. Prospectus
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
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
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
<PAGE>
Prospectus
Primary A Shares
August 1, 1997
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 International Growth Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Small Company Growth Fund
Nations Disciplined Equity Fund
INDEX FUNDS
Nations Equity Index Fund
Nations Managed Index Fund
Nations Managed SmallCap Index Fund
Nations Managed Value Index Fund
Nations Managed SmallCap Value Index
Fund
BALANCED FUND
Nations Balanced Assets Fund
BOND FUNDS
Nations U.S. Government Bond 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 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.
Investment Sub-Adviser: TradeStreet Investment Associates, Inc.
Investment Sub-Adviser: Gartmore Global Partners
Investment Sub-Adviser: Boatmen's Capital Management, Inc.
Distributor: Stephens Inc. (Nations Funds logo appears here).
TR-96127-897
<PAGE>
Prospectus
Primary A Shares
August 1, 1997
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 Funds Family ("Nations Funds" or "Nations Funds Family").
This Prospectus describes one class of shares of each Fund -- Primary A Shares.
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 THE MONEY MARKET 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
Nations Short-Term Municipal Income Fund "SAIs"), that have been filed with the
Securities and Exchange Commission Nations Intermediate Municipal Bond (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 Bond Fund
for Nations Fund Trust, Nations Fund, Inc. and Nations Portfolios, each dated
August 1, 1997, are incorporated by reference in their entirety into this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
SAIs, material incorporated by reference in this Prospectus and other
information regarding registrants that file electronically with the SEC.
NationsBanc Nations Maryland Municipal Bond Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet Fund Investment Associates, Inc.
("TradeStreet") is investment sub-adviser to certain of the Funds, Gartmore
Global Partners ("Gartmore") is investment sub-adviser to certain other Funds,
and Boatmen's Capital Management, Inc. Nations South Carolina Intermediate
("Boatmen's") is investment sub-adviser to Nations U.S. Government Bond
Municipal Bond Fund. As used herein the term "Adviser" shall mean NBAI,
TradeStreet, Gartmore and/or Boatmen's as the context may require.
SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER 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 SERVICES TO NATIONS FUNDS, 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 FUNDS.
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
Nations Tax Exempt Fund
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations International Growth Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Small Company Growth Fund
Nations Disciplined Equity Fund
INDEX FUNDS:
Nations Equity Index Fund
Nations Managed Index Fund
Nations Managed SmallCap Index Fund
Nations Managed Value Index Fund
Nations Managed SmallCap Value Index Fund
BALANCED FUND:
Nations Balanced Assets Fund
BOND FUNDS
Nations U.S. Government Bond 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 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
For Fund information call: 1-800-765-2668
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(NATIONS FUNDS LOGO APPEARS HERE)
TR-96127-897
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds
Expenses Summary 7
Financial Highlights 13
Objectives 49
How Objectives Are Pursued 52
How Performance Is Shown 71
How The Funds Are Managed 75
Organization And History 83
About Your How To Buy Shares 85
Investment
How To Redeem Shares 86
How To Exchange Shares 86
How The Funds Value Their Shares 87
How Dividends And Distributions Are Made;
Tax Information 88
Appendix A -- Portfolio Securities 90
Appendix B -- Description Of Ratings 100
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 Funds or its distributor. This Prospectus
does not constitute an offering by Nations Funds 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 regions, including
developing countries.
(Bullet) Nations International Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of companies domiciled in countries outside the
United States and listed on major stock exchanges primarily in
Europe and the Pacific Basin.
(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 market 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 Small Company Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities.
(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.
3
<PAGE>
(Bullet) Index Funds:
(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) Nations Managed Index Fund's investment objective is to seek,
over the long-term, to provide a total return which (gross of
fees and expenses) exceeds the total return of the Standard &
Poor's 500 Composite Stock Price Index.
(Bullet) Nations Managed SmallCap Index Fund's investment objective is
to seek, over the long-term, to provide a total return which
(gross of fees and expenses) exceeds the total return of the
Standard & Poor's SmallCap 600 Index.
(Bullet) Nations Managed Value Index Fund's investment objective is to
seek, over the long-term, to provide a total return that
(gross of fees and expenses) exceeds the total return of the
S&P 500/BARRA Value Index.
(Bullet) Nations Managed SmallCap Value Index Fund's investment
objective is to seek, over the long-term, to provide a total
return that (gross of fees and expenses) exceeds the total
return of the S&P SmallCap 600/BARRA Value 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 U.S. Government Bond Fund's investment objective is to
seek total return and preservation of capital by investing in
U.S. Government securities and repurchase agreements.
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek high current income consistent with
modest fluctuation of principal. The Fund invests 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 high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in
intermediate-term 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 high current income consistent with minimal fluctuation
of principal. The Fund invests in investment grade debt
securities.
(Bullet) Nations Diversified Income Fund's investment objective is to
seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income
securities.
(Bullet) Nations Strategic Fixed Income Fund's investment objective is
to seek total return by investing in investment grade fixed
income securities.
(Bullet) Nations Global Government Income Fund's investment objective
is to seek 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 high current income exempt from Federal income tax with
the potential for principal fluctuation associated with
investments in long-term municipal securities. The Fund
invests in investment grade, long-term municipal securities.
(Bullet) Nations Short-Term Municipal Income Fund's investment
objective is to seek high current income exempt from Federal
income tax consistent with minimal fluctuation of principal.
The Fund invests in investment grade, short- term municipal
securities.
(Bullet) Nations Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal
income tax consistent with moderate fluctuation of principal.
The Fund invests in investment grade, intermediate-term
municipal securities.
4
<PAGE>
(Bullet) Nations Florida Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal
income and the Florida state intangibles taxes consistent with
moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
(Bullet) Nations Florida Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal income and the
Florida state intangibles taxes with the potential for
principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade,
long-term municipal securities.
(Bullet) Nations Georgia Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal
and Georgia state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment
grade, intermediate-term municipal securities.
(Bullet) Nations Georgia Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and Georgia
state income taxes with the potential for principal
fluctuation associated with investments in long- term
municipal securities. The Fund invests in investment grade,
long-term municipal securities.
(Bullet) Nations Maryland Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal
and Maryland state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment
grade, intermediate-term municipal securities.
(Bullet) Nations Maryland Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and Maryland
state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal
securities. The Fund invests in investment grade, long-term
municipal securities.
(Bullet) Nations North Carolina Intermediate Municipal Bond Fund's
investment objective is to seek high current income exempt
from Federal and North Carolina state income taxes consistent
with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
(Bullet) Nations North Carolina Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal
and North Carolina state income taxes with the potential for
principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade,
long-term municipal securities.
(Bullet) Nations South Carolina Intermediate Municipal Bond Fund's
investment objective is to seek high current income exempt
from Federal and South Carolina state income taxes consistent
with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
(Bullet) Nations South Carolina Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal
and South Carolina state income taxes with the potential for
principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade,
long-term municipal securities.
(Bullet) Nations Tennessee Intermediate Municipal Bond Fund's
investment objective is to seek high current income exempt
from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of
principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations Tennessee Municipal Bond Fund's investment objective
is to seek high current income exempt from Federal income tax
and the Tennessee Hall Income Tax on unearned income with the
potential for principal fluctuation associated with
investments in long-term municipal securities. The Fund
invests in investment grade, long- term municipal securities.
(Bullet) Nations Texas Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal
income tax consistent with moderate fluctuation of principal.
The Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Texas Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal income tax with
the potential for principal fluctuation associated with
investments in long-term municipal securities. The Fund
invests in investment grade, long-term municipal securities.
(Bullet) Nations Virginia Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal
and Virginia state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment
grade, intermediate-term municipal securities.
5
<PAGE>
(Bullet) Nations Virginia Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and Virginia
state income taxes with the potential for principal
fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade,
long-term municipal securities.
(Bullet) Investment Adviser: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to certain
of the Funds, Gartmore Global Partners provides sub-advisory services
to certain other Funds and Boatmen's Capital Management, Inc. provides
investment sub-advisory services to Nations U.S. Government Bond Fund.
See "How The Funds Are Managed."
(Bullet) Dividends and Distributions: Dividends from net investment income are
declared and paid monthly by Nations Capital Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Income Fund, Nations Managed
Index Fund, Nations Value Fund and Nations Small Company Growth Fund.
Dividends from net investment income are declared and paid annually by
Nations International Growth Fund. All other Equity Funds, Index 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.
The U.S. stock market tends to be cyclical, with periods when stock
prices generally rise and periods when prices generally decline. As of
the date of this Prospectus, the stock market, as measured by the S&P
500 Index (as defined below) and other commonly used indices, was
trading at or close to record levels. There can be no guarantee that
these levels will continue. Certain of the Funds may invest in
securities of smaller and newer issuers. Investments in such companies
may present greater opportunities for capital appreciation because of
high potential earnings growth, but also present greater risks than
investments in more established companies with longer operating
histories and greater financial capacity. 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 (as defined
below), 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. 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 International Growth 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 International Growth Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund."
(Bullet) Minimum Purchase: $250,000 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
<TABLE>
<CAPTION>
Nations
Government
Nations Prime Nations Money Market
Shareholder Transaction Expenses Fund Treasury Fund Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
<CAPTION>
Nations
Tax
Exempt
Fund
Shareholder Transaction Expenses <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>
<S> <C> <C> <C>
Management Fees (After Fee Waivers)1 .16% .16% .14%
All Other Expenses .14% .14% .16%
Total Operating Expenses (After Fee Waivers)1 .30% .30% .30%
<CAPTION>
Management Fees (After Fee Waivers)1 .16%
<S> <C>
All Other Expenses .14%
Total Operating Expenses (After Fee Waivers)1 .30%
</TABLE>
1 See page 12 for a discussion of the actual expenses absent such fee waivers.
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Value Equity International International
Shareholder Transaction Expenses Fund Income Fund Equity Fund Growth Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations Nations
Emerging Pacific Growth
Shareholder Transaction Expenses Markets Fund Fund
Sales Load Imposed on Purchases None None
Deferred Sales Load None None
</TABLE>
Annual Fund Operating
Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees .75% .67% .90% .90%
<S> <C> <C> <C> <C>
All Other Expenses .19% .22% .26% .22%
Total Operating Expenses .94% .89% 1.16% 1.12%
<CAPTION>
Management Fees 1.10% .90%
<S> <C> <C>
All Other Expenses .64% .52%
Total Operating Expenses 1.74% 1.42%
</TABLE>
7
<PAGE>
NATIONS FUND EQUITY/INDEX/BALANCED FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations
Capital Emerging Nations Disciplined
Growth Growth Small Company Equity
Shareholder Transaction Expenses Fund Fund Growth Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Equity
Index
Shareholder Transaction Expenses 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% .75%
<S> <C> <C> <C> <C>
All Other Expenses .21% .23% .20% .25%
Total Operating Expenses (After Fee Waivers)1 .96% .98% .95% 1.00%
<CAPTION>
Management Fees (After Fee Waivers)1 .20%
<S> <C>
All Other Expenses .15%
Total Operating Expenses (After Fee Waivers)1 .35%
</TABLE>
1 See page 12 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Nations Nations Managed
Nations Managed Managed SmallCap
Managed SmallCap Value Index Value Index
Shareholder Transaction Expenses Index Fund Index Fund Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Balanced
Assets
Shareholder Transaction Expenses 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% .30% .30% .30%
<S> <C> <C> <C> <C>
All Other Expenses1 .20% .20% .20% .20%
Total Operating Expenses (After Fee Waivers)1 .50% .50% .50% .50%
<CAPTION>
Management Fees (After Fee Waivers)1 .75%
<S> <C>
All Other Expenses1 .25%
Total Operating Expenses (After Fee Waivers)1 1.00%
</TABLE>
1 See page 12 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND BOND FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations Short- Nations
U.S. Intermediate Government
Government Government Securities
Shareholder Transaction Expenses Bond Fund Fund Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
<CAPTION>
Nations
Short-Term
Income
Shareholder Transaction Expenses 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>
Management Fees (After Fee Waivers)1 .40% .40% .50%
All Other Expenses .20% .22% .30%
Total Operating Expenses (After Fee Waivers)1 .60% .62% .80%
<CAPTION>
Management Fees (After Fee Waivers)1 .30%
<S> <C>
All Other Expenses .25%
Total Operating Expenses (After Fee Waivers)1 .55%
</TABLE>
1 See page 12 for a discussion of the actual expenses absent such fee waivers.
8
<PAGE>
NATIONS FUND BOND FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
<S> <C> <C>
Nations
Nations Strategic
Diversified Fixed
Shareholder Transaction Expenses Income Fund Income Fund
Sales Load Imposed on Purchases None None
Deferred Sales Load None None
<CAPTION>
Nations
Global
Government
Income
Shareholder Transaction Expenses 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 .50% .50%
All Other Expenses .25% .20%
Total Operating Expenses (After Fee Waivers)1 .75% .70%
<CAPTION>
Management Fees (After Fee Waivers)1 .70%
<S> <C>
All Other Expenses .56%
Total Operating Expenses (After Fee Waivers)1 1.26%
</TABLE>
1 See page 12 for a discussion of the actual expenses absent such fee waivers.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations
Nations Short-Term Nations Florida
Municipal Municipal Intermediate Intermediate
Income Income Municipal Municipal
Shareholder Transaction Expenses 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
Shareholder Transaction Expenses 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 .40% .30% .30% .30%
<S> <C> <C> <C> <C>
All Other Expenses .20% .10% .20% .20%
Total Operating Expenses (After Fee Waivers)1 .60% .40% .50% .50%
<CAPTION>
Management Fees (After Fee Waivers)1 .40%
<S> <C>
All Other Expenses .20%
Total Operating Expenses (After Fee Waivers)1 .60%
</TABLE>
1 See page 12 for a discussion of the actual expenses absent such fee waivers.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations
Georgia Nations Maryland Nations
Intermediate Georgia Intermediate Maryland
Municipal Municipal Municipal Municipal
Shareholder Transaction Expenses 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
Shareholder Transaction Expenses 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% .40% .30% .40%
<S> <C> <C> <C> <C>
All Other Expenses .20% .20% .20% .20%
Total Operating Expenses (After Fee Waivers)1 .50% .60% .50% .60%
<CAPTION>
Management Fees (After Fee Waivers)1 .30%
<S> <C>
All Other Expenses .20%
Total Operating Expenses (After Fee Waivers)1 .50%
</TABLE>
1 See page 12 for a discussion of the actual expenses absent such fee waivers.
9
<PAGE>
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Nations South Nations Nations
North Carolina South Tennessee
Carolina Intermediate Carolina Intermediate
Municipal Municipal Municipal Municipal
Shareholder Transaction Expenses 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
Shareholder Transaction Expenses 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 .40% .30% .40% .30%
<S> <C> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .20% .20% .20% .20%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60% .50% .60% .50%
<CAPTION>
Management Fees (After Fee Waivers)1 .40%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .20%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60%
</TABLE>
1 See page 12 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>
<S> <C> <C> <C>
Nations Nations
Texas Nations Virginia
Intermediate Texas Intermediate
Municipal Municipal Municipal
Shareholder Transaction Expenses Bond Fund Bond Fund Bond Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
<CAPTION>
Nations
Virginia
Municipal
Shareholder Transaction Expenses 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% .40% .30%
<S> <C> <C> <C>
All Other Expenses .20% .20% .20%
Total Operating Expenses (After Fee Waivers)1 .50% .60% .50%
<CAPTION>
Management Fees (After Fee Waivers)1 .40%
<S> <C>
All Other Expenses .20%
Total Operating Expenses (After Fee Waivers)1 .60%
</TABLE>
1 See page 12 for a discussion of the actual expenses absent such fee waivers.
10
<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> <C>
Nations
Government Nations Nations Nations Nations
Nations Nations Money Tax Nations Equity International International
Prime Treasury Market Exempt Value Income Equity Growth
Fund Fund Fund Fund Fund Fund Fund Fund
1 Year $ 3 $ 3 $ 3 $ 3 $ 10 $ 9 $ 12 $ 11
3 Years $10 $10 $10 $10 $ 30 $ 28 $ 37 $ 36
5 Years $17 $17 $17 $17 $ 52 $ 49 $ 64 $ 62
10 Years $38 $38 $38 $38 $115 $110 $141 $136
<CAPTION>
Nations Nations
Emerging Pacific
Markets Growth
Fund Fund
1 Year $ 18 $ 14
3 Years $ 55 $ 45
5 Years $ 94 $ 78
10 Years $205 $170
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations Nations Nations Nations
Nations Emerging Nations Disciplined Equity Nations Managed
Capital Growth Growth Small Company Equity Index Managed SmallCap
Fund Fund Growth Fund Fund Fund Index Fund Index Fund
1 Year $ 10 $ 10 $ 10 $ 10 $ 4 $ 5 $ 5
3 Years $ 31 $ 31 $ 30 $ 32 $11 $16 $16
5 Years $ 53 $ 54 $ 53 $ 55 $20 $28 $28
10 Years $118 $120 $117 $122 $44 $63 $63
<CAPTION>
Nations
Nations Managed
Managed SmallCap
Value Value Index
Index Fund Fund
1 Year $ 5 $ 5
3 Years $16 $16
5 Years N/A N/A
10 Years N/A N/A
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations Nations
Nations Nations Short- Nations Nations Nations Strategic
Balanced U.S. Intermediate Government Short-Term Diversified Fixed
Assets Government Government Securities Income Income Income
Fund Bond Fund Fund Fund Fund Fund Fund
1 Year $ 10 $ 6 $ 6 $ 8 $ 6 $ 8 $ 7
3 Years $ 32 $19 $20 $26 $18 $24 $22
5 Years $ 55 $33 $35 $44 $31 $42 $39
10 Years $122 $75 $77 $99 $69 $93 $87
<CAPTION>
Nations
Global Nations
Government Municipal
Income Income
Fund Fund
1 Year $ 13 $ 6
3 Years $ 40 $19
5 Years $ 69 $33
10 Years $152 $75
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations Nations
Nations Nations Florida Nations Nations Nations Maryland
Short-Term Intermediate Intermediate Florida Georgia Georgia Intermediate
Municipal Municipal Municipal Municipal Intermediate Municipal Municipal
Income Bond Bond Bond Municipal Bond Bond
Fund Fund Fund Fund Bond Fund Fund Fund
1 Year $ 4 $ 5 $ 5 $ 6 $ 5 $ 6 $ 5
3 Years $13 $16 $16 $19 $16 $19 $16
5 Years $22 $28 $28 $33 $28 $33 $28
10 Years $51 $63 $63 $75 $63 $75 $63
<CAPTION>
Nations
North
Carolina
Nations Intermediate
Maryland 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 South Nations Nations Nations
North Carolina South Tennessee Nations Texas Nations
Carolina Intermediate Carolina Intermediate Tennessee Intermediate Texas
Municipal Municipal Municipal Municipal Municipal Municipal Municipal
Bond Bond Bond Bond Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 6 $ 5 $ 6 $ 5 $ 6 $ 5 $ 6
3 Years $19 $16 $19 $16 $19 $16 $19
5 Years $33 $28 $33 $28 $33 $28 $33
10 Years $75 $63 $75 $63 $75 $63 $75
<CAPTION>
Nations
Virginia Nations
Intermediate Virginia
Municipal Municipal
Bond Bond
Fund Fund
1 Year $ 5 $ 6
3 Years $16 $19
5 Years $28 $33
10 Years $63 $75
</TABLE>
11
<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 Nations
Managed Index Fund, Nations Managed SmallCap Index Fund, Nations Managed Value
Index Fund and Nations Managed SmallCap Value Index Fund, which 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/or reimbursements will continue. In
particular, to the extent other expenses are less than expected, waivers and/or
reimbursements of management fees, if any, may decrease. Shareholders will be
notified of any decrease that materially increases Total Operating Expenses. 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" and "Total
Operating Expenses" for Primary A Shares of the indicated Fund would have been
as follows: Nations Government Money Market Fund -- .40% and .56%,
respectively; Nations Tax Exempt Fund -- .40% and .54%, respectively; Nations
Prime Fund -- .20% and .34%, respectively; Nations Treasury Fund -- .20% and
.34%, respectively; Nations Small Company Growth Fund -- 1.00% and 1.20%,
respectively; Nations Equity Index Fund -- .50% and .65%, respectively; Nations
Managed Index Fund -- .50% and .70%, respectively; Nations Managed SmallCap
Index Fund -- .50% and .70%, respectively; Nations Managed Value Index Fund
-- .50% and .70%, respectively; Nations Managed SmallCap Value Index Fund --
.50% and .70%, respectively; Nations U.S. Government Bond Fund -- .60% and
.80%, respectively; Nations Short-Intermediate Government Fund -- .60% and
.82%, respectively; Nations Government Securities Fund -- .64% and .94%,
respectively; Nations Short-Term Income Fund -- .60% and .85%, respectively;
Nations Diversified Income Fund -- .60% and .85%, respectively; Nations
Strategic Fixed Income Fund -- .60% and .80%, respectively; Nations Municipal
Income Fund -- .60% and .80%, respectively; Nations Short-Term Municipal Income
Fund -- .50% and .60%, respectively; Nations Intermediate Municipal Bond Fund
-- .50% and .70%, respectively; Nations Florida Intermediate Municipal Bond
Fund -- .50% and .70%, respectively; Nations Florida Municipal Bond Fund --
.60% and .80%, respectively; Nations Georgia Intermediate Municipal Bond Fund
-- .50% and .70%, respectively; Nations Georgia Municipal Bond Fund -- .60%
and .80%, respectively; Nations Maryland Intermediate Municipal Bond Fund --
.50% and .70%, respectively; Nations Maryland Municipal Bond Fund -- .60% and
.80%, respectively; Nations North Carolina Intermediate Municipal Bond Fund --
.50% and .70%, respectively; Nations North Carolina Municipal Bond Fund -- .60%
and .80%, respectively; Nations South Carolina Intermediate Municipal Bond Fund
-- .50% and .70%, respectively; Nations South Carolina Municipal Bond Fund
-- .60% and .80%, respectively; Nations Tennessee Intermediate Municipal Bond
Fund -- .50% and .70%, respectively; Nations Tennessee Municipal Bond Fund --
.60% and .80%, respectively; Nations Texas Intermediate Bond Fund -- .50% and
.70%, respectively; Nations Texas Municipal Bond Fund -- .60% and .80%,
respectively; Nations Virginia Intermediate Bond Fund -- .50% and .70%,
respectively; and Nations Virginia Municipal Bond Fund -- .60% and .80%.
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.
12
<PAGE>
This Page Left Blank Intentionally.
<PAGE>
Financial Highlights
The financial information on the following pages has been derived from the
audited 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. Financial Highlights for Nations Managed Value Index
Fund and Nations Managed SmallCap Value Index Fund are not provided below
because neither Fund had yet commenced operations during the period indicated
below.
Information for Primary A Shares of Nations International Growth Fund, Nations
Small Company Growth Fund and Nations U.S. Government Bond Fund has been derived
from the audited financial statements dated May 16, 1997 for the Pilot Shares of
The Pilot Funds' Pilot International Equity Fund, Pilot Small Capitalization
Equity Fund and Pilot U.S. Government Securities Fund, the predecessor funds to
Nations International Growth Fund, Nations Small Company Growth Fund and Nations
U.S. Government Bond Fund, respectively. This information has been audited by
Arthur Andersen LLP and is provided to help you understand the historical
performance of the Funds and their predecessors. The reports of Arthur Andersen
LLP accompany the financial statements dated May 16, 1997 and are incorporated
by reference in the SAI, which is available upon request.
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Prime Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 3/31/97 03/31/96(a) 05/31/95 5/31/94
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0520 0.0468 0.0519 0.0318
Dividends from net investment income (0.0520) (0.0468) (0.0519) (0.0318)
Total dividends and distributions (0.0520) (0.0468) (0.0519) (0.0318)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.34% 4.79% 5.32% 3.22%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,533,688 $ 2,472,469 $ 2,873,096 $ 2,883,762
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 5.21% 5.62%+ 5.23% 3.20%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.35% 0.37%+ 0.38% 0.37%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0516 $ 0.0463 $ 0.0511 $ 0.0311
<CAPTION>
YEAR
ENDED
Primary A Shares 5/31/93
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0328
Dividends from net investment income (0.0328)
Total dividends and distributions (0.0328)
Net asset value, end of period $ 1.00
Total return++ 3.33%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,156,266
Ratio of operating expenses to average net assets 0.30%
Ratio of net investment income to average net assets 3.25%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.36%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0322
</TABLE>
Nations Prime Fund (cont.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 5/31/92 5/31/91 5/31/90 5/31/89
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0506 0.0749 0.0855 0.0839
Dividends from net investment income (0.0506) (0.0749) (0.0855) (0.0839)
Total dividends and distributions (0.0506) (0.0749) (0.0855) (0.0839)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.19%+++ 7.75%+++ 8.88%+++ 8.71%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 500,476 $ 574,993 $ 433,298 $ 115,295
Ratio of operating expenses to average net
assets 0.30% 0.30% 0.32% 0.35%
Ratio of net investment income to average
net assets 5.03% 7.47% 8.43% 8.11%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.42% 0.44% 0.50%+++ 0.55%+++
Net investment income per share without
waivers and/or expense reimbursements $ 0.0494 $ 0.0735 $ 0.0731+++ $ 0.0819+/+++
<CAPTION>
YEAR PERIOD
ENDED ENDED
Primary A Shares 5/31/88 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0675 0.0277
Dividends from net investment income (0.0675) (0.0277)
Total dividends and distributions (0.0675) (0.0277)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 6.94%+++ 2.79%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 264,063 $ 252,562
Ratio of operating expenses to average net
assets 0.36% 0.35%+
Ratio of net investment income to average
net assets 6.73% 5.99%+
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.56%+++ 0.65%+/+++
Net investment income per share without
waivers and/or expense reimbursements $ 0.0655+++ $ 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.
13
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Treasury Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 3/31/97 03/31/96(a) 5/31/95 5/31/94
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0509 0.0458 0.0494 0.0297
Dividends from net investment income (0.0509) (0.0458) (0.0494) (0.0297)
Distributions from net realized capital gains -- (0.0000)# (0.0000)# --
Total dividends and distributions (0.0509) (0.0458) (0.0494) (0.0297)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.22% 4.67% 5.05% 2.99%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,345,585 $ 821,030 $ 2,896,868 $ 2,679,992
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 5.09% 5.52%+ 4.99% 2.97%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.35% 0.37%+ 0.35% 0.36%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0504 $ 0.0453 $ 0.0489 $ 0.0292
<CAPTION>
YEAR
ENDED
Primary A Shares 5/31/93
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0307
Dividends from net investment income (0.0307)
Distributions from net realized capital gains --
Total dividends and distributions (0.0307)
Net asset value, end of period $ 1.00
Total return++ 3.12%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,956,796
Ratio of operating expenses to average net assets 0.30%
Ratio of net investment income to average net assets 3.02%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.36%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0302
</TABLE>
Nations Treasury Fund (cont.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 5/31/92 5/31/91 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0483 0.0721 0.0829 0.0802 0.0630
Dividends from net investment income (0.0483) (0.0721) (0.0829) (0.0802) (0.0630)
Distributions from net realized capital
gains -- -- -- -- --
Total dividends and distributions (0.0483) (0.0721) (0.0829) (0.0802) (0.0630)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.95%+++ 7.46%+++ 8.61%+++ 8.33%+++ 6.49%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $1,094,741 $ 955,186 $ 392,843 $ 90,946 $ 111,414
Ratio of operating expenses to average net
assets 0.29% 0.25% 0.25% 0.39% 0.38%
Ratio of net investment income to average
net assets 4.82% 7.04% 8.18% 7.93% 6.31%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.42% 0.43% 0.59%+++ 0.58%+++ 0.65%+++
Net investment income per share without
waivers and/or expense reimbursements $ 0.0470 $ 0.0703 $ 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.
14
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Money Market Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 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 $ 1.00
Net investment income 0.0503 0.0173 0.0558 0.0375 0.0294
Distributions:
Dividends from net investment income (0.0503) (0.0173) (0.0558) (0.0375) (0.0294)
Distributions from net realized capital
gains -- -- -- (0.0000)# --
Total dividends and distributions (0.0503) (0.0173) (0.0558) (0.0375) (0.0294)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.18% 1.74% 5.72% 3.84% 2.96%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 299,394 $ 336,771 $ 332,895 $ 432,729 $ 475,180
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 5.03% 5.20%+ 5.58% 3.79% 2.91%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.57% 0.59%+ 0.57% 0.59% 0.56%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0476 $ 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.
15
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Tax Exempt Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(a) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0324 0.0112 0.0361 0.0257
Dividends from net investment income (0.0324) (0.0112) (0.0361) (0.0257)
Total dividends and distributions (0.0324) (0.0112) (0.0361) (0.0257)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 3.29% 1.12% 3.68% 2.60%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 1,184,313 $ 1,078,764 $ 905,125 $ 820,677
Ratio of operating expenses to average net assets 0.30% 0.30%+ 0.30% 0.27%
Ratio of net investment income to average net assets 3.25% 3.35%+ 3.62% 2.59%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.55% 0.58%+ 0.57% 0.59%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0298 $ 0.0103 $ 0.0335 $ 0.0226
<CAPTION>
YEAR
ENDED
Primary A Shares 11/30/93
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0223
Dividends from net investment income (0.0223)
Total dividends and distributions (0.0223)
Net asset value, end of period $ 1.00
Total return++ 2.27%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 701,403
Ratio of operating expenses to average net assets 0.23%
Ratio of net investment income to average net assets 2.23%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.59%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0187
</TABLE>
Nations Tax Exempt Fund (cont.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 11/30/92 11/30/91 11/30/90 11/30/89
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0267 0.0422 0.0550 0.0600
Dividends from net investment income (0.0267) (0.0422) (0.0550) (0.0600)
Total dividends and distributions (0.0267) (0.0422) (0.0550) (0.0600)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 2.70%+++ 4.31%+++ 5.63%+++ 6.17%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 329,265 $ 168,829 $ 173,834 $ 145,109
Ratio of operating expenses to average net assets 0.40% 0.42% 0.40% 0.40%
Ratio of net investment income to average net assets 2.65% 4.23% 5.51% 6.00%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.57% 0.60% 0.75% 0.74%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0250 $ 0.0404 $ 0.0515 $ 0.0566
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/88*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0350
Dividends from net investment income (0.0350)
Total dividends and distributions (0.0350)
Net asset value, end of period $ 1.00
Total return++ 3.55%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 143,245
Ratio of operating expenses to average net assets 0.40%+
Ratio of net investment income to average net assets 4.97%+
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 $ 0.0325
</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.
16
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Value Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(a) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 16.60 $ 16.21 $ 12.98 $ 13.74
Net investment income/(loss) 0.26 0.07 0.27 0.24
Net realized and unrealized gain/(loss) on investments 2.69 1.06 3.91 (0.23)
Net increase/(decrease) in net asset value from operations 2.95 1.13 4.18 0.01
Distributions:
Dividends from net investment income (0.26) (0.12) (0.28) (0.23)
Distributions from net realized capital gains (1.42) (0.62) (0.67) (0.54)
Total dividends and distributions (1.68) (0.74) (0.95) (0.77)
Net asset value, end of period $ 17.87 $ 16.60 $ 16.21 $ 12.98
Total return++ 18.07% 7.20% 34.53% (0.08)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,200,853 $ 998,957 $ 956,669 $ 799,743
Ratio of operating expenses to average net assets 0.97%(c) 0.96%+ 0.94% 0.93%
Ratio of net investment income/(loss) to average net assets 1.51% 1.30%+ 1.90% 1.85%
Portfolio turnover rate 47% 12% 63% 75%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 0.97%(c) 0.96%+ 0.94% 0.93%
Net investment income/(loss) per share without waivers and/or expense
reimbursements $ 0.26(c) $ 0.07% $ 0.27 $ 0.24
Average commission rate paid (b) $ 0.0649 $ 0.0648 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/(loss) 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/(loss) 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/(loss) 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>
YEAR YEAR
ENDED ENDED
Primary A Shares 11/30/92 11/30/91
Operating performance:
Net asset value, beginning of period $ 11.16 $ 9.71
Net investment income/loss 0.28 0.34
Net realized and unrealized gain/(loss) on investments 1.57 1.47
Net increase/(decrease) in net asset value from operations 1.85 1.81
Distributions:
Dividends from net investment income (0.27) (0.36)
Distributions from net realized capital gains (0.29) --
Total dividends and distributions (0.56) (0.36)
Net asset value, end of period $ 12.45 $ 11.16
Total return++ 17.00%+++ 18.79%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 282,138 $ 82,360
Ratio of operating expenses to average net assets 0.90% 0.53%
Ratio of net investment income/(loss) to average net assets 2.31% 3.33%
Portfolio turnover rate 60% 51%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.97% 0.99%
Net investment income/(loss) per share without waivers and/or expense reimbursements $ 0.27 $ 0.30
Average commission rate paid (b) 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
17
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Equity Income Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 05/31/95 5/31/94 5/31/93
Operating performance:
Net asset value, beginning
of period $ 13.14 $ 11.81 $ 11.43 $ 12.06 $ 11.41
Net investment income/(loss) 0.43 0.30 0.42 0.38 0.37
Net realized and unrealized
gain/(loss) on investments 1.55 1.77 1.11 0.22 1.08
Net increase/(decrease) in net
asset value from operations 1.98 2.07 1.53 0.60 1.45
Distributions:
Dividends from net
investment income (0.41) (0.37) (0.42) (0.42) (0.35)
Distributions from net
realized capital gains (2.41) (0.37) (0.73) (0.81) (0.45)
Total dividends and
distributions (2.82) (0.74) (1.15) (1.23) (0.80)
Net asset value, end of period $ 12.30 $ 13.14 $ 11.81 $ 11.43 $ 12.06
Total return++ 15.62% 17.98% 14.79% 5.00% 13.30%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 200,772 $ 283,142 $ 283,082 $ 225,740 $ 175,949
Ratio of operating expenses to
average net assets 0.91%(d) 0.90%+ 0.92% 0.94% 0.92%
Ratio of net investment
income/(loss) to average
net assets 3.09% 2.84%+ 3.75% 3.41% 3.37%
Portfolio turnover rate 102% 59% 158% 116% 55%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 0.91%(d) 0.90%+ 0.93% 0.95% 1.04%
Net investment income/(loss)
per share without waivers
and/or expense
reimbursements $ 0.43(d) $ 0.30 $ 0.42 $ 0.38 $ 0.36
Average commission rate
paid (c) $ 0.0609 $ 0.0287 N/A N/A N/A
<CAPTION>
YEAR PERIOD
ENDED ENDED
Primary A Shares 5/31/92 5/31/91*
Operating performance:
Net asset value, beginning
of period $ 10.19 $ 10.00
Net investment income/(loss) 0.34 0.05
Net realized and unrealized
gain/(loss) on investments 1.25 0.14
Net increase/(decrease) in net
asset value from operations 1.59 0.19
Distributions:
Dividends from net
investment income (0.30) --
Distributions from net
realized capital gains (0.07) --
Total dividends and
distributions (0.37) --
Net asset value, end of period $ 11.41 $ 10.19
Total return++ 15.91%+++ 1.90%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 18,104 $ 10,194
Ratio of operating expenses to
average net assets 1.10% 1.12%+
Ratio of net investment
income/(loss) to average
net assets 3.15% 3.66%+
Portfolio turnover rate 84% 9%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 2.21% 1.80%+
Net investment income/(loss)
per share without waivers
and/or expense
reimbursements $ 0.22 $ (0.06)
Average commission rate
paid (c) N/A 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.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expenses ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
18
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations International Equity Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97# 03/31/96(a)# 05/31/95# 5/31/94# 5/31/93#
Operating performance:
Net asset value, beginning of period $ 13.50 $ 11.75 $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.08 0.07 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on
investments 0.11 1.80 (0.20) 1.44 0.21
Net increase/(decrease) in net asset value
from operations 0.19 1.87 (0.06) 1.53 0.30
Distributions:
Dividends from net investment income (0.11) (0.06) (0.03) (0.05) (0.08)
Distributions in excess of net investment
income (0.00)(c) (0.04) -- -- --
Distributions from net realized capital gains (0.42) (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized
capital gains (0.03) -- (0.10) -- --
Total dividends and distributions (0.56) (0.12) (0.25) (0.07) (0.10)
Net asset value, end of period $ 13.13 $ 13.50 $ 11.75 $ 12.06 $ 10.60
Total return++ 1.32% 16.01% (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 976,855 $ 849,731 $ 572,940 $ 401,559 $ 118,873
Ratio of operating expenses to average net
assets 1.16% 1.17%+ 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to
average net assets 0.62% 0.65%+ 1.17% 0.75% 1.03%
Portfolio turnover rate 36% 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) $ 0.0279 $ 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 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.
(c) Amount represents less than $0.01 per share.
19
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations International Growth Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares* 05/16/97 08/31/96 08/31/95 08/31/94
Operating performance:
Net asset value at the beginning of the period $ 17.05 $ 16.24 $ 16.34 $ 14.14
Net investment income (loss) 0.05 0.18 0.13(f) 0.11(f)
Net realized and unrealized gain/(loss) on
investments 2.76 1.61 (0.22)(f) 1.65(f)
Net realized and unrealized gain/(loss) on foreign
currency related transactions (0.92) (0.13) 0.39(f) 0.59(f)
Total income (loss) from investments activities 1.89 1.66 0.30 2.35
Distributions from net investment income (0.17) (0.46) (0.11) --
Distributions from net realized gain on investments
and foreign currency related transactions (0.34) (0.39) (0.29) (0.15)
Net asset value at the end of the period $ 18.43 $ 17.05 $ 16.24 $ 16.34
Total return (a) 11.28%(c) 10.64% 2.08% 16.75%
Portfolio turnover rate (g) 33.68% 22.31% 35.91% 35.40%
Ratio of expenses to average net assets 1.18%(d) 1.08% 1.18% 1.12%
Ratio of net investment income (loss) to average
net assets 0.47%(d) 0.69% 0.82% 0.75%
Net assets at end of period (in 000's) $ 701,033 $ 579,019 $ 363,212 $ 307,561
Average Commission Rate (h) $0.0107 $0.0160
<CAPTION>
EIGHT
MONTHS
ENDED
Primary A Shares* 08/31/93 (b)
Operating performance:
Net asset value at the beginning of the period $ 13.15
Net investment income (loss) (0.01)(f)
Net realized and unrealized gain/(loss) on
investments 1.10(f)
Net realized and unrealized gain/(loss) on foreign
currency related transactions (0.10)(f)
Total income (loss) from investments activities 0.99
Distributions from net investment income --
Distributions from net realized gain on investments
and foreign currency related transactions --
Net asset value at the end of the period $ 14.14
Total return (a) 7.53%(c)
Portfolio turnover rate (g) 26.65%(e)
Ratio of expenses to average net assets 1.31%(d)
Ratio of net investment income (loss) to average
net assets (0.56)%(d)
Net assets at end of period (in 000's) $ 195,548
Average Commission Rate (h)
</TABLE>
* Primary A Shares of Nations International Growth Fund were formerly Pilot
Shares of the Pilot International Equity Fund, a predecessor portfolio.
(a) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges.
(b) Pilot Shares were initially issued on July 26, 1993.
(c) Not annualized.
(d) Annualized.
(e) Excludes the transfer of assets effective on August 6, 1993 from a
collective trust for which Boatmen's Trust Company served as trustee.
(f) Calculated based on the average shares outstanding methodology.
(g) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued and is not
annualized.
(h) The average commission rate represents the total dollar amount of
commissions paid on portfolio transactions divided by the total number of
portfolio shares purchased and sold for which commissions were charged.
Disclosure is not required for prior periods.
20
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Emerging Markets Fund
<TABLE>
<CAPTION>
<S> <C>
YEAR
ENDED
Primary A Shares 03/31/97#
Operating performance:
Net asset value, beginning of period $ 10.34
Net investment income/(loss) 0.01
Net realized and unrealized gain on investments 1.21
Net increase in net asset value from operations 1.22
Distributions:
Dividends from net investment income (0.02)
Distributions in excess of net investment income (0.07)
Distributions from net realized capital gains (0.06)
Total dividends and distributions (0.15)
Net asset value, end of period $ 11.41
Total return++ 11.97%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 76,483
Ratio of operating expenses to average net assets 1.74%
Ratio of net investment income/(loss) to average net assets 0.13%
Portfolio turnover rate 31%
Average commission rate paid (a) $ 0.0003
<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/(loss) 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>
<S> <C>
YEAR
ENDED
Primary A Shares 03/31/97
Operating performance:
Net asset value, beginning of period $ 10.24
Net investment income/(loss) 0.04
Net realized and unrealized gain/(loss) on investments 0.19
Net increase/(decrease) in net asset value from operations 0.23
Distributions:
Dividends from net investment income $ (0.03)
Distributions in excess of net investment income (0.03)
Total dividends and distributions (0.06)
Net asset value, end of period $ 10.41
Total return++ 2.18%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 122,887
Ratio of operating expenses to average net assets 1.42%
Ratio of net investment income/(loss) to average net assets 0.39%
Portfolio turnover rate 78%
Average commission rate paid (a) $ 0.0126
<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 --
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 (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.
21
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Capital Growth Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97## 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 13.43 $ 14.24 $ 11.23 $ 11.08 $ 10.68
Net investment income/(loss) 0.05 0.02 0.09 0.09 0.09
Net realized and unrealized gain on
investments 1.66 0.38 3.28 0.14 0.42
Net increase in net asset value from
operations 1.71 0.40 3.37 0.23 0.51
Distributions:
Dividends from net investment income (0.05) (0.02) (0.10) (0.08) (0.10)
Distributions from net realized capital gains (3.39) (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (3.44) (1.21) (0.36) (0.08) (0.11)
Net asset value, end of period $ 11.70 $ 13.43 $ 14.24 $ 11.23 $ 11.08
Total return++ 11.88% 3.14% 30.96% 2.14% 4.84%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 533,168 $ 839,300 $ 867,361 $ 717,914 $ 646,661
Ratio of operating expenses to average net
assets 0.96%(d) 0.96%+ 0.98% 0.90% 0.80%
Ratio of net investment income/(loss) to
average net assets 0.39% 0.38%+ 0.71% 0.85% 0.84%
Portfolio turnover rate 75% 25% 80% 56% 81%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.96% 0.96%+ 0.98% 0.91% 0.89%
Net investment income/(loss) per share
without waivers and/or expense
reimbursements $ 0.05 $ 0.02 $ 0.09 $ 0.09 $ 0.08
Average commission rate paid (c) $ 0.0604 $ 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.
## 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
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.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
22
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Emerging Growth Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97# 03/31/96#(a) 11/30/95 11/30/94#
Operating performance:
Net asset value, beginning of period $ 14.04 $ 14.28 $ 11.41 $ 10.87
Net investment income/(loss) (0.04) (0.00)(b) 0.01 (0.03)
Net realized and unrealized gain on investments 0.20 1.26 3.26 0.71
Net increase in net asset value from operations 0.16 1.26 3.27 0.68
Distributions:
Distributions from net realized capital gains (1.34) (1.50) (0.40) (0.14)
Total dividends and distributions (1.34) (1.50) (0.40) (0.14)
Net asset value, end of period $ 12.86 $ 14.04 $ 14.28 $ 11.41
Total return++ 0.48% 9.87% 29.95% 6.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 267,319 $ 295,764 $ 269,484 $ 182,459
Ratio of operating expenses to average net assets 0.98%(d) 0.99%+ 0.98% 1.01%
Ratio of net investment income/(loss) to average net assets (0.26)% (0.06)%+ 0.08% (0.29)%
Portfolio turnover rate 93% 39% 139% 129%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.98%(d) 0.99%+ 0.98% 1.01%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.04)(d) (0.00)(b) $ 0.01 $ (0.03)
Average commission rate paid (c) $ 0.0562 $ 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.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
23
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Nations Small Company Growth Fund
<TABLE>
<CAPTION>
<S> <C>
PERIOD
ENDED
Primary A Shares* 5/16/97
Operating performance:
Net asset value at the beginning of the period $ 10.65
Net investment income 0.04
Net realized and unrealized gain on investments and futures 1.47
Total income from investment activities 1.51
Distributions from net investment income (0.04)
Distributions from net realized gains (0.05)
Net asset value at the end of the period $ 12.07
Total return (b) 14.21%
Ratio of expenses to average net assets (c) 0.98%
Ratio of net investment income to average net assets (c) 0.54%
Portfolio turnover rate (e) 48%
Net assets at end of period (in 000's) $ 109,450
Ratio of expenses to average net assets (assuming no waivers or expense reimbursements) 1.41%(c)
Ratio of net investment income to average net assets (assuming no waivers or expense
reimbursements) 0.11%(c)
Average Commission Rate (d) $.0323
<CAPTION>
PERIOD
ENDED
Primary A Shares* 08/31/96(a)
Operating performance:
Net asset value at the beginning of the period $ 10.00
Net investment income 0.09
Net realized and unrealized gain on investments and futures 0.64
Total income from investment activities 0.73
Distributions from net investment income (0.08)
Distributions from net realized gains --
Net asset value at the end of the period $ 10.65
Total return (b) 7.37%
Ratio of expenses to average net assets (c) 1.00%
Ratio of net investment income to average net assets (c) 1.06%
Portfolio turnover rate (e) 31%
Net assets at end of period (in 000's) $ 70,483
Ratio of expenses to average net assets (assuming no waivers or expense reimbursements) 1.54%(c)
Ratio of net investment income to average net assets (assuming no waivers or expense
reimbursements) 0.52%(c)
Average Commission Rate (d) $.0340
</TABLE>
* Primary A Shares of Nations Small Company Growth Fund were formerly Pilot
Shares of the Pilot Small Capitalization Equity Fund, a predecessor
portfoilo.
(a) Share activity commenced December 12, 1995.
(b) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return is not annualized.
(c) Annualized.
(d) The average commission rate represents the total dollar amount of
commissions paid on portfolio transactions divided by the total number of
portfolio shares purchased and sold for which commissions were charged.
Disclosure is not required for prior periods.
(e) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued.
24
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Disciplined Equity Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(a) 11/30/95 11/30/94* 04/29/94*
Operating performance:
Net asset value, beginning of period $ 17.19 $ 17.06 $ 13.08 $ 13.31 $ 13.65
Net investment income/(loss) 0.14 0.05 0.10 0.01 (0.05)
Net realized and unrealized gain/(loss) on
investments 2.79 0.35 3.96 (0.23)# 2.66
Net increase/(decrease) in net asset value
from operations 2.93 0.40 4.06 (0.22) 2.61
Distributions:
Dividends from net investment income (0.14) (0.04) (0.08) (0.01) --
Distributions from net realized
capital gains (1.51) (0.23) -- -- (2.95)
Return of capital -- -- -- (0.00)(b) --
Total dividends and distributions (1.65) (0.27) (0.08) (0.01) (2.95)
Net asset value, end of period $ 18.47 $ 17.19 $ 17.06 $ 13.08 $ 13.31
Total return++ 17.00% 2.44% 31.13% (1.62)% 18.79%
Ratios to average net assets/
supplemental data:
Net assets, end of period (in 000's) $ 100,260 $ 116,469 $ 109,939 $ 9,947 $ 8,079
Ratio of operating expenses to average net
assets 1.04%(d) 1.02%+ 1.30% 1.13%+ 1.20%+
Ratio of net investment income/(loss) to
average net assets 0.70% 0.82%+ 0.85% 0.12%+ (0.60)%+
Portfolio turnover rate 120% 47% 124% 177% 475%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.04% 1.02%+ 1.30% 1.56%+ 1.53%+
Net investment income/(loss) per share
without waivers and/or expense
reimbursements $ 0.14 $ 0.05 $ 0.10 $ (0.03) $ (0.08)
Average commission rate paid (c) $ 0.0377 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) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
25
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Equity Index Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(a) 11/30/95
Operating performance:
Net asset value, beginning of period $ 13.58 $ 12.91 $ 9.84
Net investment income 0.26 0.08 0.28
Net realized and unrealized gain/(loss) on investments 2.36 0.86 3.20
Net increase in net asset value from operations 2.62 0.94 3.48
Distributions:
Dividends from net investment income (0.26) (0.13) (0.28)
Distributions from net realized capital gains (0.05) (0.14) (0.13)
Total dividends and distributions (0.31) (0.27) (0.41)
Net asset value, end of period $ 15.89 $ 13.58 $ 12.91
Total return++ 19.41% 7.33% 36.35%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 567,039 $ 192,388 $ 145,021
Ratio of operating expenses to average net assets 0.35%(c) 0.35%+ 0.37%
Ratio of operating expenses to average net assets including interest
expense N/A 0.35%+ 0.38%
Ratio of net investment income to average net assets 1.91% 1.99%+ 2.44%
Portfolio turnover rate 5% 2% 18%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.70%(c) 0.73%+ 0.78%
Net investment income per share without waivers and/or expense
reimbursements $ 0.21(c) $ 0.07 $ 0.23
Average commission rate paid (b) $ 0.0173 $ 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
26
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Nations Managed Index Fund
<TABLE>
<CAPTION>
PERIOD
ENDED
3/31/97*
<S> <C>
Primary A Shares
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income $ 0.15
Net realized and unrealized gain on investments $ 1.87
Net increase in net asset value from operations $ 2.02
Dividends from net investment income $ (0.13)
Total dividends and distributions $ (0.13)
Net asset value, end of period $ 11.89
Total return++ 20.22%
Ratio to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 42,226
Ratio of operating expenses to average net assets 0.50%+(b)
Ratio of net investment income to average net assets 1.92+
Portfolio turnover rate 17%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.05%+(b)
Net investment income per share without waivers and/or expense reimbursements $ 0.12(b)
Average commission rate paid (a) $ 0.0259
</TABLE>
* Nations Managed Index Fund's Primary A Shares commenced operations on July
31, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
27
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Nations Managed SmallCap Index Fund
<TABLE>
<CAPTION>
PERIOD
ENDED
3/31/97*
<S> <C>
Primary A Shares
Operating performance:
Net asset value at the beginning of period $ 10.00
Net investment income $ 0.03
Net realized and unrealized gain/(loss) on investments $ (0.17)
Net increase in net asset value from operations $ (0.14)
Dividends from net investment income $ (0.03)
Distributions in excess of net investment income $ (0.00)(b)
Total dividends and distributions $ (0.03)
Net asset value, end of period $ 9.83
Total return++ (1.37)%
Ratio to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 40,851
Ratio of operating expenses to average net assets 0.50%+
Ratio of net investment income to average net assets 1.05%+
Portfolio turnover rate 18%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.21%+
Net investment income per share without waivers and/or expense reimbursements $ 0.01
Average commission rate paid (a) $ 0.0279
</TABLE>
* Nations Managed SmallCap Index Fund's Primary A Shares commenced operations
on October 15, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
(b) Amount represents less than $0.01 per share.
28
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Balanced Assets Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 11.65 $ 12.68 $ 10.44 $ 10.87 $ 10.24
Net investment income 0.39 0.11 0.38 0.25 0.29
Net realized and unrealized gain/(loss) on
investments 1.03 0.45 2.21 (0.43) 0.64
Net increase/(decrease) in net asset value
from operations 1.42 0.56 2.59 (0.18) 0.93
Distributions:
Dividends from net investment income (0.38) (0.18) (0.33) (0.25) (0.30)
Distributions from net realized capital
gains (1.54) (1.41) (0.02) -- --
Total dividends and distributions (1.92) (1.59) (0.35) (0.25) (0.30)
Net asset value, end of period $ 11.15 $ 11.65 $ 12.68 $ 10.44 $ 10.87
Total return++ 12.50% 4.90% 25.27% (1.73)% 9.22%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 135,731 $ 164,215 $ 163,198 $ 162,215 $ 178,270
Ratio of operating expenses to average net
assets 1.00%(b) 1.00%+ 0.99 % 0.98 % 0.90%
Ratio of net investment income to average
net assets 3.31% 2.91%+ 3.25 % 2.31 % 2.82%
Portfolio turnover rate 264% 83% 174 % 156 % 50%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.00%(b) 1.00%+ 0.99 % 0.99 % 0.97%
Net investment income per share without
waivers and/or expense reimbursements $ 0.39 (b) $ 0.11 $ 0.38 $ 0.25 $ 0.29
Average commission rate paid (c) $ 0.0563 $ 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.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
29
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations U.S. Government Bond Fund
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD PERIOD
ENDED ENDED
Primary A Shares* 5/16/97 08/31/96
Operating performance:
Net asset value at the beginning of the period $ 10.53 $ 11.20
Net investment income 0.41 0.61
Net realized and unrealized gain/(loss) on investments 0.17 (0.22)
Total income from investment activities 0.58 0.39
Distributions from net investment income (0.41) (0.61)
Distributions from net realized gains (0.51) (0.45)
Total distributions (0.92) (1.06)
Net asset value at the end of the period $ 10.19 $ 10.53
Total return (b) 5.62% 3.46%
Ratio of expenses to average net assets 0.62%(c) 0.65%
Ratio of net investment income to average net assets 5.60%(c) 5.61%
Portfolio turnover rate (d) 58% 87%
Net assets at end of period (in 000's) $ 148,082 $ 145,066
Ratio of expenses to average net assets (assuming no waiver or expense
reimbursements) 0.77%(c) 0.82%
Ratio of net investment income to average net assets (assuming no waiver or expense
reimbursements) 5.45%(c) 5.44%
<CAPTION>
PERIOD
ENDED
Primary A Shares* 08/31/95(a)
Operating performance:
Net asset value at the beginning of the period $ 10.00
Net investment income 0.56
Net realized and unrealized gain/(loss) on investments 1.20
Total income from investment activities 1.76
Distributions from net investment income (0.56)
Distributions from net realized gains --
Total distributions (0.56)
Net asset value at the end of the period $ 11.20
Total return (b) 18.03%
Ratio of expenses to average net assets 0.62%(c)
Ratio of net investment income to average net assets 6.45%(c)
Portfolio turnover rate (d) 132%
Net assets at end of period (in 000's) $ 137,261
Ratio of expenses to average net assets (assuming no waiver or expense
reimbursements) 0.87%(c)
Ratio of net investment income to average net assets (assuming no waiver or expense
reimbursements) 6.20%(c)
</TABLE>
* Primary A Shares of Nations U.S. Government Bond Fund were formerly Pilot
Shares of the Pilot U.S. Government Securities Fund, a predecessor portfolio.
(a) Pilot share activity commenced November 7, 1994.
(b) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return is not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued.
30
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Intermediate Government Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97# 03/31/96(b)# 11/30/95# 11/30/94 11/30/93 11/30/92
Operating performance:
Net asset value, beginning
of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17
Net investment income 0.23 0.07 0.24 0.23 0.23 0.28
Net realized and unrealized
gain/(loss) on
investments (0.08) (0.07) 0.21 (0.33) 0.14 (0.01)
Net increase/(decrease) in
net asset value from
operations 0.15 0.00 0.45 (0.10) 0.37 0.27
Distributions:
Dividends from net
investment income (0.23) (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 (0.23) (0.07) (0.24) (0.25) (0.25) (0.28)
Net asset value, end of
period $ 3.99 $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16
Total return++ 3.72% 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) $ 371,118 $ 399,915 $ 425,200 $ 433,278 $ 443,426 $ 360,497
Ratio of operating expenses
to average net assets 0.63%(c)(d) 0.63%+ 0.60% 0.59% 0.55% 0.37%
Ratio of net investment
income to average net
assets 5.73% 5.32%+ 5.88% 5.76% 5.40% 6.48%
Portfolio turnover rate 529% 189% 328% 133% 92% 25%
Ratio of operating expenses
to average net assets
without waivers and/or
expense reimbursements 0.83%(d) 0.86%+ 0.80% 0.80% 0.79% 0.77%
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.22 (d) $ 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.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
31
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Securities Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97# 03/31/96(b)# 05/31/95# 05/31/94 05/31/93
Operating performance:
Net asset value, beginning of period $ 9.67 $ 9.86 $ 9.80 $ 10.46 $ 10.36
Net investment income 0.60 0.52 0.64 0.64 0.71
Net realized and unrealized
gain/(loss) on investments (0.30) (0.19) 0.06 (0.61) 0.13
Net increase/(decrease) in net asset
value from operations 0.30 0.33 0.70 0.03 0.84
Distributions:
Dividends from net investment income (0.58) (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 (0.00)(a) -- (0.04) (0.04) --
Total dividends and distributions (0.58) (0.52) (0.64) (0.69) (0.74)
Net asset value, end of period $ 9.39 $ 9.67 $ 9.86 $ 9.80 $ 10.46
Total return++ 3.18% 3.41% 7.55% 0.06% 8.37%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 52,606 $ 55,962 $ 39,909 $ 44,536 $ 40,472
Ratio of operating expenses to average
net assets 0,80% 0.80%+ 0.76% 0.73% 0.85%
Ratio of net investment income to
average net assets 6.28% 6.36%+ 6.69% 6.08% 6.67%
Portfolio turnover rate 468% 199% 413% 56% 103%
Ratio of operating expenses to average
net assets without waivers and/or
expense reimbursements 0.94% 0.95%+ 0.94% 0.94% 1.00%
Net investment income per
share without waivers
and/or expense reimbursements $ 0.59 $ 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.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
32
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Term Income Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97# 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.76 $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.58 0.20 0.61 0.50 0.53
Net realized and unrealized gain/(loss) on
investments (0.08) (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value
from operations 0.50 0.12 0.97 (0.01) 0.79
Distributions:
Dividends from net investment income (0.58) (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 (0.58) (0.20) (0.61) (0.52) (0.53)
Net asset value, end of period $ 9.68 $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 5.25% 1.19% 10.48% (0.11)% 8.26 %
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 181,455 $ 179,957 $ 169,291 $ 176,712 $ 201,738
Ratio of operating expenses to average net
assets 0.55 (a) 0.55 %+ 0.56 % 0.50 % 0.37 %
Ratio of net investment income to average
net assets 5.97 % 6.07 %+ 6.32 % 5.23 % 5.27 %
Portfolio turnover rate 172 % 73 % 224 % 293 % 121 %
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.85 % 0.88 %+ 0.86 % 0.82 % 0.79 %
Net investment income per share without
waivers and/or expense reimbursements $ 0.55 $ 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) 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 Diversified Income Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED YEAR
Primary A Shares 03/31/97# 03/31/96(b) 11/30/95 11/30/94# ENDED 11/30/93#
Operating performance:
Net asset value, beginning of period $ 10.42 $ 10.82 $ 9.67 $ 10.88 $ 9.97
Net investment income 0.69 0.23 0.73 0.74 0.78
Net realized and unrealized gain/(loss) on
investments (0.18) (0.40) 1.15 (1.06) 0.91
Net increase/(decrease) in net asset value
from operations 0.51 (0.17) 1.88 (0.32) 1.69
Distributions:
Dividends from net investment income (0.69) (0.23) (0.73) (0.74) (0.78)
Distributions in excess of net investment
income -- -- -- (0.00)(a) --
Distributions from net realized capital
gains (0.13) -- -- (0.15) --
Total dividends and distributions (0.82) (0.23) (0.73) (0.89) (0.78)
Net asset value, end of period $ 10.11 $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ 4.97% (1.59)% 20.11% (3.05) % 17.40%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 152,070 $ 65,081 $ 64,800 $ 22,298 $ 28,553
Ratio of operating expenses to average net
assets 0.75%(c) 0.77%+ 0.80% 0.74% 0.55%
Ratio of net investment income to average
net assets 6.73% 6.49%+ 7.03% 7.31% 7.02%
Portfolio turnover rate 278% 69% 96% 144% 86%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.85%(c) 0.87%+ 0.93% 0.95% 0.95%
Net investment income per share without
waivers and/or expense reimbursements $ 0.67 (c) $ 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 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
34
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Strategic Fixed Income Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97# 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.93 $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.58 0.19 0.59 0.53 0.56
Net realized and unrealized gain/(loss) on
investments (0.20) (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value
from operations 0.38 (0.10) 1.49 (0.36) 1.18
Distributions:
Dividends from net investment income (0.58) (0.19) (0.59) (0.51) (0.56)
Distributions in excess of net investment
income -- -- -- (0.02) --
Distributions from net realized capital gains (0.11) -- -- (0.34) (0.01)
Distributions from capital (0.00)(b) -- -- -- --
Total dividends and distributions (0.69) (0.19) (0.59) (0.87) (0.57)
Net asset value, end of period $ 9.62 $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ 3.90% (1.04)% 16.45% (3.58)% 12.05%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 947,277 $ 823,890 $ 823,098 $ 550,697 $ 545,538
Ratio of operating expenses to average net
assets 0.71%(c) 0.72%+ 0.71% 0.68% 0.61%
Ratio of net investment income to average net
assets 5.98% 5.49%+ 6.05% 5.43% 5.40%
Portfolio turnover rate 368% 1.33% 228% 307% 161%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.81%(c) 0.83%+ 0.81% 0.76% 0.77%
Net investment income per share without
waivers and/or expense reimbursements $ 0.57(c) $ 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 --
Distributions from capital --
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.
# 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
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year was
November 30.
(b) Amount represents less than $0.01.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
35
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Global Government Income Fund
<TABLE>
<CAPTION>
<S> <C>
YEAR
ENDED
Primary A Shares 03/31/97#
Operating performance:
Net asset value, beginning of period $ 10.07
Net investment income/(loss) 0.47
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase in net asset value from operations 0.44
Distributions:
Dividends from net investment income (0.46)
Distributions in excess of net investment income (0.10)
Distributions from net realized capital gains (0.16)
Total dividends and distributions (0.72)
Net asset value, end of period $ 9.79
Total return++ 4.25%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 28,130
Ratio of operating expenses to average net assets 1.26%
Ratio of net investment income/(loss) to average net assets 4.60%
Portfolio turnover rate 100%
<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.
36
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Municipal Income Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of
period $ 10.84 $ 11.08 $ 9.64 $ 11.33 $ 10.65
Net investment income 0.59 0.20 0.59 0.57 0.59
Net realized and unrealized
gain/(loss) on investments 0.05 (0.24) 1.44 (1.44) 0.72
Net increase/(decrease) in net
asset value from operations 0.64 (0.04) 2.03 (0.87) 1.31
Distributions:
Dividends from net investment
income (0.59) (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 (0.59) (0.20) (0.59) (0.82) (0.63)
Net asset value, end of period $ 10.89 $ 10.84 $ 11.08 $ 9.64 $ 11.33
Total return++ 6.03% (0.41)% 21.55% (8.17)% 12.54%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $ 77,260 $ 68,022 $ 68,836 $ 59,279 $ 88,386
Ratio of operating expenses to
average net assets 0.60% 0.60%+ 0.60% 0.61% 0.52%
Ratio of operating expenses to
average net asset including
interest expense (a) (a) (a) 0.62% --
Ratio of net investment income
to average net assets 5.41% 5.35%+ 5.63% 5.42% 5.24%
Portfolio turnover rate 25% 4% 49% 63% 48%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 0.91% 0.91%+ 0.88% 0.90% 0.84%
Net investment income per
share without waivers and/or
expense reimbursements $ 0.56 $ 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.
37
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Term Municipal Income Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 9.98 $ 10.03 $ 9.69 $ 9.96
Net investment income 0.44 0.15 0.44 0.38
Net realized and unrealized gain/(loss) on investments (0.03) (0.05) 0.34 (0.27)
Net increase in net asset value from operations 0.41 0.10 0.78 0.11
Distributions:
Dividends from net investment income (0.44) (0.15) (0.44) (0.38)
Distributions from net realized capital gains -- -- -- (0.00)#
Total dividends and distributions (0.44) (0.15) (0.44) (0.38)
Net asset value, end of period $ 9.95 $ 9.98 $ 10.03 $ 9.69
Total return++ 4.15% 0.96% 8.16% 1.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 61,072 $ 48,511 $ 49,961 $ 33,488
Ratio of operating expenses to average net assets 0.40%(a) 0.40%+(a) 0.45%(a) 0.34%(a)
Ratio of net investment income to average net assets 4.36% 4.37%+ 4.38% 3.83%
Portfolio turnover rate 80% 16% 82% 57%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.84% 0.86%+ 0.93% 0.80%
Net investment income per share without waivers and/or
expense reimbursements $ 0.39 $ 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> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.03 $ 10.17 $ 9.24 $ 10.11
Net investment income 0.48 0.16 0.48 0.45
Net realized and unrealized gain/(loss) on investments (0.02) (0.14) 0.93 (0.86)
Net increase/(decrease) in net asset value from
operations 0.46 0.02 1.41 (0.41)
Distributions:
Dividends from net investment income (0.48) (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 (0.48) (0.16) (0.48) (0.46)
Net asset value, end of period $ 10.01 $ 10.03 $ 10.17 $ 9.24
Total return++ 4.63% 0.20% 15.60% (4.25)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 108,204 $ 77,423 $ 73,897 $ 38,055
Ratio of operating expenses to average net assets 0.50%(a) 0.50%+(a) 0.45%(a) 0.35%(a)
Ratio of net investment income to average net assets 4.74% 4.75%+ 4.91% 4.59%
Portfolio turnover rate 21% 4% 31% 51%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.81% 0.83%+ 0.84% 0.88%
Net investment income per share without waivers and/or
expense reimbursements $ 0.44 $ 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.
38
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Florida Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.46 $ 10.63 $ 9.61 $ 10.50
Net investment income 0.49 0.17 0.48 0.45
Net realized and unrealized gain/(loss) on investments (0.06) (0.17) 1.02 (0.88)
Net increase/(decrease) in net asset value from operations 0.43 0.00 1.50 (0.43)
Distributions:
Dividends from net investment income (0.49) (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 (0.49) (0.17) (0.48) (0.46)
Net asset value, end of period $ 10.40 $ 10.46 $ 10.63 $ 9.61
Total return++ 4.22% (0.06)% 15.92% (4.26)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 51,748 $ 44,988 $ 44,038 $ 42,717
Ratio of operating expenses to average net assets 0.50%(a) 0.50%+(a) 0.55%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.72% 4.66%+ 4.70% 4.44%
Portfolio turnover rate 16% 18% 27% 34%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.81% 0.86%+ 0.81% 0.76%
Net investment income per share without waivers and/or
expense reimbursements $ 0.46 $ 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> <C>
YEAR PERIOD YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.47 $ 9.76 $ 8.40
Net investment income 0.48 0.16 0.51
Net realized and unrealized gain/(loss) on investments 0.01 (0.29) 1.36
Net increase/(decrease) in net asset value from operations 0.49 (0.13) 1.87
Dividends from net investment income (0.48) (0.16) (0.51)
Total dividends and distributions (0.48) (0.16) (0.51)
Net asset value, end of period $ 9.48 $ 9.47 $ 9.76
Total return++ 5.29% (1.33)% 22.69%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 16,702 $ 13,044 $ 11,219
Ratio of operating expenses to average net assets 0.60%(a) 0.60%+(a) 0.39%(a)
Ratio of net investment income to average net assets 5.07% 5.03%+ 5.44%
Portfolio turnover rate 23% 7% 13%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.93% 0.96%+ 0.95%
Net investment income per share without waivers and/or expense
reimbursements $ 0.45 $ 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.
39
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Georgia Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.63 $ 10.81 $ 9.82 $ 10.82 $ 10.29
Net investment income 0.50 0.17 0.50 0.49 0.50
Net realized and unrealized gain/(loss) on
investments (0.05) (0.18) 0.99 (0.98) 0.56
Net increase/(decrease) in net asset value
from operations 0.45 (0.01) 1.49 (0.49) 1.06
Distributions:
Dividends from net investment income (0.50) (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 (0.50) (0.17) (0.50) (0.51) (0.53)
Net asset value, end of period $ 10.58 $ 10.63 $ 10.81 $ 9.82 $ 10.82
Total return++ 4.33% (0.13)% 15.42% (4.70)% 10.43%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 43,470 $ 38,222 $ 40,383 $ 33,111 $ 30,738
Ratio of operating expenses to average net
assets 0.50% 0.50%+ 0.55% 0.54% 0.46%
Ratio of operating expenses to average net
assets including interest expense (a) (a) (a) 0.55% --
Ratio of net investment income to average net
assets 4.72% 4.67%+ 4.76% 4.74% 4.57%
Portfolio turnover rate 9% 3% 17% 22% 6%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.80% 0.83%+ 0.80% 0.75% 0.77%
Net investment income per share without
waivers and/or expense reimbursements $ 0.47 $ 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.
40
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Georgia Municipal Bond Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.48 $ 9.72 $ 8.38
Net investment income 0.47 0.16 0.51
Net realized and unrealized gain/(loss) on investments 0.02 (0.24) 1.34
Net increase/(decrease) in net asset value from operations 0.49 (0.08) 1.85
Dividends from net investment income (0.47) (0.16) (0.51)
Total dividends and distributions (0.47) (0.16) (0.51)
Net asset value, end of period $ 9.50 $ 9.48 $ 9.72
Total return++ 5.29% (0.84)% 22.48%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,550 $ 2,068 $ 2,628
Ratio of operating expenses to average net assets 0.60%(a) 0.60%+(a) 0.40%(a)
Ratio of net investment income to average net assets 4.96% 4.96%+ 5.42%
Portfolio turnover rate 19% 7% 26%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.05% 1.14%+ 1.09%
Net investment income per share without waivers and/or expense
reimbursements $ 0.43 $ 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.
41
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Maryland Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.80 $ 10.95 $ 10.00 $ 11.09 $ 10.72
Net investment income 0.51 0.17 0.51 0.50 0.52
Net realized and unrealized gain/(loss)
on investments (0.10) (0.15) 0.98 (0.99) 0.44
Net increase/(decrease) in net asset
value from operations 0.41 0.02 1.49 (0.49) 0.96
Distributions:
Dividends from net investment income (0.51) (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 (0.51) (0.17) (0.54) (0.60) (0.59)
Net asset value, end of period $ 10.70 $ 10.80 $ 10.95 $ 10.00 $ 11.09
Total return++ 3.83% 0.16% 15.16% (4.64)% 9.11%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 63,549 $ 61,337+ $ 62,460 $ 61,349 $ 61,552
Ratio of operating expenses to average
net assets 0.50%(a) 0.50%+(a) 0.55%(a) 0.53%(a) 0.49%
Ratio of net investment income to
average net assets 4.70% 4.62%+ 4.76% 4.73% 4.73%
Portfolio turnover rate 10% 4% 11% 22% 26%
Ratio of operating expenses to average
net assets without waivers and/or
expense reimbursements 0.78% 0.81%+ 0.80% 0.73% 0.73%
Net investment income per share without
waivers and/or expense reimbursements $ 0.48 $ 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> <C>
YEAR PERIOD YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.39 $ 9.63 $ 8.37
Net investment income 0.46 0.15 0.48
Net realized and unrealized gain/(loss) on investments 0.02 (0.24) 1.26
Net increase/(decrease) in net asset value from operations 0.48 (0.09) 1.74
Dividends from net investment income (0.46) (0.15) (0.48)
Total dividends and distributions (0.46) (0.15) (0.48)
Net asset value, end of period $ 9.41 $ 9.39 $ 9.63
Total return++ 5.20% (0.95)% 21.23%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 4,596 $ 2,788 $ 2,595
Ratio of operating expenses to average net assets 0.60% 0.60%+ 0.40%
Ratio of net investment income to average net assets 4.88% 4.72%+ 5.14%
Portfolio turnover rate 18% 7% 11%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.12% 1.23%+ 1.26%
Net investment income per share without waivers and/or expense
reimbursements $ 0.41 $ 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.
42
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations North Carolina Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.36 $ 10.51 $ 9.53 $ 10.46
Net investment income 0.47 0.16 0.45 0.44
Net realized and unrealized gain/(loss) on investments (0.02) (0.15) 0.99 (0.88)
Net increase/(decrease) in net asset value from
operations 0.45 0.01 1.44 (0.44)
Distributions:
Dividends from net investment income (0.47) (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 (0.47) (0.16) (0.46) (0.49)
Net asset value, end of period $ 10.34 $ 10.36 $ 10.51 $ 9.53
Total return++ 4.45% 0.05% 15.41% (4.34)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 25,855 $ 21,161 $ 20,916 $ 14,148
Ratio of operating expenses to average net assets 0.50%(a) 0.50%+ 0.57%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.57% 4.47%+ 4.47% 4.38%
Portfolio turnover rate 26% 3% 57% 37%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.82% 0.87%+ 0.84% 0.82%
Net investment income per share without waivers and/or
expense reimbursements $ 0.44 $ 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> <C>
YEAR PERIOD YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.49 $ 9.73 $ 8.36
Net investment income 0.47 0.16 0.50
Net realized and unrealized gain/(loss) on investments (0.02) (0.24) 1.37
Net increase/(decrease) in net asset value from operations 0.45 (0.08) 1.87
Dividends from net investment income (0.47) (0.16) (0.50)
Total dividends and distributions (0.47) (0.16) (0.50)
Net asset value, end of period $ 9.47 $ 9.49 $ 9.73
Total return++ 4.84% (0.87)% 22.87%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,095 $ 1,593 $ 1,293
Ratio of operating expenses to average net assets 0.60%(a) 0.60%+ 0.38%(a)
Ratio of net investment income to average net assets 4.95% 4.86%+ 5.43%
Portfolio turnover rate 28% 22% 40%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.94% 0.99%+ 0.96%
Net investment income per share without waivers and/or expense
reimbursements $ 0.44 $ 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.
43
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations South Carolina Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.52 $ 10.69 $ 9.76 $ 10.61 $ 10.18
Net investment income 0.51 0.17 0.51 0.50 0.50
Net realized and unrealized gain/(loss) on
investments (0.02) (0.17) 0.93 (0.84) 0.43
Net increase/(decrease) in net asset value
from operations 0.49 0.00 1.44 (0.34) 0.93
Distributions:
Dividends from net investment income (0.51) (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 (0.51) (0.17) (0.51) (0.51) (0.50)
Net asset value, end of period $ 10.50 $ 10.52 $ 10.69 $ 9.76 $ 10.61
Total return++ 4.71% 0.00%## 15.02% (3.37)% 9.32 %
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 48,918 $ 41,817 $ 45,255 $ 49,030 $ 56,995
Ratio of operating expenses to average net
assets 0.50%(a) 0.50%+(a) 0.55%(a) 0.54%(a) 0.45%
Ratio of net investment income to average
net assets 4.80% 4.81%+ 4.92% 4.82% 4.68%
Portfolio turnover rate 13% 6% 11% 30% 11%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.79% 0.82%+ 0.75% 0.75% 0.75%
Net investment income per share without
waivers and/or expense reimbursements $ 0.48 $ 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.
44
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations South Carolina Municipal Bond Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.77 $ 9.99 $ 8.65
Net investment income 0.49 0.17 0.52
Net realized and unrealized gain/(loss) on investments 0.02 (0.22) 1.34
Net increase/(decrease) in net asset value from operations 0.51 (0.05) 1.86
Dividends from net investment income (0.49) (0.17) (0.52)
Total dividends and distributions (0.49) (0.17) (0.52)
Net asset value, end of period $ 9.79 $ 9.77 $ 9.99
Total return++ 5.32% (0.57)% 21.99%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,113 $ 2,058 $ 1,782
Ratio of operating expenses to average net assets 0.60%(a) 0.60%+(a) 0.40%(a)
Ratio of net investment income to average net assets 4.99% 4.96%+ 5.44%
Portfolio turnover rate 30% 20% 13%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.00% 1.13%+ 1.08%
Net investment income per share without waivers and/or expense
reimbursements $ 0.45 $ 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.
45
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Tennessee Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 10.09 $ 10.23 $ 9.30
Net investment income 0.46 0.15 0.46
Net realized and unrealized gain/(loss) on investments (0.01) (0.14) 0.93
Net increase/(decrease) in net asset value from
operations 0.45 0.01 1.39
Distributions:
Dividends from net investment income (0.46) (0.15) (0.46)
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.46) (0.15) (0.46)
Net asset value, end of period $ 10.08 $ 10.09 $ 10.23
Total return++ 4.54% 0.12% 15.22%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,869 $ 8,408 $ 7,160
Ratio of operating expenses to average net assets 0.50% 0.50%+ 0.57%
Ratio of operating expenses to average net assets
including interest expense (a) -- (a)
Ratio of net investment income to average net assets 4.55% 4.51%+ 4.65%
Portfolio turnover rate 28% 3% 34%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.93% 1.02%+ 0.92%
Net investment income per share without waivers and/or
expense reimbursements $ 0.42 $ 0.13 $ 0.43
<CAPTION>
YEAR PERIOD
ENDED ENDED
Primary A Shares 11/30/94 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.18 $ 10.06
Net investment income 0.45 0.29
Net realized and unrealized gain/(loss) on investments (0.87) 0.12
Net increase/(decrease) in net asset value from
operations (0.42) 0.41
Distributions:
Dividends from net investment income (0.45) (0.29)
Distributions in excess of net investment income (0.00)# --
Distributions from net realized capital gains (0.01) --
Total dividends and distributions (0.46) (0.29)
Net asset value, end of period $ 9.30 $ 10.18
Total return++ (4.24)% 4.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,116 $ 2,123
Ratio of operating expenses to average net assets 0.52% 0.27%+
Ratio of operating expenses to average net assets
including interest expense 0.53% --
Ratio of net investment income to average net assets 4.56% 4.31%+
Portfolio turnover rate 41% 16%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.89% 0.94%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.41 $ 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> <C>
YEAR PERIOD YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.68 $ 9.87 $ 8.58
Net investment income 0.48 0.16 0.52
Net realized and unrealized gain/(loss) on investments 0.02 (0.19) 1.29
Net increase/(decrease) in net asset value from operations 0.50 (0.03) 1.81
Dividends from net investment income (0.48) (0.16) (0.52)
Total dividends and distributions (0.48) (0.16) (0.52)
Net asset value, end of period $ 9.70 $ 9.68 $ 9.87
Total return++ 5.23% (0.30)% 21.52%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,594 $ 975 $ 768
Ratio of operating expenses to average net assets 0.60% 0.60%+ 0.40%
Ratio of operating expenses to average net assets including interest
expense -- (a) 0.61%+ -- (a)
Ratio of net investment income to average net assets 4.91% 4.92%+ 5.49%
Portfolio turnover rate 31% 2% 45%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.24% 1.47%+ 1.27%
Net investment income per share without waivers and/or expense
reimbursements $ 0.42 $ 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%+
Ratio of operating expenses to average net assets including interest
expense -- (a)
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.
46
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Texas Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.21 $ 10.36 $ 9.53 $ 10.35
Net investment income 0.47 0.16 0.46 0.44
Net realized and unrealized gain/(loss) on investments (0.03) (0.15) 0.83 (0.79)
Net increase/(decrease) in net asset value from
operations 0.44 0.01 1.29 (0.35)
Distributions:
Dividends from net investment income (0.47) (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 (0.47) (0.16) (0.46) (0.47)
Net asset value, end of period $ 10.18 $ 10.21 $ 10.36 $ 9.53
Total return++ 4.37% 0.05% 13.83% (3.48)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 24,764 $ 27,176 $ 26,382 $ 24,066
Ratio of operating expenses to average net assets 0.50% 0.50%+ 0.57% 0.55%
Ratio of operating expenses to average net assets
including interest expense -- -- (a) (a)
Ratio of net investment income to average net assets 4.59% 4.52%+ 4.62% 4.40%
Portfolio turnover rate 34% 11% 64% 61%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.84% 0.89% 0.83% 0.78%
Net investment income per share without waivers and/or
expense reimbursements $ 0.43 $ 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 operating expenses to average net assets
including interest expense --
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> <C>
YEAR PERIOD YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.49 $ 9.70 $ 8.39
Net investment income 0.48 0.16 0.50
Net realized and unrealized gain/(loss) on investments (0.01) (0.21) 1.31
Net increase/(decrease) in net asset value from operations 0.47 (0.05) 1.81
Dividends from net investment income (0.48) (0.16) (0.50)
Total dividends and distributions (0.48) (0.16) (0.50)
Net asset value, end of period $ 9.48 $ 9.49 $ 9.70
Total return++ 5.00% (0.55)% 22.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,675 $ 5,138 $ 4,613
Ratio of operating expenses to average net assets 0.60%(a) 0.60%+ 0.39%(a)
Ratio of net investment income to average net assets 4.99% 4.92%+ 5.45%
Portfolio turnover rate 52% 6% 50%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.03% 1.11%+ 1.05%
Net investment income per share without waivers and/or expense
reimbursements $ 0.44 $ 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.
47
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Virginia Intermediate Municipal Bond Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.69 $ 10.83 $ 9.94 $ 10.99
Net investment income 0.51 0.17 0.51 0.50
Net realized and unrealized gain/(loss) on investments (0.10) (0.14) 0.89 (0.96)
Net increase/(decrease) in net asset value from operations 0.41 0.03 1.40 (0.46)
Distributions:
Dividends from net investment income (0.51) (0.17) (0.51) (0.50)
Distributions from net realized capital gains -- -- (0.00)# (0.09)
Distributions in excess of net realized capital gains -- -- -- (0.00)#
Total dividends and distributions (0.51) (0.17) (0.51) (0.59)
Net asset value, end of period $ 10.59 $ 10.69 10.83 $ 9.94
Total return++ 3.92% 0.27% 14.39% (4.35)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 148,701 $ 155,464 $ 157,252 $ 167,405
Ratio of operating expenses to average net assets 0.50%(a) 0.50%+(a) 0.56%(a) 0.61%(a)
Ratio of net investment income to average net assets 4.79% 4.72%+ 4.87% 4.76%
Portfolio turnover rate 20% 2% 22% 14%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.74% 0.76%+ 0.74% 0.73%
Net investment income per share without waivers and/or
expense reimbursements $ 0.49 $ 0.16 $ 0.49 $ 0.49
<CAPTION>
YEAR
ENDED
Primary A Shares 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.59
Net investment income 0.48
Net realized and unrealized gain/(loss) on investments 0.42
Net increase/(decrease) in net asset value from operations 0.90
Distributions:
Dividends from net investment income (0.48)
Distributions from net realized capital gains (0.02)
Distributions in excess of net realized capital gains --
Total dividends and distributions (0.50)
Net asset value, end of period $ 10.99
Total return++ 9.08%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 193,084
Ratio of operating expenses to average net assets 0.57%
Ratio of net investment income to average net assets 4.80%
Portfolio turnover rate 26%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.69%
Net investment income per share without waivers and/or
expense reimbursements $ 0.47
</TABLE>
Nations Virginia Intermediate Municipal Bond 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 $ 10.34 $ 10.14 $ 10.08
Net investment income 0.54 0.58 0.61
Net realized and unrealized gain/(loss) on investments 0.29 0.21 0.11
Net increase/(decrease) in net asset value from operations 0.83 0.79 0.72
Distributions:
Dividends from net investment income (0.54) (0.58) (0.66)
Distributions from net realized capital gains (0.04) (0.01) --
Distributions in excess of net realized capital gains -- -- --
Total dividends and distributions (0.58) (0.59) (0.66)
Net asset value, end of period $ 10.59 10.34 $ 10.14
Total return++ 8.28%+++ 8.04%+++ 7.41%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 157,773 $ 119,757 $ 75,962
Ratio of operating expenses to average net assets 0.56% 0.45% 0.26%
Ratio of net investment income to average net assets 5.17% 5.67% 6.09%
Portfolio turnover rate 13% 24% 19%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.68% 0.73% 0.80%
Net investment income per share without waivers and/or expense reimbursements $ 0.53 $ 0.55 $ 0.55
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/89*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.12
Net realized and unrealized gain/(loss) on investments 0.03
Net increase/(decrease) in net asset value from operations 0.15
Distributions:
Dividends from net investment income (0.07)
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total dividends and distributions (0.07)
Net asset value, end of period $ 10.08
Total return++ 1.46%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 46,560
Ratio of operating expenses to average net assets 0.16%+
Ratio of net investment income to average net assets 6.09%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.81%+
Net investment income per share without waivers and/or expense reimbursements $ 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.
48
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Virginia Municipal Bond Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/97 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.38 $ 9.62 $ 8.29
Net investment income 0.48 0.16 0.51
Net realized and unrealized gain/(loss) on investments 0.02 (0.24) 1.33
Net increase/(decrease) in net asset value from operations 0.50 (0.08) 1.84
Dividends from net investment income (0.48) (0.16) (0.51)
Total dividends and distributions (0.48) (0.16) (0.51)
Net asset value, end of period $ 9.40 $ 9.38 $ 9.62
Total return++ 5.44% (0.84)% 22.63%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,726 $ 3,296 $ 3,527
Ratio of operating expenses to average net assets 0.60% 0.60%+ 0.39%
Ratio of operating expenses to average net assets including interest
expense (a) 0.61%+ (a)
Ratio of net investment income to average net assets 5.10% 5.06%+ 5.51%
Portfolio turnover rate 37% 8% 16%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.98% 1.07%+ 1.04%
Net investment income per share without waivers and/or expense
reimbursements $ 0.44 $ 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%+
Ratio of operating expenses to average net assets including interest
expense (a)
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 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 regions, including developing countries.
Nations International Growth Fund: Nations International Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of companies domiciled in countries outside the United
States and listed on major stock exchanges primarily in Europe and the Pacific
Basin.
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 market countries,
49
<PAGE>
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 Small Company Growth Fund: Nations Small Company Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities.
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.
Index Funds:
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.
Nations Managed Index Fund: Nations Managed Index Fund's investment objective is
to seek, over the long-term, to provide a total return which (gross of fees and
expenses) exceeds the total return of the Standard & Poor's 500 Composite Stock
Price Index.
Nations Managed SmallCap Index Fund: Nations Managed SmallCap Index Fund's
investment objective is to seek, over the long-term, to provide a total return
which (gross of fees and expenses) exceeds the total return of the Standard &
Poor's SmallCap 600 Index.
Nations Managed Value Index Fund: Nations Managed Value Index Fund's investment
objective is to seek, over the long-term, to provide a total return that (gross
of fees and expenses) exceeds the total return of the S&P 500/BARRA Value Index.
Nations Managed SmallCap Value Index Fund: Nations Managed SmallCap Value Index
Fund's investment objective is to seek, over the long-term, to provide a total
return that (gross of fees and expenses) exceeds the total return of the S&P
SmallCap 600/BARRA Value 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 U.S. Government Bond Fund: Nations U.S. Government Bond Fund's
investment objective is to seek total return and preservation of capital by
investing in U.S. Government securities and repurchase agreements.
Nations Short-Intermediate Government Fund: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests 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 high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-term
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 high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
Nations Diversified Income Fund: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing 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 in investment grade
fixed income securities.
Nations Global Government Income Fund: Nations Global Government Income Fund's
investment objective is to seek 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 high current income exempt from Federal income tax with
the potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term municipal
securities.
50
<PAGE>
Nations Short-Term Municipal Income Fund: The investment objective of Nations
Short-Term Municipal Income Fund is to seek high current income exempt from
Federal income tax consistent with minimal fluctuation of principal. The Fund
invests in investment grade, short-term municipal securities.
Nations Intermediate Municipal Bond Fund: Nations Intermediate Municipal Bond
Fund's investment objective is to seek high current income exempt from Federal
income tax consistent with moderate fluctuation of principal. The Fund invests
in investment grade, intermediate-term municipal securities.
Nations Florida Intermediate Municipal Bond Fund: Nations Florida Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income and the Florida state intangibles taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
Nations Florida Municipal Bond Fund: Nations Florida Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
and the Florida state intangibles taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
Nations Georgia Intermediate Municipal Bond Fund: Nations Georgia Intermediate
Municipal Bond
Fund's investment objective is to seek high current income exempt from Federal
and Georgia state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term municipal
securities.
Nations Georgia Municipal Bond Fund: Nations Georgia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Georgia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
Nations Maryland Intermediate Municipal Bond Fund: Nations Maryland Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Maryland state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
Nations Maryland Municipal Bond Fund: Nations Maryland Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Maryland state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
Nations North Carolina Intermediate Municipal Bond Fund: Nations North Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and North Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
Nations North Carolina Municipal Bond Fund: Nations North Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and North Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
Nations South Carolina Intermediate Municipal Bond Fund: Nations South Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and South Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
Nations South Carolina Municipal Bond Fund: Nations South Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and South Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
Nations Tennessee Intermediate Municipal Bond Fund: Nations Tennessee
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of principal. The Fund
invests in investment grade, intermediate-term municipal securities.
Nations Tennessee Municipal Bond Fund: Nations Tennessee Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax and the Tennessee Hall Income Tax on unearned income with the potential for
principal fluctuation associated with investments in long-term municipal
securities. The Fund invests in investment grade, long-term municipal
securities.
Nations Texas Intermediate Municipal Bond Fund: Nations Texas Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income tax consistent with
moder-
51
<PAGE>
ate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
Nations Texas Municipal Bond Fund: Nations Texas Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax with the potential for principal fluctuation associated with investments in
long-term municipal securities. The Fund invests in investment grade, long-term
municipal securities.
Nations Virginia Intermediate Municipal Bond Fund: Nations Virginia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Virginia state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
Nations Virginia Municipal Bond Fund: Nations Virginia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Virginia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term 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 are 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 are sometimes collectively
referred to as the "State Municipal Bond Funds".
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.
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 (together, with U.S. Treasury Obligations,
"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 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. In addition, the Fund may
lend its portfolio securities to qualified institutional investors. Although the
Fund is permitted to invest a portion of its assets in second tier securities
(as defined below) in accordance with
Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act"), the Fund
invests only in first tier securities (as defined below). 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 and
repurchase agreements secured by such obligations. The Fund may lend its
portfolio securities to qualified institutional investors. Although the Fund is
permitted to invest a portion of its assets in second tier securities (as
defined below) in accordance with Rule 2a-7 under the 1940 Act, the Fund invests
only in first tier securities (as defined below). 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. Although the Fund may invest
52
<PAGE>
in repurchase agreements it does not currently intend to do so. 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. Although the Fund is permitted to invest a portion of
its assets in second tier securities (as defined below) in accordance with Rule
2a-7 under the 1940 Act, the Fund invests only in first tier securities (as
defined below). 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; having a long-term rating of
"A" or higher from D&P, Fitch, S&P, IBCA, BankWatch or Moody's in the case of
certain bonds which are 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."
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. The Fund also may invest in 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. Although the Fund is
permitted to invest a portion of its assets in second tier securities (as
defined below) in accordance with Rule 2a-7 under the 1940 Act, the Fund invests
only in first tier securities (as defined below). For more information
concerning the Fund's investments, see "Appendix A."
Restraints on Investments by Money Market Funds: In order for the Money Market
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 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 greater maturities, provided
such obligations are subject to demand features or resets which are less than
397 days, 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
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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.
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 and repurchase
agreements. 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 provided by the stocks in the
Standard & Poor's 500 Composite Stock Price Index1 ("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:
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
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(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," 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 and repurchase
agreements. 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"), Global
Depositary Receipts ("GDRs"), European Depository Receipts ("EDRs"), American
Depository Shares ("ADSs"), bonds, notes, other debt securities of foreign
issuers and securities of foreign investment funds or trusts and real estate
investment trust securities.
Nations International Growth Fund: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in foreign equity securities listed on major exchanges, consisting of common
stocks, preferred stocks and convertible securities, such as warrants, rights
and convertible debt. The Fund may purchase the stock of small-, mid- and
large-capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Directors, the former Soviet Union and the
Middle East. Debt securities, if any, purchased by the Fund will be rated in the
top two categories by a nationally recognized statistical rating organization
("NRSRO"), or, if unrated, determined by the Adviser to be of comparable
quality. For temporary defensive purposes, the Fund may invest up to 100% of its
assets in debt and equity securities of U.S. issuers. Debt securities in which
the Fund may invest include short-term and intermediate-term obligations of
corporations, foreign governments and international organizations (such as the
International Bank for Reconstruction and Development (the "World Bank")),
including money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements.
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The Fund also may invest in ADRs, GDRs, EDRs and ADSs.
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 market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the 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.
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, 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
International Growth 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.
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 characteris-
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tics, 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
International Growth 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, EDRs, GDRs 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.
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 and repurchase
agreements. 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 equity securities,
consisting of common stocks, preferred stocks and convertible securities, such
as warrants, rights 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.
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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 and repurchase agreements. 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 greater 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, it may invest up to
20% of its total assets in foreign securities.
Nations Small Company Growth Fund: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in equity securities, consisting of common stocks, preferred stocks and
convertible securities, such as warrants, rights and convertible debt. In
addition, the Fund will invest at least 65% of its total assets in companies
with a market capitalization of $1 billion or less.
In making investment decisions for the Fund, the Adviser, on a quarterly basis,
classifies approximately 6,000 companies by market value and eliminates the
largest 20%. The remaining companies constitute the Fund's small-capitalization
universe and generally represent only one-tenth of the aggregate U.S. equity
market capitalization. Due to the large number of small stocks to choose from,
the Adviser's selection process uses advanced quantitative techniques to
identify, buy and sell candidates in a timely and objective manner. The strategy
is to own those investments offering both attractive fundamental valuation and
relatively good prospects for earnings improvement. Typically, two types of
companies are candidates for purchase: (i) mature companies which may have
fallen from a larger market due to business difficulties, but which now exhibit
improving prospects; and (ii) smaller or younger companies which are
experiencing strong trends in earnings growth, but remain reasonably valued and
therefore offer premium growth at a discount in comparison to other companies.
The Adviser's internally designed investment approach uses a sophisticated
valuation process which measures changes in current earnings estimates and
longer-term growth trends, compares recent earnings results with market
expectations, and evaluates a company's earnings power relative to its stock
price. Companies become purchase candidates based upon a composite ranking of
these factors, and the top 20% are further evaluated on additional criteria.
Candidates for investment must also possess a sound financial structure and
demonstrate consistent factor rankings before being added to the Fund's
portfolio.
The Fund's weighted median capitalization generally is not expected to exceed
125% of the weighted median capitalization of the Russell 2000 Small Stock Index
(the "Russell 2000") as measured on a quarterly basis, although this may vary
from time to time. Furthermore, a stock may be sold if the composite rank falls
into the bottom 20% of the universe, financial quality weakens significantly, or
if individual factors demonstrate patterns of deterioration.
The Fund may invest up to 35% of its total assets in securities of issuers with
a market capitalization greater than $1 billion and in debt securities. However,
the Fund will not invest more than 10% of its total assets in debt securities,
unless the Fund assumes a temporary defensive position as discussed below. Debt
securities, if any, purchased by the Fund will be rated AA or above by S&P or Aa
or above by Moody's or, if unrated, determined by the Adviser to be of
comparable quality. For temporary defensive purposes, the Fund may invest up to
100% of its assets in debt securities. Debt securities in which the Fund may
invest include short-term and intermediate-term obligations of corporations, the
U.S. and foreign governments and international organizations (such as the World
Bank), and money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements. The Fund currently intends to limit any investment in foreign
securities to 5% of total assets.
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
pro-
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vide investors with long-term capital appreciation which exceeds that of the S&P
500 Index.
In selecting stocks for the Fund, the Adviser utilizes quantitative analysis and
optimization tools. This approach seeks to identify companies with improving
profit potential through analysis of 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. The quantitative analysis also includes ranking the attractiveness
of equity securities according to a multi-factor valuation model. Both value and
growth factors are considered in the ranking process. Value factors such as book
value, earnings yield and cash flow measure a stock's intrinsic worth versus its
market price, while growth characteristics such as price momentum, earnings
growth and earnings acceleration measure a stock relative to others in the same
industry. The objective is to maintain a broadly diversified portfolio which
ranks in the top quartile on earnings momentum and in the top third on
valuation. This approach generally produces a dividend yield less than the
market average. Although this Fund seeks to invest in attractively priced
securities with increasing earnings, its investment objective focuses on
long-term capital appreciation; income is not an objective of this 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, money
market instruments and repurchase agreements.
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 and may invest in repurchase agreements,
restricted, private placement and other illiquid securities. Each Equity Fund
also may invest in real estate investment trust securities. In addition, each
Equity Fund may invest in securities issued by other investment companies,
consistent with the Fund's investment objective and policies and repurchase
agreements. Nations International Equity Fund, Nations International Growth
Fund, Nations Pacific Growth Fund and Nations Emerging Markets Fund may invest
in forward foreign exchange contracts. For more information concerning these and
other investments in which the Funds may invest and their investment practices,
see "Appendix A."
Index Funds:
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.
Subject to applicable law, the Fund will purchase stock of NationsBank
Corporation to the extent of its proportional make-up of the S&P 500 Index.
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
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<PAGE>
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 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.
The correlation between the performance of Nations Equity Index Fund (before
fees and expenses) 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.
Nations Managed Index Fund: In seeking to achieve its investment objective, the
Fund will invest in selected equity securities that are included in the S&P 500
Index. The S&P 500 Index is a market capitalization weighted index consisting of
500 common stocks chosen for market size, liquidity and industry group
representation.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P 500 Index while minimizing
the downside risk of underperforming the S&P 500 Index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index. The
Adviser ranks the attractiveness of each security according to a multi-factor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration measure a stock relative to others in the same industry. A second
quantitative model which measures the earnings momentum of each security is
added to the screening process to serve as a validity check in the portfolio
construction process. Each stock is assigned a ranking from 1 to 10 (best to
worst). The Adviser then either underweights or eliminates the less attractive
securities and modestly emphasizes the most attractive stocks resulting in a
portfolio of 300 to 400 holdings that capture the overall investment
characteristics of the S&P 500 Index.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical and, in any event the Fund will invest at least
80% of its total assets, in common stocks which are included in the S&P 500
Index. The Fund is expected, however, to maintain a 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
Obligations and repurchase agreements.
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Nations Managed SmallCap Index Fund: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the Standard & Poor's SmallCap 600 Index2 ("S&P 600 Index"). The S&P 600
Index is a market capitalization weighted index consisting of 600 domestic
stocks which capture the economic and industry characteristics of small stock
performance.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P 600 Index while minimizing
the downside risk of underperforming the S&P 600 Index over time.
From the initial S&P 600 Index stock universe the Adviser ranks the
attractiveness of each security according to a multi-factor valuation model.
Both value and momentum factors are considered in the ranking process. Value
factors such as book value, earnings yield and cash flow measure a stock's
intrinsic worth versus its market price, while momentum characteristics such as
price momentum, earnings growth and earnings acceleration measure a stock
relative to others in the same industry. A second quantitative model which
measures the earnings momentum of each security is added to the screening
process to serve as a validity check in the portfolio construction process. Each
stock is assigned a ranking from 1 to 10 (best to worst). The Adviser then
either underweights or eliminates the less attractive securities and modestly
emphasizes the most attractive stocks resulting in a portfolio of approximately
400-500 holdings that capture the investment characteristics of the S&P 600
Index.
Under normal conditions, substantially all of the Fund's assets, and, in any
event at least 80% of its total assets, will be invested in common stocks which
are included in the S&P 600 Index. The Fund is expected, however, to maintain a
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 Obligations and repurchase agreements.
Nations Managed Value Index Fund: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P 500/BARRA Value Index ("S&P/BARRA Value Index"). The S&P/BARRA Value
Index is a subset of the S&P 500 Index. The S&P 500 Index is a market
capitalization weighted index consisting of 500 common stocks chosen for market
size, liquidity and industry group representation. The S&P/BARRA Value Index is
a market capitalization weighted index consisting of approximately 340 common
stocks selected from the S&P 500 Index on the basis of a lower than average
price-to-book ratio. Because of their lower than average price-to-book ratios,
stocks in the S&P/BARRA Value Index, on average, typically exhibit higher yields
than stocks in the S&P 500 Index. Historically, stocks in the S&P/BARRA Value
Index, on average, have exhibited less short-term volatility than stocks in the
S&P 500 Index.
S&P constructs the S&P/BARRA Value Index semi-annually by ranking all common
stocks included in the S&P 500 Index by their price-to-book ratios. The
resulting list is then divided in half by market capitalization. Stocks in the
half of the list that have lower price-to-book ratios are included in the
S&P/BARRA Value Index.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity value index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA Value Index while
reducing the downside risk of underperforming the S&P/BARRA Value Index over
time.
The initial stock universe considered by the Adviser is the S&P/BARRA Value
Index. The Adviser ranks the attractiveness of each security according to a
multi-factor valuation model. Although the universe consists exclusively of
value stocks, both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration are useful in determining a stock's value in relation to others in
the same industry. A second quantitative model which measures the earnings
momentum of each security is added to the screening process to serve as a
validity check in the portfolio construction process. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweights or
eliminates the less attractive securities and modestly emphasizes the most
attractive stocks resulting in a portfolio of 100 to 200 holdings that capture
the overall investment characteristics of the S&P/BARRA Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets, in common stocks which are included in the S&P/BARRA Value Index. The
Fund is expected, however, to maintain a 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
(2) "Standard & Poor's SmallCap 600" is a registered service mark of S&P.
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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
Obligations and repurchase agreements.
Nations Managed SmallCap Value Index Fund: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P SmallCap 600/BARRA Value Index ("S&P/BARRA SmallCap Value Index").
The S&P/BARRA SmallCap Value Index is a subset of the S&P 600 Index. The S&P 600
Index is a market capitalization weighted index consisting of 600 domestic
stocks which capture the economic and industry characteristics of small stock
performance. The S&P/BARRA SmallCap Value Index is a market capitalization
weighted index consisting of approximately 375 companies selected from the S&P
600 Index on the basis of price-to-book ratios. Those companies with lower
price-to-book ratios make up the S&P/BARRA SmallCap Value Index. The S&P/BARRA
SmallCap Value Index is also rebalanced semi-annually to reflect changes in the
S&P 600 Index. Most of these stocks are listed on either the New York, American
or NASDAQ stock exchanges.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA SmallCap Value Index
while reducing the downside risk of underperforming the S&P/BARRA SmallCap Value
Index over time.
The initial stock universe considered by the Adviser is the S&P/BARRA SmallCap
Value Index. The Adviser ranks the attractiveness of each security according to
a multi-factor valuation model. Although the universe consists exclusively of
value stocks, both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration are useful in determining a stock's value in relation to others in
the same industry. A second quantitative model which measures the earnings
momentum of each security is added to the screening process to serve as a
validity check in the portfolio construction process. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweights or
eliminates the less attractive securities and modestly emphasizes the most
attractive stocks resulting in a portfolio of 200 to 300 holdings that capture
the overall investment characteristics of the S&P/BARRA SmallCap Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets in common stocks which are included in the S&P/BARRA SmallCap Value
Index. The Fund is expected, however, to maintain a 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
Obligations and repurchase agreements.
About the Indexes: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The S&P
SmallCap 600 Index is composed of 600 domestic stocks, which are chosen by S&P
based on, among other things, market size, liquidity and industry group
representation. The S&P SmallCap 600 Index is designed to be a benchmark of
small capitalization stock performance. Most of these Funds' stocks are listed
on either the New York, American or NASDAQ stock exchanges.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index (collectively,
the "BARRA Value Indexes") are constructed by dividing the stocks in the S&P 500
Index and the S&P 600 Index, respectively, according to a single attribute:
price-to-book ratios. The BARRA Value Indexes are capitalization-weighted,
meaning that each stock is weighted in the approximate index in proportion to
its market value. Additionally, price-to-book ratios tend to be more stable over
time than alternative measures such as price-to-earnings ratios, historical
earnings growth rates, or return on equity. This results in indexes with
relatively low turnover. Generally, the companies in the BARRA Value Indexes
also exhibit characteristics associated with "value" stocks: lower
price-to-earnings ratios, higher dividend yields, and lower historical and
predicted earnings growth than the S&P 500 Index or the S&P 600 Index,
respectively.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index are relatively
concentrated. The S&P/BARRA Value Index tends to be more heavily concentrated in
the Energy, Utility, and Financial sectors than the S&P 500 Index. Additionally,
the S&P/BARRA SmallCap Value Index tends to be more heavily concentrated in the
Utility and Financial Sectors than the S&P 600 Index.
The inclusion of a stock in the S&P 500 Index, the S&P 600 Index, the S&P/BARRA
Value Index or the S&P/BARRA SmallCap Value Index in no way implies that S&P or
BARRA believes the stock to be an attractive investment. The Indexes are
determined, composed and calculated by S&P and BARRA without regard to the
Funds. Neither S&P or BARRA is a sponsor of, or in any way affiliated with, the
Funds, and neither S&P or
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BARRA makes any representation or warranty, expressed or implied, on the
advisability of investing in the Funds or as to the ability of the Indexes to
track general stock market performance. S&P and BARRA disclaim all warranties of
merchantability or fitness for a particular purpose or use with respect to the
Indexes or any data included therein.
General: Each Index 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. exchange-traded financial futures approved by the Commodity
Futures Trading Commission ("CFTC") and options thereon for market exposure risk
management. Each Fund may lend its portfolio securities to qualified
institutional investors and may invest in repurchase agreements, restricted,
private placement and other illiquid securities. In addition, the Funds may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
In addition, when consistent with the Fund's respective investment objective,
each of the Funds will employ various techniques to manage capital gain
distributions. These techniques include utilizing a share identification
methodology whereby the Fund will specifically identify each lot of shares of
portfolio securities that it holds, which will allow the Fund to sell first
those specific shares with the highest tax basis in order to reduce the amount
of recognized capital gains as compared with a sale of identical portfolio
securities, if any, with a lower tax basis. The Fund will sell first those
shares with the highest tax basis only when it is in the best interest of the
Fund to do so, and reserves the right to sell other shares when appropriate. In
addition, the Fund may, at times, sell portfolio securities in order to realize
capital losses. Such capital losses would be used to offset realized capital
gains thereby reducing capital gain distributions. Additionally, the Adviser
will, consistent with the portfolio construction process discussed above, employ
a low portfolio turnover strategy designed to defer the realization of capital
gains.
Equity mutual funds, like other investors in equity securities, incur
transaction (brokerage) costs in connection with the purchase and sale of
portfolio securities. For some funds, these costs can have a material negative
impact on performance. With respect to the Index Funds, the Adviser will attempt
to minimize these transaction costs by utilizing program trades and computerized
exchanges called "crossing networks" which allow institutions to execute trades
at the mid-point of the bid/ask spread and at a reduced commission rate.
For more information concerning these and other investments in which the Funds
may invest and their investment practices, see "Appendix A."
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 and
asset-backed securities. Most obligations acquired by the Fund will be issued by
companies or governmental entities located within the United States. Debt
obligations acquired by the Fund will be rated investment grade at the time of
purchase by 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.
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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 and repurchase
agreements. 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.
Bond Funds:
Nations U.S. Government Bond Fund: Under normal market conditions, the Fund will
invest at least 65% of its total assets in U.S. Government securities and
repurchase agreements collateralized by such securities. While the maturity of
individual securities will not be restricted, except during temporary defensive
periods or unusual market conditions, the average weighted maturity of the Fund
will be between five and thirty years. The Fund may invest in a variety of U.S.
Government Obligations. The Fund may also invest in interests in the foregoing
securities, including collateralized mortgage obligations issued or guaranteed
by a U.S. Government agency or instrumentality. U.S. Government Obligations have
historically had a very low risk of loss of principal if held to maturity. The
Fund, however, can give no assurance that the U.S. Government would provide
financial support to its agencies or instrumentalities if it were not legally
required to do so.
The Fund may also invest up to 35% of its total assets in debt securities of
U.S. and foreign corporate and foreign government issuers, ADRs and EDRs, zero
coupon bonds and cash equivalents. The Fund will purchase only those
non-government investments which are rated investment grade or better by at
least one NRSRO or, if unrated, are determined by the Adviser to be of
comparable quality. If a portfolio security held by the Fund ceases to be rated
investment grade by at least one NRSRO or if the Adviser determines that an
unrated portfolio security held by the Fund is no longer of comparable quality
to an investment grade security, the security will be sold in an orderly manner
as quickly as possible. Additionally, the Fund may also invest in futures
contracts, interest rate swaps and options.
The value of the Fund's portfolio (and consequently its shares) is expected to
fluctuate inversely in relation to changes in the direction of interest rates.
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 dollar-weighted maturity of the Fund's portfolio will be between three
and five 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-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.
The Fund also may invest in "high quality" money market instruments, 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, prevailing market or economic circumstances
warrant.
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 dollar-weighted maturity of the Fund's portfolio will be between three
and 10 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-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.
The Fund also may invest in "high quality" money market instruments, repurchase
agreements and cash. Such obligations may include those issued by foreign banks
and foreign branches of U.S. banks. These investments
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may be in such proportion as, in the Adviser's opinion, prevailing market or
economic 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
dollar-weighted maturity of the Fund will not exceed five years and the 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. The Fund also may invest in
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, 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
dollar-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; U.S. Government Obligations; dollar-denominated and
non-dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments; 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.
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," and 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,
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.
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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 fixed income securities. It is expected
that the average dollar-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-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. 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.
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, 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 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
International Growth 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
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<PAGE>
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. The
Fund also may invest in money market instruments.
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 their total net assets 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. 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 dollar-weighted maturity greater than 10 years and
duration between 7.5 and 9.5 years; Nations Intermediate Municipal Bond
Fund -- average dollar-weighted maturity between three and 10 years and duration
between five and six years; Nations Short-Term Municipal Income Fund -- average
dollar-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 six 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 net 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 net assets of the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds will be
invested in Municipal Securities. In addition, at least 80% of each Fund's total
net assets will be invested in debt instruments, issued by or on behalf of the
pertinent state and its political subdivisions, agencies, instrumentalities and
authorities.
Under normal market conditions, the average dollar-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 dollar-weighted maturity between three and 10 years and
duration between five and six years; State Municipal Bond Funds -- average
dollar-weighted maturity greater than 10 years and duration between 7.5 and 9.5
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
mar-
67
<PAGE>
ket conditions and as a matter of fundamental investment policy, each of these
Funds will invest at least 80% of its total net 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 by 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 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 net assets at the time of purchase.
General: Each of the Balanced and 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 repurchase agreements, restricted, private placement and other
illiquid securities. Nations Balanced Assets Fund, Nations U.S. Government Bond
Fund, 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 forward foreign exchange contracts. Additionally, each Fund may purchase
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
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 and partnerships.
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 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.
Portfolio Turnover (Non-Money Market Funds): Generally, the Equity Funds, the
Index 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, except for Nations Managed Value Index Fund and
Nations Managed SmallCap Value Index Fund, see "Financial Highlights." While it
is not possible to predict exactly annual portfolio turnover rates, it is
expected that under normal market conditions, the annual portfolio turnover rate
for each of Nations Managed Value Index Fund and Nations Managed SmallCap Value
Index Fund will not exceed 25%. With respect to Nations International Growth
Fund, it is expected that under normal market conditions, the annual portfolio
turnover rate will not exceed 100%.
Risk Considerations: Investments by a Fund in common stocks and other equity
securities are subject to stock market risks. The value of the stocks that the
Fund holds, like the broader stock market, may decline over short or even
extended periods. The U.S. stock market tends to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline.
68
<PAGE>
As of the date of this Prospectus, the stock market, as measured by the S&P 500
Index and other commonly used indices, was trading at or close to record levels.
There can be no guarantee that these levels will continue.
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 may invest in securities of smaller and newer issuers.
Investments in such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also present greater
risks than investments in more established companies with longer operating
histories and greater financial capacity.
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."
Special Risk Considerations Relevant to an Investment in Nations International
Equity Fund, Nations International Growth 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 of which investors
should be aware.
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 more volatile than in the
more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
The above risk considerations are also relevant to an investment in Nations
International Growth Fund.
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
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<PAGE>
custodial fees, are also higher than the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations International
Growth Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Income Fund.
Special Risk Considerations Relevant to an Investment in the Index Funds: The
techniques employed by the Adviser to seek to manage capital gain distributions
will generally only have the effect of deferring the realization of capital
gains. For example, to the extent that the capital gains recognized on a sale of
portfolio securities arise from the sale of specifically-identified securities
with higher tax bases, subsequent sales of the same portfolio securities will be
calculated by reference to the lower tax basis securities that remain in the
portfolio. Under this scenario, an investor who purchases shares of a Fund after
the first sale could receive capital gain distributions that are higher than the
distributions that would have been received if this methodology had not been
used. Therefore, certain investors actually could be disadvantaged by the
techniques employed by the Fund to seek to manage capital gain distributions,
depending on the timing of their purchase of Fund shares. Even if there are no
subsequent sales, upon a redemption or exchange of Fund shares an investor will
have to recognize gain to the extent that the net asset value of Fund shares at
such time exceeds such investor's tax basis in his or her Fund shares.
The various techniques employed by the Funds to manage capital gain
distributions may result in the accumulation of substantial unrealized gains in
the Funds' portfolios. Moreover, the realization of capital gains is not
entirely within a Fund's control because it is at least partly dependent on
shareholder purchase and redemption activity. Capital gain distributions may
vary considerably from year to year.
Furthermore, the U.S. Treasury has proposed legislation which would require
holders of substantially identical securities to determine their tax basis using
the average cost of all of their holdings in such securities. If enacted, the
legislation would prevent the Funds from specifically identifying each lot of
shares that they hold and from selling first those specific shares with the
highest tax basis. Thus, the legislation would restrict the Funds' ability to
manage capital gains.
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 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. 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 International Growth Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund, Nations Capital Growth Fund,
Nations Emerging Growth Fund, Nations Small Company Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Index Fund, Nations Managed Index Fund,
Nations Managed SmallCap Index Fund, Nations Managed Value Index Fund, Nations
Managed SmallCap Value Index Fund, Nations Balanced Assets Fund, Nations U.S.
Government Bond Fund, Nations Short-Intermediate Government Fund, Nations
Government Securities Fund, Nations Short-Term Income Fund, Nations Diversified
Income Fund, Nations
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<PAGE>
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.
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, 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.
Nations International Growth Fund may not borrow money except as a temporary
measure and then only in amounts not exceeding 5% of the value of the Fund's
total assets or from banks or in connection with reverse repurchase agreements
provided that immediately after such borrowing, all borrowings of the Fund do
not exceed one-third of the Fund's total assets and no purchases of portfolio
instruments will be made while such Fund has borrowings outstanding in an amount
exceeding 5% of its total assets.
Each of Nations Small Company Growth Fund and Nations U.S. Government Bond Fund
may not borrow money except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase agreements
and mortgage rolls; provided that the Fund will maintain asset coverage of 300%
for all borrowings.
The investment objective and policies of each Fund, unless otherwise specified,
are non-fundamental and may be changed without shareholder approval.
Shareholders of Nations Small Company Growth Fund, Nations International Growth
Fund and Nations U.S. Government Bond Fund, however, must receive at least 30
days' prior written notice in the event an investment objective is changed. If
the investment objective or policies of a Fund change, shareholders should
consider whether the Fund remains an apprpriate 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 SAI. 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
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
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<PAGE>
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 data and are not intended to indicate future performance. The "total
return" of a class of shares of a 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 gain 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 gain 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.
Set forth below is certain performance data for the Enhanced Equity Index Common
Trust Fund and Enhanced Small Cap Equity Index Common Trust Fund (the "CTFs"),
each of which is currently managed on behalf of NationsBank by TradeStreet.
(Prior to the formation of TradeStreet in 1995, the CTFs were managed solely by
NationsBank.) The performance data for the CTFs is deemed relevant because the
Enhanced Equity Index and Enhanced Small Cap Equity Index Common Trust Funds
have investment objectives and policies that are substantially similar to those
of Nations Managed Index Fund and Nations Managed SmallCap Index Fund,
respectively. Moreover, the portfolio manager of TradeStreet (who currently
manages the CTFs and the Funds) employs the same quantitative investment process
for the Funds that has, and continues to be, utilized for the CTFs. This
performance data represents past performance of the CTFs and is not necessarily
indicative of the future performance of the CTFs or the Funds.
Average Annual Total Returns for the Periods Indicated through March 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
Inception
One Year Three Year Five Year (12/31/88)**
Enhanced Equity
Index Common Trust
Fund* 19.98% 22.31% 16.08% 16.52%
S&P 500 Index 19.77% 22.28% 16.39% 16.28%
Lipper S&P 500
Index Funds
Average*** 19.19% 21.73% 15.89% 15.66%
</TABLE>
Annual Total Returns
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Enhanced Lipper
Equity S&P 500
Index Index
Common S&P Funds
Year Trust Fund* 500 Index Average***
1989 34.12% 31.55% 30.58%
1990 -1.52% -3.15% -3.57%
1991 31.72% 30.56% 29.65%
1992 5.52% 7.64% 7.12%
1993 10.47% 9.99% 9.52%
1994 0.69% 1.31% 0.90%
1995 37.66% 37.45% 36.82%
1996 23.62% 23.08% 22.30%
</TABLE>
Average Annual Total Returns for the Periods Indicated through March 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Since
One Inception
Year (10/1/95)
Enhanced Small Cap Equity Index Common
Trust Fund* 11.76% 11.68%
S&P 600 Index 8.39% 9.83%
</TABLE>
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<PAGE>
* The total returns above reflect the deduction of 0.50% of fees and expenses
per annum. The CTFs are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which if applicable, may have adversely
affected the performance results of the CTFs.
** Prior to 12/31/88 the Enhanced Equity Index Common Trust Fund was managed
with a different objective and policies and therefore performance prior
thereto is not included in the prior performance calculations.
*** The Lipper S&P 500 Index Funds Average represents the average performance of
mutual funds with similar objectives monitored by Lipper Analytical
Services, Inc. during the periods shown.
Set forth below is certain performance data for the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite,
reflecting the performance of private accounts, including U.K. authorized unit
trusts, managed by Gartmore plc, as defined below. The performance data for
these accounts is deemed relevant because the Pacific Ex-Japan Composite, the
Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite have
investment objectives, policies and restrictions that are substantially similar
to those of Nations Pacific Growth Fund, Nations Emerging Markets Fund and
Nations Global Government Income Fund, respectively. There is substantial
continuity between the portfolio managers of Gartmore plc who were responsible
for managing those accounts and the portfolio managers of Gartmore who are
responsible for managing Nations Pacific Growth Fund, Nations Emerging Markets
Fund and Nations Global Government Income Fund, respectively. This performance
data represents past performance and is not necessarily indicative of the future
performance of Gartmore or the Funds.
PACIFIC EX-JAPAN COMPOSITE
Average Annual Total Returns for the Periods Indicated through March 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
One Year Two Years Three Years Four Years
Pacific Ex-Japan Composite 3.95% 8.44% 7.79% 17.11%
Morgan Stanley Capital
Int'l. Combined
Far East
(Ex-Japan)
Free Indexl -2.44% 8.58% 7.08% 15.62%
</TABLE>
Average Annual Total Returns for the Periods Indicated through March 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
Inception
Five Years Six Years Seven Years (1/1/88)
Pacific Ex-Japan Composite 18.84% 18.08% 14.79% 20.42%
Morgan Stanley Capital
Int'l. Combined
Far East
(Ex-Japan)
Free Indexl 16.69% 16.61% 15.77% 19.02%
</TABLE>
Annual Total Returns*
<TABLE>
<CAPTION>
<S> <C> <C>
Morgan Stanley
Capital
International
Pacific Combined Far East
Ex-Japan (Ex-Japan)
Composite Free Indexl
1988 11.9% 30.0%
1989 58.40% 32.1%
1990 0.0% -6.5%
1991 22.1% 31.0%
1992 22.9% 21.8%
1993 110.0% 103.4%
1994 -13.9% -17.5%
1995 4.0% 8.8%
1996 13.5 11.1
</TABLE>
* The average annual total returns and annual total returns are net of fees.
The fees for these accounts were 1% per annum until September 30, 1988, and
1.5% per annum thereafter. The accounts are not subject to certain investment
limitations, diversification requirements, and other restrictions imposed by
the 1940 Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results of the accounts.
l The Morgan Stanley Capital International Combined Far East (Ex-Japan) Free
Index is a capitalization-weighted index that tracks 7 countries and
represents only those securities that are available for investment by
international investors; many issues are still restricted to domestic
investors in certain Pacific Basin countries.
EMERGING MARKETS COMPOSITE
Average Annual Total Returns for the Periods Indicated through March 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Four Years
Since
Inception
One Year Two Years Three Years 1/1/93
Emerging Markets Composite 16.2% 11.1% -1.8% 10.2%
IFC Investables Indexl 11.4% 13.4% 3.1% 13.39%
</TABLE>
73
<PAGE>
Annual Total Returns*
<TABLE>
<CAPTION>
<S> <C> <C>
Emerging
Markets IFC Investables
Composite Indexl
1993 76.5% 79.6%
1994 -19.0% -12.0%
1995 -11.3% -8.5%
1996 13.0% 9.4%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (1/1/93) and are net of fees. The fees for these
accounts were 1.5% per annum. The accounts are not subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable,
may have adversely affected the performance results of the accounts.
l The IFC Investables Index includes over 1,100 stocks representing 27 stock
markets in developing countries, and reflects the accessibility of markets and
individual stocks for foreign ownership.
GLOBAL GOVERNMENT BOND
EX-U.K. COMPOSITE
Average Annual Total Returns for the Periods Indicated through March 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
One Year Two Years Three Years
Global Government Bond
Ex-U.K.
Composite** -1.2% 4.4% 6.1%
J.P. Morgan Global
Government Bonds
Indexl 1.0% 3.9% 6.5%
</TABLE>
Average Annual Total Returns for the Periods Indicated through March 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Since
Inception
Four Years Five Years 10/1/90
Global Government Bond
Ex-U.K. Composite** 6.2% 8.4% 10.31%
J.P. Morgan Global
Government Bonds Indexl 6.5% 7.9% 8.97%
</TABLE>
Annual Total Returns*
<TABLE>
<CAPTION>
<S> <C> <C>
Global J.P. Morgan
Government Global
Bond Ex-U.K. Government
Composite Bonds Indexl
1991 20.8% 16.0%
1992 4.8% 5.2%
1993 15.0% 11.6%
1994 -0.9% 1.5%
1995 22.8% 19.6%
1996 0.6% 3.5%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (10/1/90) and are net of fees. The fees on these
accounts varied by contractual agreement and have been assumed to be 1.5% per
annum. The accounts are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results of the accounts.
** The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J.P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
l The J.P. Morgan Global Government Bonds Index is a capitalization-weighted
index that tracks government bonds issued in 13 countries located in the
United States, Europe and the Far East.
Set forth below is the average annual total return and annual total return for
Nations International Equity Fund for the periods ending March 31, 1997:
NATIONS INTERNATIONAL
EQUITY FUND
Average Annual Total Returns for the Periods
Indicated through March 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
Inception
One Year Three Years Five Years on 12/2/91
Nations
International
Equity Fund 1.32% 6.23% 8.24% 7.10%
Morgan Stanley
Capital
International EAFE
Indexl 1.46% 6.53% 10.57% 6.01%
</TABLE>
74
<PAGE>
Annual Total Returns
<TABLE>
<CAPTION>
<S> <C> <C>
Morgan Stanley
Nations Capital
International International
Equity Fund EAFE Indexl
1992 -8.6% -12.2%
1993 27.21% 32.6%
1994 2.6% 7.8%
1995 8.5% 11.2%
1996 8.5% 6.1%
</TABLE>
l The Morgan Stanley Capital International EAFE Index represents an unmanaged
index used to portray the pattern of common stock price movement in Europe,
Australia and the Far East.
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 Daily Shares. In addition to Primary A
Shares, the Non-Money Market Funds offer Primary B, Investor A, Investor B
(formerly Investor N) 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 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 or by calling Nations Funds at the toll-free number indicated on
the cover of this Prospectus.
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 Funds 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 investment
sub-adviser to all of the Funds except for those Funds listed below, for which
Gartmore Global Partners or Boatmen's serves as investment sub-adviser.
TradeStreet is a wholly owned subsidiary of NationsBank. TradeStreet provides
investment management services to individuals, corporations and institutions.
Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as investment sub-adviser to Nations
International Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth
Fund, Nations International 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.
Boatmen's Capital Management, Inc. serves as investment sub-adviser to Nations
U.S Government Bond
75
<PAGE>
Fund. Its principal offices are located at 100 North Broadway, St. Louis,
Missouri 63178-4737. Boatmen's is an indirect subsidiary of NationsBank
Corporation.
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 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: .25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus .20% of the combined average daily net assets of such Funds
in excess of $250 million; .40% of the average daily net assets of each of
Nations Government Money Market Fund and Nations Tax Exempt Fund; .50% of the
average daily net assets of each of the Nations Managed Index Fund, Nations
Managed SmallCap Index Fund, Nations Managed Value Index Fund, Nations Managed
SmallCap Value Index Fund, Nations Equity Index Fund, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund and the State
Intermediate Municipal Bond Funds; 1.00% of the average daily net assets of
Nations Small Company Growth Fund; .60% of the average daily net assets of each
of the Nations U.S. Government Bond Fund, 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; .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; .65% of the first $100
million of Nations Government Securities Fund's average daily net assets, plus
.55% of the Fund's average daily net assets in excess of $100 million and up to
$250 million, plus .50% of the Fund's average daily net assets in excess of $250
million; .75% of the first $100 million of Nations Equity Income Fund's average
daily net assets, plus .70% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus .60% of the Fund's average daily net
assets in excess of $250 million; .90% of the average daily net assets of
Nations International Equity Fund, Nations International Growth Fund and Nations
Pacific Growth Fund; 1.10% of the average daily net assets of Nations Emerging
Markets Fund; and .70% of the average daily net assets of Nations Global
Government Income Fund.
For the services provided pursuant to sub-advisory agreements, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rates of: .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; .20% of Nations Equity Income Fund's average daily net assets; .10% of
Nations Managed Index Fund's, Nations Managed SmallCap Index Fund's, Nations
Managed Value Index Fund's, Nations Managed SmallCap Value Index Fund's, and
Nations Equity Index Fund's average daily net assets; .25% of Nations Value
Fund's, Nations Balanced Assets Fund's, Nations Capital Growth Fund's, Nations
Small Company Growth Fund's, Nations Emerging Growth Fund's and Nations
Disciplined Equity Fund's average daily net assets; .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 .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 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 .70% of Nations International Equity Fund's average daily net
assets; .85% of Nations Emerging Markets Fund's average daily net assets; .70%
of Nations Pacific Growth Fund's average daily net assets
76
<PAGE>
and .54% of Nations Global Government Income Fund's average daily net assets.
For services provided and expenses assumed, Gartmore is entitled to receive from
NBAI sub-advisory fees, computed daily and paid monthly, at the annual rate of
40% of Nations International Growth Fund's average daily net assets up to and
including $325,000,000 in assets and .25% on assets in excess of $325,000,000.
As of the date of this Prospectus, the Board of Directors has approved, and
recommended to shareholders that they approve, an increase in the fees to be
paid by NBAI to Gartmore to .70% of the Nations International Growth Fund's
average daily net assets. This increase will be implemented as soon as
practicable following receipt of shareholder approval.
For services provided pursuant to a sub-advisory agreement, NBAI will pay
Boatmen's sub-advisory fees at the rate of 0.15% of the average daily net assets
of Nations U.S. Government Bond Fund.
From time to time, NBAI (and/or TradeStreet, Gartmore or Boatmen's) 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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Government Money Market Fund -- .14%, Nations Tax Exempt Fund -- .16%,
Nations Value Fund -- .75%, Nations Capital Growth Fund -- .75%, Nations
Emerging Growth Fund -- .75%, Nations Disciplined Equity Fund -- .75%, Nations
Equity Index Fund -- .19%, Nations Managed Index Fund -- .06%, Nations Managed
SmallCap Index Fund -- .00%, Nations Balanced Assets Fund -- .75%, Nations
Short-Intermediate Government Fund -- .40%, Nations Short-Term Income
Fund -- .30%, Nations Diversified Income Fund -- .50%, Nations Strategic Fixed
Income Fund -- .50%, Nations Municipal Income Fund -- .29%, Nations Short-Term
Municipal Income Fund -- .06%, Nations Intermediate Municipal Bond Fund -- .19%,
Nations Florida Intermediate Municipal Bond Fund -- .19%, Nations Georgia
Intermediate Municipal Bond Fund -- .20%, Nations Maryland Intermediate
Municipal Bond Fund -- .22%, Nations North Carolina Intermediate Municipal Bond
Fund -- .18%, Nations South Carolina Intermediate Municipal Bond Fund -- .21%,
Nations Tennessee Intermediate Municipal Bond Fund -- .07%, Nations Texas
Intermediate Municipal Bond Fund -- .16%, Nations Virginia Intermediate
Municipal Bond Fund -- .26%, Nations Florida Municipal Bond Fund -- .27%,
Nations Georgia Municipal Bond Fund -- .15%, Nations Maryland Municipal Bond
Fund -- .08%, Nations North Carolina Municipal Bond Fund -- .26%, Nations South
Carolina Municipal Bond Fund -- .20%, Nations Tennessee Municipal Bond
Fund -- .03%, Nations Texas Municipal Bond Fund -- .17% and Nations Virginia
Municipal Bond Fund -- .22%. No fees were paid with respect to Nations Managed
Value Index Fund or Nations Managed SmallCap Value Index Fund because neither
Fund had yet commenced operations during the period indicated above.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Prime Fund -- .16%, Nations Treasury Fund -- .16%, Nations Equity Income
Fund -- .67%, Nations International Equity Fund -- .90% and Nations Government
Securities Fund -- .50%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Emerging Markets Fund -- 1.10%, Nations Pacific Growth Fund -- .90% and
Nations Global Government Income Fund -- .70%.
For the fiscal period from September 1, 1996 to May 16, 1997, after waivers, the
Pilot Funds paid Boatmen's Trust Company, under a previous investment advisory
agreement, advisory fees at the indicated rates of the following Funds' average
daily net assets: Nations Small Company Growth Fund (formerly the Pilot Small
Capitalization Equity Fund) -- .75%, Nations International Growth Fund (formerly
the Pilot U.S. Government Securities Fund) -- .40%. During the same period,
after waivers, the Pilot Funds paid Kleinwort Benson Investment Management
Americas Inc., under a previous sub-advisory agreement, sub-advisory fees at the
rate of .32% of Nations International Growth Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- .055%, Nations Tax Exempt Fund -- .055%, Nations
Value Fund -- .25%, Nations Capital Growth Fund -- .25%, Nations Emerging Growth
Fund -- .25%, Nations Disciplined Equity Fund -- .25%, Nations Equity Index
Fund -- .10%, Nations Managed Index Fund -- .10%, Nations Managed SmallCap Index
Fund -- .10%, Nations Balanced Assets Fund -- .25%, Nations Short-Intermediate
Government Fund -- .15%, Nations Short-Term Income Fund -- .15%, Nations
Diversified Income Fund -- .15%, Nations Strategic Fixed Income Fund -- .15%,
Nations Municipal Income Fund -- .07%, Nations Short-Term Municipal Income
Fund -- .07%, Nations Intermediate Municipal Bond Fund -- .07%, Nations Florida
Intermediate Municipal Bond Fund -- .07%, Nations Georgia Intermediate Municipal
Bond Fund -- .07%, Nations Maryland Intermediate Municipal Bond Fund -- .07%,
Nations North Carolina Intermediate
77
<PAGE>
Municipal Bond Fund -- .07%, Nations South Carolina Intermediate Municipal Bond
Fund -- .07%, Nations Tennessee Intermediate Municipal Bond Fund -- .07%,
Nations Texas Intermediate Municipal Bond Fund -- .07%, Nations Virginia
Intermediate Municipal Bond Fund -- .07%, Nations Florida Municipal Bond Fund --
.07%, Nations Georgia Municipal Bond Fund -- .07%, Nations Maryland Municipal
Bond Fund -- .07%, Nations North Carolina Municipal Bond Fund -- .07%, Nations
South Carolina Municipal Bond Fund -- .07%, Nations Tennessee Municipal Bond
Fund -- .07%, Nations Texas Municipal Bond Fund -- .07%, Nations Virginia
Municipal Bond Fund -- .07%, Nations Prime Fund -- .055%, Nations Treasury
Fund -- .055%, Nations Equity Income Fund -- .20% and Nations Government
Securities Fund -- .15%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid Gartmore under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Emerging Markets Fund -- .85%, Nations Pacific Growth Fund -- .70%, Nations
Global Government Income Fund -- .54%, Nations International Equity
Fund -- .70%.
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. Prior to assuming her
position with TradeStreet, she was Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. 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, Nations
Managed Index Fund and Nations Managed SmallCap Index Fund. He has been
Portfolio Manager for these Funds since their inception. Prior to assuming his
position with TradeStreet in 1996, 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 Chicago Quantitative Alliance,
the Association for Investment Management and Research as well as the North
Carolina Society of Financial Analysts, Inc.
Jeffrey C. Moser, is a Senior Product Manager, Equity Management for TradeStreet
and Senior Portfolio Manager for Nations Managed Value Index Fund and Nations
Managed SmallCap Value Index Fund. Mr. Moser has been with TradeStreet since
1996 and Portfolio Manager for Nations Managed Value Index Fund and Nations
Managed SmallCap Value Index Fund since the inception of the Funds. He is also
the Portfolio Manager for Nations Disciplined Equity Fund and has been 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.
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.
Sharon M. Herrmann, 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
78
<PAGE>
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, 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 is Principal Portfolio Manager of Nations International Equity
Fund and has been the Portfolio Manager since February, 1995. He joined Gartmore
as a Global Fund Manager in 1993 and currently holds the position of Head of the
International and Global Portfolio Team. Previously, Mr. Watson was a director
and global fund manager with James Capel Fund Managers, London, as well as
Client Services Manager for international clients. From 1980 to 1987 he
associated with Capel-Cure Myers in their Portfolio Management Division. He
began his career in 1976 when he joined the investment division at Samuel
Montagu. Mr. Watson is a member of the Securities Institute.
Philip Ehrmann is Principal Portfolio Manager of Nations Emerging Markets Fund
and is the Head of the Gartmore Emerging Markets Team. He has been the Portfolio
Manager for the Fund since 1995. Prior to joining Nations Gartmore in 1995, Mr.
Ehrmann was the Director of Emerging Markets for Invesco in London. He began his
career in 1981 as an institutional stockbroker with Rowe & Pitman Inc. and also
spent a brief period with Prudential Bache Securities as an institutional
salesman before joining Invesco in 1984. Mr. Ehrmann graduated from the London
School of Economics with a degree in Economics, Industry and Trade.
Seok Teoh is Principal Portfolio Manager of Nations Pacific Growth Fund and has
been the Portfolio Manager since the Fund's inception. She has been associated
with Gartmore since 1990 as the London based manager on its Far East Team.
Previously, Ms. Teoh managed Far East equities for Rothschild Asset Management
in Tokyo and in Singapore. She was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh,
who is a native of Singapore, is fluent in Mandarin and Cantonese and received
an Economics degree from the University of Durham.
Philip J. Sanders, 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.
Scott A. Billeadeau is a Senior Portfolio Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Emerging Growth Fund and
Nations Small Company Growth Fund. Mr. Billeadeau has been Portfolio Manager of
the Funds since June 1997. Previously he was Senior Analyst and Senior Portfolio
Manager for BankAmerica's Pacific Horizon Aggressive Growth Fund at Security
Pacific Corp. since 1991. Mr. Billeadeau has worked in the investment community
since 1986. His past experience also includes quantitative analysis for American
Express Financial Advisors, Inc. Mr. Billeadeau received an AB in Economics from
Princeton University. He holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research, as well
as the Seattle Society of Securities Analysts.
Julie L. Hale, 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
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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 Principal Portfolio Manager of the Nations Global Government
Income Fund and has been the Portfolio Manager since the Fund's inception. He
has been associated with Gartmore since 1990 as an International Fixed Income
Fund Manager. Previously, Mr. Rimmer managed multi-currency funds for
institutional clients at Gulf International Bank in Bahrain, and prior to that
he was a senior trader for Sumitomo Finance International, London. He graduated
from Cambridge University with a degree in Economics.
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, 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.
Christopher G. Gunster is a Portfolio Manager, Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Government Securities Fund. Mr.
Gunster has been the lead Portfolio Manager since July 1997. Prior to assuming
his position with TradeStreet, he was Assistant Vice President and Associate
Portfolio Manager for the Investment Management Group at NationsBank since 1993.
Mr. Gunster has worked in the investment community since 1987. His past
experience includes investment marketing for The Boston Company and options
trading for Shatkin Investments, a regional broker/dealer. Mr. Gunster received
a B.A. in Chemistry from Kenyon College and an M.B.A. in Finance from Babson
Graduate 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. Mr. Swaim has been Portfolio Manager for the 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.
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 Director, Municipal Fixed Income Management for
TradeStreet and is 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 Intermediate Municipal Bond 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
Port-
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folio 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.
Dawn Daggy-Mangerson is a Portfolio Manager, Municipal Fixed Income Management
for TradeStreet and is Portfolio Manager of the Nations Short-Term Municipal
Income Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations Maryland
Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund and
Nations Virginia Municipal Bond Fund. Ms. Daggy-Mangerson has been Portfolio
Manager of the Funds since April 1997. Prior to assuming her position with
TradeStreet, she was a Portfolio Manager for Boatmen's Trust Company since 1995.
Ms. Daggy-Mangerson has worked in the investment community since 1988. Her past
experience also includes portfolio management and trading for Stein Roe Farnham,
a large investment advisory firm. Ms. Daggy-Mangerson received a B.A. in
Commerce and Finance from DePaul University.
Brad Pope is a Product Manager, Fixed Income Management for TradeStreet and
Portfolio Manager for Nations Short-Term Income Fund. He is a senior member of
the Fixed Income Team. As such, his responsibilities include setting duration
policy for the Nations Funds fixed income funds. Mr. Pope has been the portfolio
manager for Nations Short-Term Income Fund since August 1996. Prior to assuming
this position, he was a manager in the structured products area. He joined the
Investment Management Group at NationsBank, TradeStreet's predecessor
organization, in 1988. Mr. Pope has over nine years of investment experience,
including working on the trading floor of the Chicago Board of Trade. Mr. Pope
received a B.B.A. in Finance from the University of Texas at Austin.
The Fixed Income Committee of Boatmen's is responsible for the day-to-day
management of the investment portfolio of Nations U.S. Government Bond Fund.
Brian O'Neill is the Principal Senior Investment Manager of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Fund since July, 1997. Mr. O'Neill joined Gartmore as a Senior Investment
Manager on the Global Portfolio Team in 1981 with responsibility for a variety
of specialized global funds, including resource funds. Mr. O'Neill began his
career with Royal Insurance in 1970 as an investment analyst specializing in
United Kingdom research. He then expanded his field of expertise to include
management of global equities, and in 1978 he moved to Antony Gibbs & Sons where
he was appointed as a fund manager, specializing in global equities. Mr. O'Neill
graduated from Glasgow University in 1969 with a MA Honours degree in Political
Economy.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank has advised Nations Funds 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 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 Nations Funds 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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the
fol-
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lowing Funds' average daily net assets: Nations Government Money Market
Fund -- .09%, Nations Tax Exempt Fund -- .09%, Nations Value Fund -- .10%,
Nations Capital Growth Fund -- .10%, Nations Emerging Growth Fund -- .10%,
Nations Disciplined Equity Fund -- .10%, Nations Equity Index Fund -- .10%,
Nations Managed Index Fund -- .10%, Nations Managed SmallCap Index Fund -- .10%,
Nations Balanced Assets Fund -- .10%, Nations Short-Intermediate Government
Fund -- .10%, Nations Short-Term Income Fund -- .10%, Nations Diversified Income
Fund -- .10%, Nations Strategic Fixed Income Fund -- .10%, Nations Municipal
Income Fund -- .09%, Nations Short-Term Municipal Income Fund -- .09%, Nations
Intermediate Municipal Bond Fund -- .09%, Nations Florida Intermediate Municipal
Bond Fund -- .09%, Nations Georgia Intermediate Municipal Bond Fund -- .09%,
Nations Maryland Intermediate Municipal Bond Fund -- .09%, Nations North
Carolina Intermediate Municipal Bond Fund -- .09%, Nations South Carolina
Intermediate Municipal Bond Fund -- .09%, Nations Tennessee Intermediate
Municipal Bond Fund -- .09%, Nations Texas Intermediate Municipal Bond
Fund -- .09%, Nations Virginia Intermediate Municipal Bond Fund -- .09%, Nations
Florida Municipal Bond Fund -- .09%, Nations Georgia Municipal Bond
Fund -- .09%, Nations Maryland Municipal Bond Fund -- .09%, Nations North
Carolina Municipal Bond Fund -- .09%, Nations South Carolina Municipal Bond
Fund -- .09%, Nations Tennessee Municipal Bond Fund -- .09%, Nations Texas
Municipal Bond Fund -- .09%, and Nations Virginia Municipal Bond Fund -- .09%.
No fees were paid with respect to Nations Managed Value Index Fund or Nations
Managed SmallCap Value Index Fund because neither Fund had yet commenced
operations during the period indicated above.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .09%,
Nations Treasury Fund -- .09%, Nations Equity Income Fund -- .10%, Nations
International Equity Fund -- .10% and Nations Government Securities
Fund -- .10%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Emerging Markets
Fund -- .10%, Nations Pacific Growth Fund -- .10% and Nations Global Government
Income Fund -- .10%.
NationsBank serves as sub-administrator for Nations Funds 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. Nations Funds
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.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of all Funds, except the international portfolios. 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 to the Nations Funds Family, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees at the rate of (i) $300,000
per annum, to be paid monthly in payments of $25,000 for custodian services for
up to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
BONY, Avenue des Arts, 35 1040 Brussels, Belgium, serves as Custodian for the
assets of the Nations International Equity Fund, Nations International Growth
Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
Global Government Income Fund.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all Funds except the international portfolios, for which BONY is already
serving as Custodian. BONY is located at 90 Washington Street, New York, New
York 10286. In return for providing sub-custodial services, BONY receives, in
addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Primary Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109. NationsBank of Texas also serves as the sub-transfer agent
for each Fund's Primary Shares and is entitled to receive an annual fee of
$251,000 from First Data for performing such services.
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Price Waterhouse LLP serves as independent accountant to Nations Funds. Their
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, Stephens and First Data; taxes;
interest; fees (including fees paid to Nations Funds' 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, Stephens or First Data
under their respective agreements with Nations Funds; 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 deems appropriate.
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Portfolios, Nations Institutional
Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family currently has
more than 52 distinct investment portfolios and total assets in excess of $27
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 Daily
Shares. The Non-Money Market Funds currently offer five classes of
shares -- Primary A Shares, Primary B Shares, Investor A Shares, Investor B
(formerly Investor N) Shares and Investor C 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 Managed Index Fund, Nations Managed
SmallCap Index Fund, Nations Managed Value Index Fund, Nations Managed SmallCap
Value Index 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 Funds at 1-800-765-2668.
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, 1997, 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
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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 420,000,000,000 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, Nations International Growth Fund, Nations Small Company Growth
Fund, Nations U.S. Government Bond 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 Funds at 1-800-765-2668.
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, 1997, 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 Funds at 1-800-765-2668.
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, 1997, 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
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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.
Pending Legal Proceedings: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and Stephens
Inc. (Case No. 94-995-Civ.-T-23E). As relevant to Nations Government Securities
Fund and Nations Short-Intermediate Government Fund, plaintiffs allege that,
among other things, defendants violated the Securities Exchange Act of 1934 and
various state securities fraud statutes by employing a scheme to defraud
plaintiffs into purchasing shares of the funds and making untrue statements of
material fact and omitting to state material facts in connection with sales of
shares of the funds. Plaintiffs further allege that, among other things,
defendants concealed the risks associated with such funds by blurring the
distinctions between banks and non-bank subsidiaries and by obscuring the
differences between traditional, federally insured bank products and uninsured,
non-depository products.
About Your Investment
How To Buy Shares
There is a minimum initial investment of $250,000 for each record holder; there
is no minimum subsequent investment.
Primary A Shares of the Funds 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, endowments and to other funds in the Nations Funds Family.
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.
Nations Funds and Stephens reserve 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
deter-
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mined after receipt of the order by Stephens or by the Transfer Agent.
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 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 Funds.
Institutions should be aware that during periods of significant economic or
market change, telephone transactions may be difficult to complete.
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 Funds 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 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.
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 Funds. No charge for wiring redemption
payments is imposed by Nations Funds, 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.
Nations Funds 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 Funds 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 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 Funds 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 Funds 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
ter-
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minated or materially revised without notice under certain unusual
circumstances.
The current prospectus for each fund of Nations Funds 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 Funds 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.
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, Martin Luther
King, Jr. 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 Funds 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.
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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
also declared and paid monthly by Nations Capital Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Income Fund, Nations Managed Index Fund,
Nations Value Fund and Nations Small Company Growth Fund. Dividends from net
investment income are declared and paid annually by Nations International Growth
Fund. Dividends from net investment income are declared and paid each calendar
quarter by all other Equity Funds, Index 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, Index 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 Funds will be reduced by the
amount of any dividend or distribution. Accordingly, dividends and distributions
on newly purchased shares represent, in substance, a return of capital. However,
such dividends and distributions would nevertheless be taxable. 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 shareholders 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
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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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds 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 Funds 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 exchanges
and redemptions-in-kind). 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 tax on dividends, distributions and proceeds from
the disposition of Fund shares paid to certain foreign shareholders.
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, if more than 50% of
the value of the total assets of each Fund consists of securities of foreign
issuers, it may elect to "pass through" to its shareholders these foreign taxes,
if any. Upon such an election, 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.
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
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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 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, 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 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
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obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized Mortgage Obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class pass-
through securities are interests in a trust composed of Mortgage Assets and all
references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets. A Fund will only invest in SMBS
whose mortgage assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments, mortgage refinancings, or foreclosures.
The rate of 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.
The mortgage-backed securities in which the Funds invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the Funds
also may be subject to credit risk. Credit risk is the risk that the issuers of
securities in which a Fund invests may default in the payment of principal
and/or interest. Any such defaults or adverse changes in an issuer's financial
condition or credit rating may adversely affect the value of the Funds'
portfolio investments and, hence, the value of your investment in the
corresponding Fund.
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 to motor vehicle
installment purchase obligations perfect
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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 Funds (except Nations Tax Exempt Fund and Nations International Growth 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 Small Company Growth
Fund and Nations U.S. Government Bond Fund will limit their investments in
interest-bearing savings deposits of commercial and savings banks to 5% of total
assets. Nations Prime Fund may invest up to 100% of its assets in obligations
issued by banks. 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. Pursuant to line of credit arrangements, certain of the
Funds may borrow 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, certain of 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
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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 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
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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 income (including interest, distributions and disposition
proceeds), 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.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs and EDRs or other securities representing
securities of companies based in countries other than the United States.
Transactions in these securities may not necessarily be settled in the same
currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs, in registered
form, are designed for use in the U.S. securities markets. GDRs are designed for
use in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
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 under the 1933 Act, or which
were issued under section 4(2) of 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 or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, 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.
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: 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 obligations with greater maturities, provided such obligations are subject to
demand features or resets which are less 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
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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 tax.
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.
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 securities with put or demand features 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 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
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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.
Georgia's state government is enjoying very robust fiscal health as evidenced by
the ratings given to General Obligation Bonds issued on April 1, 1997, which
were rated by Moody's as "Aaa," "AA+ with a positive outlook" by Standard &
Poors, and "AAA" by Fitch. The Federal Reserve Bank of Atlanta predicts that
1997 will be a very good year for Georgia in terms of economic growth. However,
a comparison to economic performance for the state in 1996 will be somewhat
distorted because of the estimated $3 billion boost to the state economy from
the 1996 Summer Olympic Games. The Olympic Games served to value-add to the
basic strength of the Georgia economy, which is expected to continue to flourish
in the near term by the expansion of existing business and by the continued
in-migration of new business from around the United States and from around the
world.
Maryland is one of the wealthiest states in the U.S. and has been rated "Aa" by
Moody's, and "AA" rating by 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 sixth 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 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 and 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,
"AAA" rating by S&P and a "AAA" rating by Fitch, for the state. Combine this
with 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).
The mix of job growth in Texas provides a strong base for sustainable growth
because the new jobs are largely in industries with bright prospects for future
growth, such as knowledge-based services and manufacturing.
The state of Virginia has earned its "Aa2" rating by Moody's and "AA" 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 experienced strong
growth in the labor force and benefits from a low unemployment rate. 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.
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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.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
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 Funds.
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 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
Short-Term Trust Obligations: Certain of the Funds 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: 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,
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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. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. 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, some 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; 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. 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 take
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 characteris-
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tics, 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 are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
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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 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 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
rat-
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ings 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 two 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.
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Prospectus
PRIMARY A SHARES
AUGUST 1, 1997
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 International Growth Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Small Company Growth Fund
Nations Disciplined Equity Fund
INDEX FUNDS
Nations Equity Index Fund
Nations Managed Index Fund
Nations Managed SmallCap Index Fund
Nations Managed Value Index Fund
Nations Managed SmallCap Value
Index Fund
BALANCED FUND
Nations Balanced Assets Fund
BOND FUNDS
Nations U.S. Government Bond 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 Global Government Income
Fund
INVESTMENT ADVISER: NationsBanc Advisors, Inc.
INVESTMENT SUB-ADVISER: TradeStreet Investment Associates, Inc.
INVESTMENT SUB-ADVISER: Gartmore Global Partners
INVESTMENT SUB-ADVISER: Boatmen's Capital Management, Inc.
DISTRIBUTOR: Stephens Inc.
TR-96128-897
(Nations Fund logo appears here)
<PAGE>
Prospectus
PRIMARY A SHARES
AUGUST 1, 1997
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 Funds Family ("Nations Funds" or "Nations
Funds Family"). This Prospectus describes one class
of shares of each Fund -- Primary A Shares.
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 THE MONEY MARKET 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 Funds at its
address or telephone number shown below. The SAIs
for Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios, each dated August 1, 1997, are
incorporated by reference in their entirety into
this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAIs,
material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to certain of the Funds,
Gartmore Global Partners ("Gartmore") is investment
sub-adviser to certain other Funds, and Boatmen's
Capital Management, Inc. ("Boatmen's") is investment
sub-adviser to Nations U.S. Government Bond Fund. As
used herein the term "Adviser" shall mean NBAI,
TradeStreet, Gartmore and/or Boatmen's as the
context may require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
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 International Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Small Company Growth Fund
Nations Disciplined Equity Fund
INDEX FUNDS:
Nations Equity Index Fund
Nations Managed Index Fund
Nations Managed SmallCap Index Fund
Nations Managed Value Index Fund
Nations Managed SmallCap Value
Index Fund
BALANCED FUND:
Nations Balanced Assets Fund
BOND FUNDS:
Nations U.S. Government Bond 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 Global Government Income Fund
For Fund information call:
1-800-765-2668
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears
here)
TR-96128-897
<PAGE>
Table Of Contents
Prospectus Summary 3
About The Expenses Summary 6
Funds Financial Highlights 9
Objectives 32
How Objectives Are Pursued 34
How Performance Is Shown 51
How The Funds Are Managed 54
Organization And History 60
About Your How To Buy Shares 62
Investment How To Redeem Shares 63
How To Exchange Shares 64
How The Funds Value Their Shares 64
How Dividends And Distributions Are Made;
Tax Information 65
Appendix A -- Portfolio Securities 66
Appendix B -- Description Of Ratings 75
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 FUNDS OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUNDS 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 regions, including
developing countries.
(Bullet) Nations International Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of companies domiciled in countries outside the United
States and listed on major stock exchanges primarily in Europe and
the Pacific Basin.
(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 market 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 Small Company Growth Fund's investment objective is
to seek long-term capital growth by investing primarily in equity
securities.
(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) INDEX FUNDS:
(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) Nations Managed Index Fund's investment objective is to
seek, over the long-term, to provide a total return which (gross
of fees and expenses) exceeds the total return of the Standard &
Poor's 500 Composite Stock Price Index.
(Bullet) Nations Managed SmallCap Index Fund's investment
objective is to seek, over the long-term, to provide a total
return which (gross of fees and expenses) exceeds the total return
of the Standard & Poor's SmallCap 600 Index.
(Bullet) Nations Managed Value Index Fund's investment objective is to
seek, over the long-term, to provide a total return that (gross of
fees and expenses) exceeds the total return of the S&P 500/BARRA
Value Index.
(Bullet) Nations Managed SmallCap Value Index Fund's investment
objective is to seek, over the long-term, to provide a total
return that (gross of fees and expenses) exceeds the total return
of the S&P SmallCap 600/BARRA Value 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 U.S. Government Bond Fund's investment objective is to seek
total return and preservation of capital by investing in U.S.
Government securities and repurchase agreements.
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek high current income consistent with modest
fluctuation of principal. The Fund invests 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 high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in
intermediate-term 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
high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
(Bullet) Nations Diversified Income Fund's investment objective is
to seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
(Bullet) Nations Strategic Fixed Income Fund's investment objective
is to seek total return by investing in investment grade fixed
income securities.
(Bullet) Nations Global Government Income Fund's investment objective is
to seek 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 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to certain
of the Funds, Gartmore Global Partners provides sub-advisory services
to certain other Funds and Boatmen's Capital Management, Inc. provides
investment sub-advisory services to Nations U.S. Government Bond Fund.
See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are
declared and paid monthly by Nations Capital Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Income Fund, Nations Managed
Index Fund, Nations Value Fund and Nations Small Company Growth Fund.
Dividends from net investment income are declared and paid annually by
Nations International Growth Fund. All other Equity Funds, Index 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.
The U.S. stock market tends to be cyclical,
4
<PAGE>
with periods when stock prices generally rise and periods when prices
generally decline. As of the date of this Prospectus, the stock market,
as measured by the S&P 500 Index (as defined below) and other commonly
used indices, was trading at or close to record levels. There can be no
guarantee that these levels will continue. Certain of the Funds may
invest in securities of smaller and newer issuers. Investments in such
companies may present greater opportunities for capital appreciation
because of high potential earnings growth, but also present greater
risks than investments in more established companies with longer
operating histories and greater financial capacity. 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
(as defined below), 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 International Growth 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 International Growth Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund."
(Bullet) MINIMUM PURCHASE: $250,000 minimum initial investment per record
holder. See "How to Buy Shares".
5
<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
<TABLE>
<CAPTION>
<S> <C> <C>
Nations Prime Nations
SHAREHOLDER TRANSACTION EXPENSES Fund Treasury Fund
Sales Load Imposed on Purchases None None
Deferred Sales Load None None
<CAPTION>
Nations
Government
Money Market
SHAREHOLDER TRANSACTION EXPENSES 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) .16% .16%
All Other Expenses .14% .14%
Total Operating Expenses (After Fee Waivers)(1) .30% .30%
<CAPTION>
Management Fees (After Fee Waivers)(1) .14%
<S> <C>
All Other Expenses .16%
Total Operating Expenses (After Fee Waivers)(1) .30%
</TABLE>
(1) See page 8 for a discussion of the actual expenses absent such fee waivers.
NATIONS FUND EQUITY/PRIMARY A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations Nations
Nations Equity Nations Nations Emerging
Value Income International International Markets
SHAREHOLDER TRANSACTION EXPENSES Fund Fund Equity Fund Growth Fund Fund
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
<CAPTION>
Nations
Pacific
Growth
SHAREHOLDER TRANSACTION EXPENSES 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 .75% .67% .90% .90% 1.10%
All Other Expenses .19% .22% .26% .22% .64%
Total Operating Expenses .94% .89% 1.16% 1.12% 1.74%
<CAPTION>
Management Fees .90%
<S> <C>
All Other Expenses .52%
Total Operating Expenses 1.42%
</TABLE>
6
<PAGE>
NATIONS FUND EQUITY FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations
Capital Emerging Nations
Growth Growth Small Company
SHAREHOLDER TRANSACTION EXPENSES Fund Fund Growth Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
<CAPTION>
Nations
Disciplined
Equity
SHAREHOLDER TRANSACTION EXPENSES Fund
Sales Load Imposed on Purchases
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers)(1) .75% .75% .75%
All Other Expenses .21% .23% .20%
Total Operating Expenses (After Fee Waivers)(1) .96% .98% .95%
<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
and/or expense reimbursements.
NATIONS FUND INDEX/BALANCED FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations
Equity Nations Managed Managed
Index Managed SmallCap Value Index
SHAREHOLDER TRANSACTION EXPENSES Fund Index Fund Index Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Managed Nations
Small Cap Balanced
Value Index Assets
SHAREHOLDER TRANSACTION EXPENSES Fund Fund
Sales Load Imposed on Purchases None None
Deferred Sales Load None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers)(1) .20% .30% .30% .30%
All Other Expenses .15% .20% .20% .20%
Total Operating Expenses (After Fee Waivers)(1) .35% .50% .50% .50%
<CAPTION>
Management Fees (After Fee Waivers)(1) .30% .75%
<S> <C> <C>
All Other Expenses .20% .25%
Total Operating Expenses (After Fee Waivers)(1) .50% 1.00%
</TABLE>
(1) See page 8 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND BOND FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations
Nations Short- Nations Nations Nations
U.S. Intermediate Government Short-Term Diversified
SHAREHOLDER TRANSACTION Government Government Securities Income Income
EXPENSES Bond Fund Fund Fund Fund Fund
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
<CAPTION>
Nations Nations
Strategic Global
Fixed Government
SHAREHOLDER TRANSACTION Income Income
EXPENSES Fund Fund
Sales Load Imposed on Purchases None None
Deferred Sales Load None None
</TABLE>
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of average
net assets)
<TABLE>
<S> <C> <C> <C> <C> <C>
Management Fees (After Fee Waivers)(1) .40% .40% .50% .30% .50%
All Other Expenses .20% .22% .30% .25% .25%
Total Operating Expenses (After Fee
Waivers)(1) .60% .62% .80% .55% .75%
<CAPTION>
Management Fees (After Fee Waivers)(1) .50% .70%
<S> <C> <C>
All Other Expenses .20% .56%
Total Operating Expenses (After Fee
Waivers)(1) .70% 1.26%
</TABLE>
(1) See page 8 for a discussion of the actual expenses absent such fee waivers.
7
<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 Money Nations Equity Nations International
Prime Treasury Market Value Income International Equity
Fund Fund Fund Fund Fund Growth Fund Fund
1 Year $ 3 $ 3 $ 3 $ 10 $ 9 $ 11 $ 12
3 Years $10 $10 $10 $ 30 $ 28 $ 36 $ 37
5 Years $17 $17 $17 $ 52 $ 49 $ 62 $ 64
10 Years $38 $38 $38 $115 $110 $136 $141
<CAPTION>
Nations
Nations Pacific
Emerging Growth
Markets Fund Fund
1 Year $ 18 $ 14
3 Years $ 55 $ 45
5 Years $ 94 $ 78
10 Years $205 $170
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Nations Nations Nations Managed
Capital Emerging Nations Managed Managed SmallCap Nations
Growth Growth Managed SmallCap Value Value Small Company
Fund Fund Index Fund Index Fund Index Fund Index Fund Growth Fund
1 Year $ 10 $ 10 $ 5 $ 5 $ 5 $ 5 $ 10
3 Years $ 31 $ 31 $16 $16 $16 $16 $ 30
5 Years $ 53 $ 54 $28 $28 N/A N/A $ 53
10 Years $118 $120 $63 $63 N/A N/A $117
<CAPTION>
Nations Nations
Disciplined Equity
Equity Index
Fund Fund
1 Year $ 10 $ 4
3 Years $ 32 $11
5 Years $ 55 $20
10 Years $122 $44
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations Nations
Nations Nations Short- Nations Nations Nations Strategic
Balanced U.S. Intermediate Government Short-Term Diversified Fixed
Assets Government Government Securities Income Income Income
Fund Bond Fund Fund Fund Fund Fund Fund
1 Year $ 10 $ 6 $ 6 $ 8 $ 6 $ 8 $ 7
3 Years $ 32 $19 $20 $26 $18 $24 $22
5 Years $ 55 $33 $35 $44 $31 $42 $39
10 Years $122 $75 $77 $99 $69 $93 $87
<CAPTION>
Nations
Global
Government
Income
Fund
1 Year $ 13
3 Years $ 40
5 Years $ 69
10 Years $152
</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
Managed Index Fund, Nations Managed SmallCap Index Fund, Nations Managed Value
Index Fund and Nations Managed SmallCap Value Index Fund, which 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/or reimbursements will continue. In
particular, to the extent other expenses are less than expected, waivers and/or
reimbursements of management fees, if any, may decrease. Shareholders will be
notified of any decrease that materially increases Total Operating Expenses. 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, "Management Fees" and "Total Operating Expenses" for Primary
A Shares of the indicated Fund would have been as follows: Nations Prime
Fund -- .20% and .34%, respectively; Nations Treasury Fund -- .20% and .34%,
respectively; Nations Government Money Market Fund -- .40% and .56%,
respectively; Nations Small Company Growth Fund -- 1.00% and 1.20%,
respectively; Nations Equity Index Fund -- .50% and .65%, respectively; Nations
Managed Index Fund -- .50% and .70%, respectively; Nations Managed SmallCap
Index Fund -- .50% and .70%, respectively; Nations Managed Value Index
Fund -- .50% and .70%, respectively; Nations Managed SmallCap Value Index
Fund -- .50% and .70%, respectively; Nations U.S. Government Bond Fund -- .60%
and .80%, respectively; Nations Short-Intermediate Government Fund -- .60% and
.82%, respectively; Nations Government Securities Fund -- .64% and .94%,
respectively; Nations Short-Term Income Fund -- .60% and .85%, respectively;
Nations Diversified Income Fund -- .60% and .85%, respectively; and Nations
Strategic Fixed Income Fund -- .60% and .80%, 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.
8
<PAGE>
Financial Highlights
The financial information on the following pages has been derived from the
audited 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 Fund's
investment operations and annual financial statements audited by the Funds'
independent accountant. Financial Highlights for Nations Managed Value Index
Fund and Nations Managed SmallCap Value Index Fund are not provided below
because neither Fund had yet commenced operations during the period indicated
below.
Information for Primary A Shares of Nations International Growth Fund, Nations
Small Company Growth Fund and Nations U.S. Government Bond Fund has been derived
from the audited financial statements dated May 16, 1997 for the Pilot Shares of
The Pilot Funds' Pilot International Equity Fund, Pilot Small Capitalization
Equity Fund and Pilot U.S. Government Securities Fund, the predecessor funds to
Nations International Growth Fund, Nations Small Company Growth Fund and Nations
U.S. Government Bond Fund, respectively. This information has been audited by
Arthur Andersen LLP and is provided to help you understand the historical
performance of the Funds and their predecessors. The reports of Arthur Andersen
LLP accompany the financial statements dated May 16, 1997 and are incorporated
by reference in the SAI, which is available upon request.
9
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97 03/31/96(a) 05/31/95 5/31/94
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0520 0.0468 0.0519 0.0318
Dividends from net investment income (0.0520) (0.0468) (0.0519) (0.0318)
Total dividends and distributions (0.0520) (0.0468) (0.0519) (0.0318)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.34% 4.79% 5.32% 3.22%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,533,688 $ 2,472,469 $ 2,873,096 $ 2,883,762
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 5.21% 5.62%+ 5.23% 3.20%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.35% 0.37%+ 0.38% 0.37%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0516 $ 0.0463 $ 0.0511 $ 0.0311
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 5/31/93
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0328
Dividends from net investment income (0.0328)
Total dividends and distributions (0.0328)
Net asset value, end of period $ 1.00
Total return++ 3.33%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,156,266
Ratio of operating expenses to average net assets 0.30%
Ratio of net investment income to average net assets 3.25%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.36%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0322
</TABLE>
NATIONS PRIME FUND (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 5/31/92 5/31/91 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0506 0.0749 0.0855 0.0839 0.0675
Dividends from net investment income (0.0506) (0.0749) (0.0855) (0.0839) (0.0675)
Total dividends and distributions (0.0506) (0.0749) (0.0855) (0.0839) (0.0675)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.19%+++ 7.75%+++ 8.88%+++ 8.71%+++ 6.94%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 500,476 $ 574,993 $ 433,298 $ 115,295 $ 264,063
Ratio of operating expenses to average net
assets 0.30% 0.30% 0.32% 0.35% 0.36%
Ratio of net investment income to average net
assets 5.03% 7.47% 8.43% 8.11% 6.73%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.42% 0.44% 0.50%+++ 0.55%+++ 0.56%+++
Net investment income per share without
waivers and/or expense reimbursements $ 0.0494 $ 0.0735 $ 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.
10
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97 03/31/96(a) 05/31/95 5/31/94
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0509 0.0458 0.0494 0.0297
Dividends from net investment income (0.0509) (0.0458) (0.0494) (0.0297)
Distribution from net realized capital gains -- (0.0000)# (0.0000)# --
Total dividends and distributions (0.0509) (0.0458) (0.0494) (0.0297)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.22% 4.67% 5.05% 2.99%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,345,585 $ 821,030 $ 2,896,868 $ 2,679,992
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 5.09% 5.52%+ 4.99% 2.97%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.35% 0.37%+ 0.35% 0.36%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0504 $ 0.0453 $ 0.0489 $ 0.0292
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 5/31/93
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0307
Dividends from net investment income (0.0307)
Distribution from net realized capital gains --
Total dividends and distributions (0.0307)
Net asset value, end of period $ 1.00
Total return++ 3.12%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,956,796
Ratio of operating expenses to average net assets 0.30%
Ratio of net investment income to average net assets 3.02%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.36%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0302
</TABLE>
NATIONS TREASURY FUND (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 5/31/92 5/31/91 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0483 0.0721 0.0829 0.0802 0.0630
Dividends from net investment income (0.0483) (0.0721) (0.0829) (0.0802) (0.0630)
Distributions from net realized capital gains -- -- -- -- --
Total dividends and distributions (0.0483) (0.0721) (0.0829) (0.0802) (0.0630)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.95%+++ 7.46%+++ 8.61%+++ 8.33%+++ 6.49%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $1,094,741 $ 955,186 $ 392,843 $ 90,946 $ 111,414
Ratio of operating expenses to average net
assets 0.29% 0.25% 0.25% 0.39% 0.38%
Ratio of net investment income to average net
assets 4.82% 7.04% 8.18% 7.93% 6.31%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.42% 0.43% 0.59%+++ 0.58%++++ 0.65%+++
Net investment income per share without
waivers and/or expense reimbursements $ 0.0470 $ 0.0703 $ 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.
11
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97 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 $ 1.00
Net investment income 0.0503 0.0173 0.0558 0.0375 0.0294 0.0358
Distributions:
Dividends from net
investment income (0.0503) (0.0173) (0.0558) (0.0375) (0.0294) (0.0358)
Distributions from net
realized capital gains -- -- -- (0.0000)# -- --
Total dividends and
distributions (0.0503) (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 $ 1.00
Total return++ 5.18% 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) $ 299,394 $ 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% 0.30% 0.42%
Ratio of net investment
income to average net
assets 5.03% 5.20%+ 5.58% 3.79% 2.91% 3.55%
Ratio of operating expenses
to average net assets
without waivers and/or
expense reimbursements 0.57% 0.59%+ 0.57% 0.59% 0.56% 0.58%
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.0476 $ 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.
12
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 16.60 $ 16.21 $ 12.98 $ 13.74
Net investment income 0.26 0.07 0.27 0.24
Net realized and unrealized gain/(loss) on investments 2.69 1.06 3.91 (0.23)
Net increase/(decrease) in net asset value from
operations 2.95 1.13 4.18 0.01
Distributions:
Dividends from net investment income (0.26) (0.12) (0.28) (0.23)
Distributions from net realized capital gains (1.42) (0.62) (0.67) (0.54)
Total dividends and distributions (1.68) (0.74) (0.95) (0.77)
Net asset value, end of period $ 17.87 $ 16.60 $ 16.21 $ 12.98
Total return++ 18.07% 7.20% 34.53% (0.08)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,200,853 $ 998,957 $ 956,669 $ 799,743
Ratio of operating expenses to average net assets 0.97%(c) 0.96%+ 0.94% 0.93%
Ratio of net investment income to average net assets 1.51% 1.30%+ 1.90% 1.85%
Portfolio turnover rate 47% 12% 63% 75%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.97%(c) 0.96%+ 0.94% 0.93%
Net investment income per share without waivers and/or
expense reimbursements $ 0.26(c) $ 0.07 $ 0.27 $ 0.24
Average commission rate paid (b) $ 0.0649 $ 0.0648 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
13
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97 03/31/96(a) 05/31/95 5/31/94 5/31/93
Operating performance:
Net asset value, beginning of period $ 13.14 $ 11.81 $ 11.43 $ 12.06 $ 11.41
Net investment income 0.43 0.30 0.42 0.38 0.37
Net realized and unrealized gain on
investments 1.55 1.77 1.11 0.22 1.08
Net increase in net asset value from
operations 1.98 2.07 1.53 0.60 1.45
Distributions:
Dividends from net investment income (0.41) (0.37) (0.42) (0.42) (0.35)
Distributions from net realized capital
gains (2.41) (0.37) (0.73) (0.81) (0.45)
Total dividends and distributions (2.82) (0.74) (1.15) (1.23) (0.80)
Net asset value, end of period $ 12.30 $ 13.14 $ 11.81 $ 11.43 $ 12.06
Total return++ 15.62% 17.98% 14.79% 5.00% 13.30%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 200,772 $ 283,142 $ 283,082 $ 225,740 $ 175,949
Ratio of operating expenses to average
net assets 0.91%(c) 0.90%+ 0.92% 0.94% 0.92%
Ratio of net investment income to
average net assets 3.09% 2.84%+ 3.75% 3.41% 3.37%
Portfolio turnover rate 102% 59% 158% 116% 55%
Ratio of operating expenses to average
net assets without waivers and/or
expense reimbursements 0.91%(c) 0.90%+ 0.93% 0.95% 1.04%
Net investment income/loss per share
without waivers and/or expense
reimbursements $ 0.43(c) $ 0.30 $ 0.42 $ 0.38 $ 0.36
Average commission rate paid (b) $ 0.0609 $ 0.0287 N/A N/A N/A
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 5/31/92 5/31/91*
Operating performance:
Net asset value, beginning of period $ 10.19 $ 10.00
Net investment income 0.34 0.05
Net realized and unrealized gain on
investments 1.25 0.14
Net increase in net asset value from
operations 1.59 0.19
Distributions:
Dividends from net investment income (0.30) --
Distributions from net realized capital
gains (0.07) --
Total dividends and distributions (0.37) --
Net asset value, end of period $ 11.41 $ 10.19
Total return++ 15.91%+++ 1.90%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 18,104 $ 10,194
Ratio of operating expenses to average
net assets 1.10% 1.12%+
Ratio of net investment income to
average net assets 3.15% 3.66%+
Portfolio turnover rate 84% 9%
Ratio of operating expenses to average
net assets without waivers and/or
expense reimbursements 2.21% 1.80%+
Net investment income/loss per share
without waivers and/or expense
reimbursements $ 0.22 $ (0.06)
Average commission rate paid (b) N/A 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursments and net investment income per share was less than 0.01% and
$0.01, respectively.
14
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97# 03/31/96(a)# 05/31/95# 5/31/94# 5/31/93#
Operating performance:
Net asset value, beginning of period $ 13.50 $ 11.75 $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.08 0.07 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on
investments 0.11 1.80 (0.20) 1.44 0.21
Net increase/(decrease) in net asset value
from operations 0.19 1.87 (0.06) 1.53 0.30
Distributions:
Dividends from net investment income (0.11) (0.06) (0.03) (0.05) (0.08)
Distributions in excess of net investment
income (0.00)(c) (0.04) -- -- --
Distributions from net realized capital
gains (0.42) (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized
capital gains (0.03) -- (0.10) -- --
Total dividends and distributions (0.56) (0.12) (0.25) (0.07) (0.10)
Net asset value, end of period $ 13.13 $ 13.50 $ 11.75 $ 12.06 $ 10.60
Total return++ 1.32% 16.01% (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 976,855 $ 849,731 $ 572,940 $ 401,599 $ 118,873
Ratio of operating expenses to average net
assets 1.16% 1.17%+ 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to
average net assets 0.62% 0.65%+ 1.17% 0.75% 1.03%
Portfolio turnover rate 36% 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) $ 0.0279 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.
(c) Amount represents less than $0.01 per share.
15
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES* 05/16/97 08/31/96 08/31/95 08/31/94
Operating performance:
Net asset value at the beginning of the period $ 17.05 $ 16.24 $ 16.34 $ 14.14
Net investment income/(loss) 0.05 0.18 0.13(f) 0.11(f)
Net realized and unrealized gain/(loss) on
investments 2.76 1.61 (0.22)(f) 1.65(f)
Net realized and unrealized gain/(loss) on
foreign currency related transaction (0.92) (0.13) 0.39(f) 0.59(f)
Total income (loss) from investment activities 1.89 1.66 0.30 2.35
Distributions from net investment income (0.17) (0.46) (0.11) --
Distributions from net realized gain on
investments and foreign currency related
transactions (0.34) (0.39) (0.29) (0.15)
Net asset value at the end of the period $ 18.43 $ 17.05 $ 16.24 $ 16.34
Total return (a) 11.28%(c) 10.64% 2.08% 16.75%
Portfolio turnover rate (g) 33.68% 22.31% 35.91% 35.40%
Ratio of expenses to average net assets 1.18%(d) 1.08% 1.18% 1.12%
Ratio of net investment income (loss) to average
net assets 0.47%(d) 0.69% 0.82% 0.75%
Net assets at end of period (in 000's) $ 701,033 $ 579,019 $ 363,212 $ 307,561
Average Commission Rate (h) $ 0.0107 $0.0160
<CAPTION>
EIGHT
MONTHS
ENDED
PRIMARY A SHARES* 08/31/93 (b)
Operating performance:
Net asset value at the beginning of the period $ 13.15
Net investment income/(loss) (0.01)(f)
Net realized and unrealized gain/(loss) on
investments 1.10(f)
Net realized and unrealized gain/(loss) on
foreign currency related transaction (0.10)(f)
Total income (loss) from investment activities 0.99
Distributions from net investment income --
Distributions from net realized gain on
investments and foreign currency related
transactions --
Net asset value at the end of the period $ 14.14
Total return (a) 7.53%(c)
Portfolio turnover rate (g) 26.65%(e)
Ratio of expenses to average net assets 1.31%(d)
Ratio of net investment income (loss) to average
net assets (0.56)%(d)
Net assets at end of period (in 000's) $ 195,548
Average Commission Rate (h)
</TABLE>
* Primary A Shares of Nations International Growth Fund were formerly Pilot
Shares of the Pilot International Equity Fund, a predecessor portfolio.
(a) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges.
(b) Pilot Shares were initially issued on July 26, 1993.
(c) Not annualized.
(d) Annualized.
(e) Excludes the transfer of assets effective on August 6, 1993 from a
collective trust for which Boatmen's Trust Company served as trustee.
(f) Calculated based on the average shares outstanding methodology.
(g) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued and is not
annualized.
(h) The average commission rate represents the total dollar amount of
commissions paid on portfolio transactions divided by the total number of
portfolio shares purchased and sold for which commissions were charged.
Disclosure is not required for prior periods.
16
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
<S> <C>
YEAR
ENDED
PRIMARY A SHARES 03/31/97#
Operating performance:
Net asset value, beginning of period $ 10.34
Net investment income/(loss) 0.01
Net realized and unrealized gain on investments 1.21
Net increase in net asset value from operations 1.22
Distributions:
Dividends from net investment income (0.02)
Distributions in excess of net investment income (0.07)
Distributions from net realized capital gains (0.06)
Total dividends and distributions (0.15)
Net asset value, end of period $ 11.41
Total return++ 11.97%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 76,483
Ratio of operating expenses to average net assets 1.74%
Ratio of net investment income to average net assets 0.13%
Portfolio turnover rate 31%
Average commission rate paid (a) $ 0.0003
<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 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.
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
<S> <C>
YEAR
ENDED
PRIMARY A SHARES 03/31/97
Operating performance:
Net asset value, beginning of period $ 10.24
Net investment income/(loss) 0.04
Net realized and unrealized gain/(loss) on investments 0.19
Net increase/(decrease) in net asset value from operations 0.23
Distributions:
Dividends from net investment income (0.03)
Distributions in excess of net investment income (0.03)
Total dividends and distributions (0.06)
Net asset value, end of period $ 10.41
Total return++ 2.18%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 122,887
Ratio of operating expenses to average net assets 1.42%
Ratio of net investment income/(loss) to average net assets 0.39%
Portfolio turnover rate 78%
Average commission rate paid (a) $ 0.0126
<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 --
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 (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 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.
17
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97## 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 13.43 $ 14.24 $ 11.23 $ 11.08 $ 10.68
Net investment income/(loss) 0.05 0.02 0.09 0.09 0.09
Net realized and unrealized gain on
investments 1.66 0.38 3.28 0.14 0.42
Net increase in net asset value from
operations 1.71 0.40 3.37 0.23 0.51
Distributions:
Dividends from net investment income (0.05) (0.02) (0.10) (0.08) (0.10)
Distributions from net realized capital
gains (3.39) (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (3.44) (1.21) (0.36) (0.08) (0.11)
Net asset value, end of period $ 11.70 $ 13.43 $ 14.24 $ 11.23 $ 11.08
Total return++ 11.88% 3.14% 30.96% 2.14% 4.84%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 533,168 $ 839,300 $ 867,361 $ 717,914 $ 646,661
Ratio of operating expenses to average net
assets 0.96%(d) 0.96%+ 0.98% 0.90% 0.80%
Ratio of net investment income/(loss) to
average net assets 0.39% 0.38%+ 0.71% 0.85% 0.84%
Portfolio turnover rate 75% 25% 80% 56% 81%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.96% 0.96%+ 0.98% 0.91% 0.89%
Net investment income/(loss) per share
without waivers and/or expense
reimbursements $ 0.05 $ 0.02 $ 0.09 $ 0.09 $ 0.08
Average commission rate paid (c) $ 0.0604 $ 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.
## 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
results of operations.
(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.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
18
<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97# 03/31/96#(a) 11/30/95 11/30/94#
Operating performance:
Net asset value, beginning of period $ 14.04 $ 14.28 $ 11.41 $ 10.87
Net investment income/(loss) (0.04) (0.00)(b) 0.01 (0.03)
Net realized and unrealized gain on investments 0.20 1.26 3.26 0.71
Net increase in net asset value from operations 0.16 1.26 3.27 0.68
Distributions:
Distributions from net realized capital gains (1.34) (1.50) (0.40) (0.14)
Total dividends and distributions (1.34) (1.50) (0.40) (0.14)
Net asset value, end of period $ 12.86 $ 14.04 $ 14.28 $ 11.41
Total return++ 0.48% 9.87% 29.95% 6.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 267,319 $ 295,764 $ 269,484 $ 182,459
Ratio of operating expenses to average net assets 0.98%(d) 0.99%+ 0.98% 1.01%
Ratio of net investment income/(loss) to average net assets (0.26)% (0.06)%+ 0.08% (0.29)%
Portfolio turnover rate 93% 39% 139% 129%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.98%(d) 0.99%+ 0.98% 1.01%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.04)(d) $ (0.00)(b) $ 0.01 $ (0.03)
Average commission rate paid (c) $ 0.0562 $ 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.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
19
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS SMALL COMPANY GROWTH FUND
<TABLE>
<CAPTION>
<S> <C>
PERIOD
ENDED
PRIMARY A SHARES* 5/16/97
Operating performance:
Net asset value at the beginning of the period $ 10.65
Net investment income 0.04
Net realized and unrealized gain on investments and futures 1.47
Total income from investment activities 1.51
Distributions from net investment income (0.04)
Distributions from net realized gains (0.05)
Net asset value at the end of the period $ 12.07
Total return (b) 14.21%
Ratio of expenses to average net assets 0.98%(c)
Ratio of net investment income to average net assets 0.54%(c)
Portfolio turnover rate (e) 48%
Net assets at end of period (in 000's) $ 109,450
Ratio of expenses to average net assets (assuming no waivers or expense reimbursements) 1.41%(c)
Ratio of net investment income to average net assets (assuming no waivers or expense
reimbursements) 0.11%(c)
Average Commission Rate (d) $ .0323
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES* 08/31/96(a)
Operating performance:
Net asset value at the beginning of the period $ 10.00
Net investment income 0.09
Net realized and unrealized gain on investments and futures 0.64
Total income from investment activities 0.73
Distributions from net investment income (0.08)
Distributions from net realized gains --
Net asset value at the end of the period $ 10.65
Total return (b) 7.37%
Ratio of expenses to average net assets 1.00%(c)
Ratio of net investment income to average net assets 1.06%(c)
Portfolio turnover rate (e) 31%
Net assets at end of period (in 000's) $ 70,483
Ratio of expenses to average net assets (assuming no waivers or expense reimbursements) 1.54%(c)
Ratio of net investment income to average net assets (assuming no waivers or expense reimbursements) 0.52%(c)
Average Commission Rate (d) $.0340
</TABLE>
* Primary A Shares of Nations Small Company Growth Fund were formerly Pilot
Shares of the Pilot Small Capitalization Equity Fund, a predecessor
portfolio.
(a) Share activity commenced December 12, 1995.
(b) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return is not annualized.
(c) Annualized.
(d) The average commission rate represents the total dollar amount of
commissions paid on portfolio transactions divided by the total number of
portfolio shares purchased and sold for which commissions were charged.
Disclosure is not required for prior periods.
(e) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued.
20
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94* 04/29/94*
Operating performance:
Net asset value, beginning of period $ 17.19 $ 17.06 $ 13.08 $ 13.31 $ 13.65
Net investment income/(loss) 0.14 0.05 0.10 0.01 (0.05)
Net realized and unrealized gain/(loss) on
investments 2.79 0.35 3.96 (0.23)# 2.66
Net increase/(decrease) in net asset value
from operations 2.93 0.40 4.06 (0.22) 2.61
Distributions:
Dividends from net investment income (0.14) (0.04) (0.08) (0.01) --
Distributions from net realized capital gains (1.51) (0.23) -- -- (2.95)
Return of capital -- -- -- (0.00)(b) --
Total dividends and distributions (1.65) (0.27) (0.08) (0.01) (2.95)
Net asset value, end of period $ 18.47 $ 17.19 $ 17.06 $ 13.08 $ 13.31
Total return++ 17.00% 2.44% 31.13% (1.62)% 18.79%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 100,260 $ 116,469 $ 109,939 $ 9,947 $ 8,079
Ratio of operating expenses to average net
assets 1.04%(d) 1.02%+ 1.30% 1.13%+ 1.20%+
Ratio of net investment income/(loss) to
average net assets 0.70% 0.82%+ 0.85% 0.12%+ (0.60)%+
Portfolio turnover rate 120% 47% 124% 177% 475%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.04% 1.02%+ 1.30% 1.56%+ 1.53%+
Net investment income/(loss) per share
without waivers and/or expense
reimbursements $ 0.14 $ 0.05 $ 0.10 $ (0.03) $ (0.08)
Average commission rate paid (c) $ 0.0377 $ 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.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
21
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INDEX FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97 03/31/96(a) 11/30/95
Operating performance:
Net asset value, beginning of period $ 13.58 $ 12.91 $ 9.84
Net investment income 0.26 0.08 0.28
Net realized and unrealized gain/(loss) on investments 2.36 0.86 3.20
Net increase in net asset value from operations 2.62 0.94 3.48
Distributions:
Dividends from net investment income (0.26) (0.13) (0.28)
Distributions from net realized capital gains (0.05) (0.14) (0.13)
Total dividends and distributions (0.31) (0.27) (0.41)
Net asset value, end of period $ 15.89 $ 13.58 $ 12.91
Total return++ 19.41% 7.33% 36.35%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 567,039 $ 192,388 $ 145,021
Ratio of operating expenses to average net assets 0.35%(c) 0.35%+ 0.37%
Ratio of operating expenses to average net assets including interest
expense N/A 0.35%+ 0.38%
Ratio of net investment income to average net assets 1.91% 1.99%+ 2.44%
Portfolio turnover rate 5% 2% 18%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.70%(c) $ 0.73%+ 0.78%
Net investment income per share without waivers and/or expense
reimbursements $ 0.21(c) $ 0.07 $ 0.23
Average commission to be paid (b) $ 0.0173 $ 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
22
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS MANAGED INDEX FUND
<TABLE>
<CAPTION>
<S> <C>
PERIOD
ENDED
PRIMARY A SHARES 03/31/97*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.15
Net realized and unrealized gain on investments 1.87
Net increase in net asset value from operations 2.02
Dividends from net investment income (0.13)
Total dividends and distributions (0.13)
Net asset value, end of period $ 11.89
Total return++ 20.22%
Ratio to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 42,226
Ratio of operating expenses to average net assets 0.50%+(b)
Ratio of net investment income to average net assets 1.92%+
Portfolio turnover rate 17%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.05%+(b)
Net investment income per share without waivers and/or expense reimbursements $ 0.12(b)
Average commission rate paid(a) $ 0.0259
</TABLE>
* Nations Managed Index Fund's Primary A Shares commenced operations on July
31, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
23
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS MANAGED SMALLCAP INDEX FUND
<TABLE>
<CAPTION>
<S> <C>
PERIOD
ENDED
PRIMARY A SHARES 03/31/97*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.03
Net realized and unrealized gain/(loss) on investments (0.17)
Net increase/(decrease) in net asset value from operations (0.14)
Dividends from net investment income (0.03)
Distributions in excess of net investment income (0.00)(b)
Total dividends and distributions (0.03)
Net asset value, end of period $ 9.83
Total return++ (1.37)%
Ratio to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 40,851
Ratio of operating expenses to average net assets 0.50%+
Ratio of net investment income to average net assets 1.05%+
Portfolio turnover rate 18%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.21%+
Net investment income per share without waivers and/or expense reimbursements $ 0.01
Average commission rate paid(a) $ 0.0279
</TABLE>
* Nations Managed SmallCap Index Fund's Primary A Shares commenced operations
on October 15, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
(b) Amount represents less than $0.01 per share.
24
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 11.65 $ 12.68 $ 10.44 $ 10.87 $ 10.24
Net investment income 0.39 0.11 0.38 0.25 0.29
Net realized and unrealized gain/(loss) on
investments 1.03 0.45 2.21 (0.43) 0.64
Net increase/(decrease) in net asset value
from operations 1.42 0.56 2.59 (0.18) 0.93
Distributions:
Dividends from net investment income (0.38) (0.18) (0.33) (0.25) (0.30)
Distributions from net realized capital gains (1.54) (1.41) (0.02) -- --
Total dividends and distributions (1.92) (1.59) (0.35) (0.25) (0.30)
Net asset value, end of period $ 11.15 $ 11.65 $ 12.68 $ 10.44 $ 10.87
Total return++ 12.50% 4.90% 25.27% (1.73)% 9.22%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 135,731 $ 164,215 $ 163,198 $ 162,215 $ 178,270
Ratio of operating expenses to average net
assets 1.00%(c) 1.00%+ 0.99% 0.98% 0.90%
Ratio of net investment income to average net
assets 3.31% 2.91%+ 3.25% 2.31% 2.82%
Portfolio turnover rate 264% 83% 174% 156% 50%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.00%(c) 1.00%+ 0.99% 0.99% 0.97%
Net investment income per share without
waivers and/or expense reimbursements $ 0.39(c) $ 0.11 $ 0.38 $ 0.25 $ 0.29
Average commission rate paid (b) $ 0.0563 $ 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
25
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS U.S. GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD PERIOD
ENDED ENDED
PRIMARY A SHARES 05/16/97 08/31/96
Operating performance:
Net asset value at the beginning of the period $ 10.53 $ 11.20
Net investment income 0.41 0.61
Net realized and unrealized gain/(loss) on investments 0.17 (0.22)
Total income from investment activities 0.58 0.39
Distributions from net investment income (0.41) (0.61)
Distributions from net realized gains (0.51) (0.45)
Total distributions (0.92) (1.06)
Net asset value at the end of the period 10.19 10.53
Total return (b) 5.62% 3.46%
Ratio of expenses to average net assets 0.62%(c) 0.65%
Ratio of net investment income to average net assets 5.60%(c) 5.61%
Portfolio turnover rate (d) 58% 87%
Net assets at end of period (in 000's) $ 148,082 $ 145,066
Ratio of expenses to average net assets (assuming no waiver or expense reimbursements) 0.77%(c) 0.82%(c)
Ratio of net investment income to average net assets (assuming no waiver or expense
reimbursements) 5.45%(c) 5.44%
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 08/31/95(a)
Operating performance:
Net asset value at the beginning of the period $ 10.00
Net investment income 0.56
Net realized and unrealized gain/(loss) on investments 1.20
Total income from investment activities 1.76
Distributions from net investment income (0.56)
Distributions from net realized gains --
Total distributions (0.56)
Net asset value at the end of the period 11.20
Total return (b) 18.03%
Ratio of expenses to average net assets 0.62%(c)
Ratio of net investment income to average net assets 6.45%(c)
Portfolio turnover rate (d) 132%
Net assets at end of period (in 000's) $ 137,261
Ratio of expenses to average net assets (assuming no waiver or expense reimbursements) 0.87%(c)
Ratio of net investment income to average net assets (assuming no waiver or expense
reimbursements) 6.20%(c)
</TABLE>
* Primary A Shares of Nations U.S. Government Bond Fund were formerly Pilot
Shares of the Pilot U.S. Government Securities Fund, a predecessor portfolio.
(a) Pilot Share activity commenced November 7, 1994.
(b) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return is not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued.
26
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97# 03/31/96(a)# 11/30/95# 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16
Net investment income 0.23 0.07 0.24 0.23 0.23
Net realized and unrealized
gain/(loss) on investments (0.08) (0.07) 0.21 (0.33) 0.14
Net increase/(decrease) in net asset
value from operations 0.15 0.00 0.45 (0.10) 0.37
Distributions:
Dividends from net investment income (0.23) (0.07) (0.24) (0.23) (0.23)
Distributions in excess of net
investment income -- (0.00)(b) (0.00)(b) (0.00)(b) --
Distributions from net realized
capital gains -- -- -- (0.02) (0.02)
Total dividends and distributions (0.23) (0.07) (0.24) (0.25) (0.25)
Net asset value, end of period $ 3.99 $ 4.07 $ 4.14 $ 3.93 $ 4.28
Total return++ 3.72% 0.07% 11.70% (2.23)% 9.03%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 371,118 $ 399,915 $ 425,200 $ 433,278 $ 443,426
Ratio of operating expenses to
average net assets 0.63%(c)(d) 0.63%+ 0.60% 0.59% 0.55%
Ratio of net investment income to
average net assets 5.73% 5.32%+ 5.88% 5.76% 5.40%
Portfolio turnover rate 529% 189% 328% 133% 92%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 0.83%(d) 0.86%+ 0.80% 0.80% 0.79%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.22(d) $ 0.06 $ 0.23 $ 0.22 $ 0.22
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/92 11/30/91*
Operating performance:
Net asset value, beginning of period $ 4.17 $ 4.00##
Net investment income 0.28 0.10
Net realized and unrealized
gain/(loss) on investments (0.01) 0.17
Net increase/(decrease) in net asset
value from operations 0.27 0.27
Distributions:
Dividends from net investment income (0.28) (0.10)
Distributions in excess of net
investment income -- --
Distributions from net realized
capital gains -- --
Total dividends and distributions (0.28) (0.10)
Net asset value, end of period $ 4.16 $ 4.17
Total return++ 6.70%+++ 6.81%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 360,497 $ 158,435
Ratio of operating expenses to
average net assets 0.37% 0.08%+
Ratio of net investment income to
average net assets 6.48% 7.21%+
Portfolio turnover rate 25% 11%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 0.77% 0.82%+
Net investment income per share
without waivers and/or expense
reimbursements $ 0.26 $ 0.00(b)
</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.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
27
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97# 03/31/96(a)# 05/31/95# 05/31/94 05/31/93#
Operating performance:
Net asset value, beginning of period $ 9.67 $ 9.86 $ 9.80 $ 10.46 $ 10.36
Net investment income 0.60 0.52 0.64 0.64 0.71
Net realized and unrealized
gain/(loss) on investments (0.30) (0.19) 0.06 (0.61) 0.13
Net increase/(decrease) in net asset
value from operations 0.30 0.33 0.70 0.03 0.84
Distributions:
Dividends from net investment income (0.58) (0.50) (0.60) (0.58) (0.70)
Dividends in excess of net investment
income -- (0.02) -- (0.02) --
Distributions in excess of net
realized capital gains -- -- -- (0.05) (0.04)
Distributions from capital (0.00)(b) -- (0.04) (0.04) --
Total dividends and distributions (0.58) (0.52) (0.64) (0.69) (0.74)
Net asset value, end of period $ 9.39 $ 9.67 $ 9.86 $ 9.80 $ 10.46
Total return++ 3.18% 3.41% 7.55% 0.06% 8.37%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 52,606 $ 55,962 $ 39,909 $ 44,536 $ 40,472
Ratio of operating expenses to average
net assets 0.80% 0.80%+ 0.76% 0.73% 0.85%
Ratio of net investment income to
average net assets 6.28% 6.36%+ 6.69% 6.08% 6.67%
Portfolio turnover rate 468% 199% 413% 56% 103%
Ratio of operating expenses to average
net assets without waivers and/or
expense reimbursements 0.94% 0.95%+ 0.94% 0.94% 1.00%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.59 $ 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 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.
(b) Amount represents less than $0.01.
28
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97# 03/31/96(a)# 11/30/95# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.76 $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.58 0.20 0.61 0.50 0.53
Net realized and unrealized gain/(loss) on
investments (0.08) (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value
from operations 0.50 0.12 0.97 (0.01) 0.79
Distributions:
Dividends from net investment income (0.58) (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 (0.58) (0.20) (0.61) (0.52) (0.53)
Net asset value, end of period $ 9.68 $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 5.25% 1.19% 10.48% (0.11)% 8.26%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 181,455 $ 179,957 $ 169,291 $ 176,712 $ 201,738
Ratio of operating expenses to average net
assets 0.55%(b) 0.55%+ 0.56% 0.50% 0.37%
Ratio of net investment income to average net
assets 5.97% 6.07%+ 6.32% 5.23% 5.27%
Portfolio turnover rate 172% 73% 224% 293% 121%
Ratio of operating expenses to average net
assets
without waivers and/or expense
reimbursements 0.85% 0.88%+ 0.86% 0.82% 0.79%
Net investment income per share without
waivers and/or expense reimbursements $ 0.55 $ 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 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) The effect of interest expense on the operating expense ratio was less than
0.01%
29
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED YEAR
PRIMARY A SHARES 03/31/97# 03/31/96(a) 11/30/95 11/30/94# ENDED 11/30/93#
Operating performance:
Net asset value, beginning of period $ 10.42 $ 10.82 $ 9.67 $ 10.88 $ 9.97
Net investment income 0.69 0.23 0.73 0.74 0.78
Net realized and unrealized gain/(loss) on
investments (0.18) (0.40) 1.15 (1.06) 0.91
Net increase/(decrease) in net asset value
from operations 0.51 (0.17) 1.88 (0.32) 1.69
Distributions:
Dividends from net investment income (0.69) (0.23) (0.73) (0.74) (0.78)
Distributions in excess of net investment
income -- -- -- (0.00)(b) --
Distributions from net realized capital
gains (0.13) -- -- (0.15) --
Total dividends and distributions (0.82) (0.23) (0.73) (0.89) (0.78)
Net asset value, end of period $ 10.11 $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ 4.97% (1.59)% 20.11% (3.05)% 17.40%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 152,070 $ 65,081 $ 64,800 $ 22,298 $ 28,553
Ratio of operating expenses to average net
assets 0.75%(c) 0.77%+ 0.80% 0.74% 0.55%
Ratio of net investment income to average
net assets 6.73% 6.49%+ 7.03% 7.31% 7.02%
Portfolio turnover rate 278% 69% 96% 144% 86%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.85%(c) 0.87%+ 0.93% 0.95% 0.95%
Net investment income per share without
waivers and/or expense reimbursements $ 0.67(c) $ 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 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
30
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97# 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.93 $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.58 0.19 0.59 0.53 0.56
Net realized and unrealized gain/(loss) on
investments (0.20) (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value
from operations 0.38 (0.10) 1.49 (0.36) 1.18
Distributions:
Dividends from net investment income (0.58) (0.19) (0.59) (0.51) (0.56)
Distributions in excess of net investment
income -- -- -- (0.02) --
Distributions from net realized capital gains (0.11) -- -- (0.34) (0.01)
Distributions from capital $ (0.00)(b) -- -- -- --
Total dividends and distributions $ (0.69) (0.19) (0.59) (0.87) (0.57)
Net asset value, end of period $ 9.62 $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ 3.90% (1.04)% 16.45% (3.58)% 12.05%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 947,277 $ 823,890 $ 823,098 $ 550,697 $ 545,538
Ratio of operating expenses to average net
assets 0.71%(c) 0.72%+ 0.71% 0.68% 0.61%
Ratio of net investment income to average net
assets 5.98% 5.49%+ 6.05% 5.43% 5.40%
Portfolio turnover rate 368% 133% 228% 307% 161%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.81%(c) 0.83%+ 0.81% 0.76% 0.77%
Net investment income per share without
waivers and/or expense reimbursements $ 0.57(c) $ 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 --
Distributions from capital --
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.
# 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
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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
31
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
<S> <C>
YEAR
ENDED
PRIMARY A SHARES 03/31/97#
Operating performance:
Net asset value, beginning of period $ 10.07
Net investment income/(loss) 0.47
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase in net asset value from operations 0.44
Distributions:
Dividends from net investment income (0.46)
Distributions in excess of net investment income (0.10)
Distributions from net realized capital gains (0.16)
Total dividends and distributions (0.72)
Net asset value, end of period $ 9.79
Total return++ 4.25%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 28,130
Ratio of operating expenses to average net assets 1.26%
Ratio of net investment income/(loss) to average net assets 4.60%
Portfolio turnover rate 100%
<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.
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 regions, including developing countries.
NATIONS INTERNATIONAL GROWTH FUND: Nations International Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of companies domiciled in countries outside the United
States and listed on major stock exchanges primarily in Europe and the Pacific
Basin.
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 market 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).
32
<PAGE>
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 SMALL COMPANY GROWTH FUND: Nations Small Company Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities.
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.
INDEX FUNDS:
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.
NATIONS MANAGED INDEX FUND: Nations Managed Index Fund's investment objective is
to seek, over the long-term, to provide a total return which (gross of fees and
expenses) exceeds the total return of the Standard & Poor's 500 Composite Stock
Price Index.
NATIONS MANAGED SMALLCAP INDEX FUND: Nations Managed SmallCap Index Fund's
investment objective is to seek, over the long-term, to provide a total return
which (gross of fees and expenses) exceeds the total return of the Standard &
Poor's SmallCap 600 Index.
NATIONS MANAGED VALUE INDEX FUND: Nations Managed Value Index Fund's investment
objective is to seek, over the long-term, to provide a total return that (gross
of fees and expenses) exceeds the total return of the S&P 500/BARRA Value Index.
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: Nations Managed SmallCap Value Index
Fund's investment objective is to seek, over the long-term, to provide a total
return that (gross of fees and expenses) exceeds the total return of the S&P
SmallCap 600/BARRA Value 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 U.S. GOVERNMENT BOND FUND: Nations U.S. Government Bond Fund's
investment objective is to seek total return and preservation of capital by
investing in U.S. Government securities and repurchase agreements.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests 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 high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-term
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 high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing 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 in investment grade
fixed income securities.
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to seek 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. Investments in a Fund are not insured against loss of principal.
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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 (together, with U.S. Treasury Obligations,
"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 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. In addition, the Fund may
lend its portfolio securities to qualified institutional investors. Although the
Fund is permitted to invest a portion of its assets in second tier securities
(as defined below) in accordance with Rule 2a-7 under the Investment Company Act
of 1940 (the "1940 Act"), the Fund invests only in first tier securities (as
defined below). 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 and
repurchase agreements secured by such obligations. The Fund may lend its
portfolio securities to qualified institutional investors. Although the Fund is
permitted to invest a portion of its assets in second tier securities (as
defined below) in accordance with Rule 2a-7 under the 1940 Act, the Fund invests
only in first tier securities (as defined below). 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. Although the Fund may invest in
repurchase agreements it does not currently intend to do so. 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. Although the Fund is permitted to invest a portion of
its assets in second tier securities (as defined below) in accordance with Rule
2a-7 under the 1940 Act, the Fund invests only in first tier securities (as
defined below). For more information concerning these instruments, see "Appendix
A."
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Money Market
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 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 greater maturities, provided
such obligations are subject to demand features or resets which are less than
397 days, 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 nationally recognized statistical rating organization
("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, 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
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than the requirements of Rule 2a-7, the Money Market Fund's own restrictions
will govern.
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/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 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 and repurchase
agreements. 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 provided by the stocks in the
Standard & Poor's 500 Composite Stock Price Index(1) ("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 (corpo-
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
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<PAGE>
rate 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 and repurchase
agreements. 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"), Global
Depositary Receipts ("GDRs"), European Depository Receipts ("EDRs"), American
Depository Shares ("ADSs"), bonds, notes, other debt securities of foreign
issuers and securities of foreign investment funds or trusts and real estate
investment trust securities.
NATIONS INTERNATIONAL GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in foreign equity securities listed on major exchanges, consisting of common
stocks, preferred stocks and convertible securities, such as warrants, rights
and convertible debt. The Fund may purchase the stock of small-, mid- and
large-capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Directors, the former Soviet Union and the
Middle East. Debt securities, if any, purchased by the Fund will be rated in the
top two categories by an NRSRO, or, if unrated, determined by the Adviser to be
of comparable quality. For temporary defensive purposes, the Fund may invest up
to 100% of its assets in debt and equity securities of U.S. issuers. Debt
securities in which the Fund may invest include short-term and intermediate-term
obligations of corporations, foreign governments and international organizations
(such as the International Bank for Reconstruction and Development (the "World
Bank")), including money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements. The Fund also may invest in ADRs, GDRs, EDRs and ADSs.
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 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
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<PAGE>
in equity securities of emerging market issuers offers significant potential for
long-term capital appreciation.
Emerging market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the 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.
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, 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
International Growth 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.
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 sin-
37
<PAGE>
gle 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 International Growth 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, EDRs, GDRs 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.
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 and repurchase
agreements. 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 equity securities,
consisting of common stocks, preferred stocks and convertible securities, such
as warrants, rights 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 and repurchase agreements. 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 greater than that of larger
companies. Many of these stocks trade
38
<PAGE>
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, it may invest up to 20% of its total assets in foreign securities.
NATIONS SMALL COMPANY GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in equity securities, consisting of common stocks, preferred stocks and
convertible securities, such as warrants, rights and convertible debt. In
addition, the Fund will invest at least 65% of its total assets in companies
with a market capitalization of $1 billion or less.
In making investment decisions for the Fund, the Adviser, on a quarterly basis,
classifies approximately 6,000 companies by market value and eliminates the
largest 20%. The remaining companies constitute the Fund's small-capitalization
universe and generally represent only one-tenth of the aggregate U.S. equity
market capitalization. Due to the large number of small stocks to choose from,
the Adviser's selection process uses advanced quantitative techniques to
identify, buy and sell candidates in a timely and objective manner. The strategy
is to own those investments offering both attractive fundamental valuation and
relatively good prospects for earnings improvement. Typically, two types of
companies are candidates for purchase: (i) mature companies which may have
fallen from a larger market due to business difficulties, but which now exhibit
improving prospects; and (ii) smaller or younger companies which are
experiencing strong trends in earnings growth, but remain reasonably valued and
therefore offer premium growth at a discount in comparison to other companies.
The Adviser's internally designed investment approach uses a sophisticated
valuation process which measures changes in current earnings estimates and
longer-term growth trends, compares recent earnings results with market
expectations, and evaluates a company's earnings power relative to its stock
price. Companies become purchase candidates based upon a composite ranking of
these factors, and the top 20% are further evaluated on additional criteria.
Candidates for investment must also possess a sound financial structure and
demonstrate consistent factor rankings before being added to the Fund's
portfolio.
The Fund's weighted median capitalization generally is not expected to exceed
125% of the weighted median capitalization of the Russell 2000 Small Stock Index
(the "Russell 2000") as measured on a quarterly basis, although this may vary
from time to time. Furthermore, a stock may be sold if the composite rank falls
into the bottom 20% of the universe, financial quality weakens significantly, or
if individual factors demonstrate patterns of deterioration.
The Fund may invest up to 35% of its total assets in securities of issuers with
a market capitalization greater than $1 billion and in debt securities. However,
the Fund will not invest more than 10% of its total assets in debt securities,
unless the Fund assumes a temporary defensive position as discussed below. Debt
securities, if any, purchased by the Fund will be rated AA or above by S&P or Aa
or above by Moody's or, if unrated, determined by the Adviser to be of
comparable quality. For temporary defensive purposes, the Fund may invest up to
100% of its assets in debt securities. Debt securities in which the Fund may
invest include short-term and intermediate-term obligations of corporations, the
U.S. and foreign governments and international organizations (such as the World
Bank) and money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements. The Fund currently intends to limit any investment in foreign
securities to 5% of total assets.
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 the Fund, the Adviser utilizes quantitative analysis and
optimization tools. This approach seeks to identify companies with improving
profit potential through analysis of 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. The quantitative analysis also includes ranking the attractiveness
of equity securities according to a multi-factor valuation model. Both value and
growth factors are considered in the ranking process. Value factors such as book
value, earnings yield and cash flow measure a stock's intrinsic worth versus its
market price, while growth characteristics such as price momentum, earnings
growth and earnings acceleration mea-
39
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sure a stock relative to others in the same industry. The objective is to
maintain a broadly diversified portfolio which ranks in the top quartile on
earnings momentum and in the top third on valuation. This approach generally
produces a dividend yield less than the market average. Although this Fund seeks
to invest in attractively priced securities with increasing earnings, its
investment objective focuses on long-term capital appreciation; income is not an
objective of this 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, money
market instruments and repurchase agreements.
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 and may invest in repurchase agreements,
restricted, private placement and other illiquid securities. Each Equity Fund
also may invest in real estate investment trust securities. In addition, each
Equity Fund may invest in securities issued by other investment companies,
consistent with the Fund's investment objective and policies and repurchase
agreements. Nations International Equity Fund, Nations International Growth
Fund, Nations Pacific Growth Fund and Nations Emerging Markets Fund may invest
in forward foreign exchange contracts.
For more information concerning these and other investments in which the Funds
may invest and their investment practices, see "Appendix A."
INDEX FUNDS:
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 S&P 500 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 S&P 500
Index's value. Subject to applicable law, the Fund will purchase stock of
NationsBank Corporation to the extent of its proportional make-up of the S&P 500
Index.
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 S&P 500 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 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 "index-
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ing" investment approach, attempts to duplicate the performance of the S&P 500
Index.
The correlation between the performance of Nations Equity Index Fund (before
fees and expenses) 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 S&P
500 Index in all cases, and may involve additional credit risks. The Fund may
also invest in warrants.
NATIONS MANAGED INDEX FUND: In seeking to achieve its investment objective, the
Fund will invest in selected equity securities that are included in the S&P 500
Index. The S&P 500 Index is a market capitalizaton weighted index consisting of
500 common stocks chosen for market size, liquidity and industry group
representation.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P 500 Index while minimizing
the downside risk of underperforming the S&P 500 Index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index. The
Adviser ranks the attractiveness of each security according to a multi-factor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration measure a stock relative to others in the same industry. A second
quantitative model which measures the earnings momentum of each security is
added to the screening process to serve as a validity check in the portfolio
construction process. Each stock is assigned a ranking from 1 to 10 (best to
worst). The Adviser then either underweights or eliminates the less attractive
securities and modestly emphasizes the most attractive stocks resulting in a
portfolio of 300 to 400 holdings that capture the overall investment
characteristics of the S&P 500 Index.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical and, in any event the Fund will invest at least
80% of its total assets, in common stocks which are included in the S&P 500
Index. The Fund is expected, however, to maintain a 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
Obligations and repurchase agreements.
NATIONS MANAGED SMALLCAP INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the Standard & Poor's SmallCap 600 Index ("the S&P 600 Index.")(2) The S&P
600 Index is a market capitalization weighted index consisting of 600 domestic
stocks which capture the economic and industry characteristics of small stock
performance.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P 600 Index while minimizing
the downside risk of underperforming the S&P 600 Index over time.
(2) "Standard & Poor's SmallCap 600" is a registered service mark of S&P.
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From the initial S&P 600 Index stock universe the Adviser ranks the
attractiveness of each security according to a multi-factor valuation model.
Both value and momentum factors are considered in the ranking process. Value
factors such as book value, earnings yield and cash flow measure a stock's
intrinsic worth versus its market price, while momentum characteristics such as
price momentum, earnings growth and earnings acceleration measure a stock
relative to others in the same industry. A second quantitative model which
measures the earnings momentum of each security is added to the screening
process to serve as a validity check in the portfolio construction process. Each
stock is assigned a ranking from 1 to 10 (best to worst). The Adviser then
either underweights or eliminates the less attractive securities and modestly
emphasizes the most attractive stocks resulting in a portfolio of approximately
400 to 500 holdings that capture the overall investment characteristics of the
S&P 600 Index.
Under normal conditions, substantially all of the Fund's assets, and, in any
event at least 80% of its total assets, will be invested in common stocks which
are included in the S&P 600 Index. The Fund is expected, however, to maintain a
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 Obligations and repurchase agreements.
NATIONS MANAGED VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P 500/BARRA Value Index ("S&P/BARRA Value Index"). The S&P/BARRA Value
Index is a subset of the S&P 500 Index. The S&P 500 Index is a market
capitalization weighted index consisting of 500 common stocks chosen for market
size, liquidity and industry group representation. The S&P/BARRA Value Index is
a market capitalization weighted index consisting of approximately 340 common
stocks selected from the S&P 500 Index on the basis of a lower than average
price-to-book ratio. Because of their lower than average price-to-book ratios,
stocks in the S&P/BARRA Value Index, on average, typically exhibit higher yields
than stocks in the S&P 500 Index. Historically, stocks in the S&P/BARRA Value
Index, on average, have exhibited less short-term volatility than stocks in the
S&P 500 Index.
S&P constructs the S&P/BARRA Value Index semi-annually by ranking all common
stocks included in the S&P 500 Index by their price-to-book ratios. The
resulting list is then divided in half by market capitalization. Stocks in the
half of the list that have lower price-to-book ratios are included in the
S&P/BARRA Value Index.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity value index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA Value Index while
reducing the downside risk of underperforming the S&P/BARRA Value Index over
time.
The initial stock universe considered by the Adviser is the S&P/BARRA Value
Index. The Adviser ranks the attractiveness of each security according to a
multi-factor valuation model. Although the universe consists exclusively of
value stocks, both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration are useful in determining a stock's value in relation to others in
the same industry. A second quantitative model which measures the earnings
momentum of each security is added to the screening process to serve as a
validity check in the portfolio construction process. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweights or
eliminates the less attractive securities and modestly emphasizes the most
attractive stocks resulting in a portfolio of 100 to 200 holdings that capture
the overall investment characteristics of the S&P/BARRA Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets, in common stocks which are included in the S&P/BARRA Value Index. The
Fund is expected, however, to maintain a 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 Obligations and
repurchase agreements.
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P SmallCap 600/BARRA Value Index ("S&P/BARRA SmallCap Value Index").
The S&P/BARRA SmallCap Value Index is a subset of the S&P 600 Index. The S&P 600
Index is a market capitalization weighted index consisting of 600 domestic
stocks which capture the economic and industry characteristics of small stock
performance. The S&P/BARRA SmallCap Value Index is a market capitalization
weighted index
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consisting of approximately 375 companies selected from the S&P 600 Index on the
basis of price-to-book ratios. Those companies with lower price-to-book ratios
make up the S&P/BARRA SmallCap Value Index. The S&P/BARRA SmallCap Value Index
is also rebalanced semi-annually to reflect changes in the S&P 600 Index. Most
of these stocks are listed on either the New York, American or NASDAQ stock
exchanges.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA SmallCap Value Index
while reducing the downside risk of underperforming the S&P/BARRA SmallCap Value
Index over time.
The initial stock universe considered by the Adviser is the S&P/BARRA SmallCap
Value Index. The Adviser ranks the attractiveness of each security according to
a multi-factor valuation model. Although the universe consists exclusively of
value stocks, both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration are useful in determining a stock's value in relation to others in
the same industry. A second quantitative model which measures the earnings
momentum of each security is added to the screening process to serve as a
validity check in the portfolio construction process. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweights or
eliminates the less attractive securities and modestly emphasizes the most
attractive stocks resulting in a portfolio of 200 to 300 holdings that capture
the overall investment characteristics of the S&P/BARRA SmallCap Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets in common stocks which are included in the S&P/BARRA SmallCap Value
Index. The Fund is expected, however, to maintain a 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
Obligations and repurchase agreements.
ABOUT THE INDEXES: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The S&P
SmallCap 600 Index is composed of 600 domestic stocks, which are chosen by S&P
based on, among other things, market size, liquidity and industry group
representation. The S&P SmallCap 600 Index is designed to be a benchmark of
small capitalization stock performance. Most of these stocks are listed on
either the New York, American or NASDAQ stock exchanges.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index (collectively,
the "BARRA Value Indexes") are constructed by dividing the stocks in the S&P 500
Index and the S&P 600 Index, respectively, according to a single attribute:
price-to-book ratios. The BARRA Value Indexes are capitalization-weighted,
meaning that each stock is weighted in the approximate index in proportion to
its market value. Additionally, price-to-book ratios tend to be more stable over
time than alternative measures such as price-to-earnings ratios, historical
earnings growth rates, or return on equity. This results in indexes with
relatively low turnover. Generally, the companies in the BARRA Value Indexes
also exhibit characteristics associated with "value" stocks: lower
price-to-earnings ratios, higher dividend yields, and lower historical and
predicted earnings growth than the S&P 500 Index or the S&P 600 Index,
respectively.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index are relatively
concentrated. The S&P/BARRA Value Index tends to be more heavily concentrated in
the Energy, Utility, and Financial sectors than the S&P 500 Index. Additionally,
the S&P/BARRA SmallCap Value Index tends to be more heavily concentrated in the
Utility and Financial Sectors than the S&P 600 Index.
The inclusion of a stock in the S&P 500 Index, the S&P 600 Index, the S&P/BARRA
Value Index or the S&P/BARRA SmallCap Value Index in no way implies that S&P or
BARRA believes the stock to be an attractive investment. The Indexes are
determined, composed and calculated by S&P and BARRA without regard to the
Funds. Neither S&P or BARRA is a sponsor of, or in any way affiliated with, the
Funds, and neither S&P or BARRA makes any representation or warranty, expressed
or implied, on the advisability of investing in the Funds or as to the ability
of the Indexes to track general stock market performance. S&P and BARRA disclaim
all warranties of merchantability or fitness for a particular purpose or use
with respect to the Indexes or any data included therein.
GENERAL: Each Index 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. exchange-traded financial futures approved by the CFTC and
options thereon for market exposure risk management. Each Fund may lend its
portfolio securities to qualified institutional investors and may invest in
repurchase agreements, restricted, private placement and other illiquid
securities. In addition, the Funds may invest in securi-
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ties issued by other investment companies, consistent with the Fund's investment
objective and policies.
In addition, when consistent with the Fund's respective investment objective,
each of the Funds will employ various techniques to manage capital gain
distributions. These techniques include utilizing a share identification
methodology whereby the Fund will specifically identify each lot of shares of
portfolio securities that it holds, which will allow the Fund to sell first
those specific shares with the highest tax basis in order to reduce the amount
of recognized capital gains as compared with a sale of identical portfolio
scurities, if any, with a lower tax basis. The Fund will sell first those shares
with the highest tax basis only when it is in the best interest of the Fund to
do so, and reserves the right to sell other shares when appropriate. In
addition, the Fund may, at times, sell portfolio securities in order to realize
capital losses. Such capital losses would be used to offset realized capital
gains thereby reducing capital gain distributions. Additionally, the Adviser
will, consistent with the portfolio construction process discussed above, employ
a low portfolio turnover strategy designed to defer the realization of capital
gains.
Equity mutual funds, like other investors in equity securities, incur
transaction (brokerage) costs in connection with the purchase and sale of
portfolio securities. For some funds, these costs can have a material negative
impact on performance. With respect to the Index Funds, the Adviser will attempt
to minimize these transaction costs by utilizing program trades and computerized
exchanges called "crossing networks" which allow institutions to execute trades
at the midpoint of the bid/ask spread and at a reduced commission rate.
For more information concerning these and other investments in which the Funds
may invest and their invesment practices, see "Appendix A".
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 and
asset-backed securities. Most obligations acquired by the Fund will be issued by
companies or governmental entities located within the United States. Debt
obligations acquired by the Fund will be rated investment grade at the time of
purchase by S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc.
(collectively "IBCA") or Thomson BankWatch, Inc. ("BankWatch"), or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
S&P, Moody's, D&P, Fitch, IBCA and BankWatch are the six 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 and repurchase
agreements. 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.
BOND FUNDS:
NATIONS U.S. GOVERNMENT BOND FUND: Under normal market conditions, the Fund will
invest at least 65% of its total assets in U.S. Government securities and
repurchase agreements collateralized by such securities.
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While the maturity of individual securities will not be restricted, except
during temporary defensive periods or unusual market conditions, the average
weighted maturity of the Fund will be between five and thirty years. The Fund
may invest in a variety of U.S. Government Obligations. The Fund may also invest
in interests in the foregoing securities, including collateralized mortgage
obligations issued or guaranteed by a U.S. Government agency or instrumentality.
U.S. Government Obligations have historically had a very low risk of loss of
principal if held to maturity. The Fund, however, can give no assurance that the
U.S. Government would provide financial support to its agencies or
instrumentalities if it were not legally required to do so.
The Fund may also invest up to 35% of its total assets in debt securities of
U.S. and foreign corporate and foreign government issuers, ADRs and EDRs, zero
coupon bonds and cash equivalents. The Fund will purchase only those
non-government investments which are rated investment grade or better by at
least one NRSRO or, if unrated, are determined by the Adviser to be of
comparable quality. If a portfolio security held by the Fund ceases to be rated
investment grade by at least one NRSRO or if the Adviser determines that an
unrated portfolio security held by the Fund is no longer of comparable quality
to an investment grade security, the security will be sold in an orderly manner
as quickly as possible. Additionally, the Fund may also invest in futures
contracts, interest rate swaps and options.
The value of the Fund's portfolio (and consequently its shares) is expected to
fluctuate inversely in relation to changes in the direction of interest rates.
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 dollar-weighted maturity of the Fund's portfolio will be between three
and five 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-related securities of governmental issuers 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 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, prevailing market and economic circumstances warrant.
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 dollar-weighted maturity of the Fund's portfolio will be between three
and 10 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-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.
The Fund also may invest in "high quality" money market instruments, 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, prevailing market and economic 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
dollar-weighted maturity of the Fund will not exceed five years and the 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
45
<PAGE>
to be of comparable quality to instruments so rated; dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments; 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.
The Fund may also invest in 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, 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
dollar-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; U.S. Government Obligations; dollar-denominated and
non-dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments; 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.
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," and 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,
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 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 fixed income securities. It is expected
that the average dollar-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;
46
<PAGE>
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. 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.
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, 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 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
International Growth 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 1940 Act. The
Fund may invest in securities of issuers located in any region or country and
that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various countries and currencies will vary in accordance with the
Adviser's assessment of the relative yield and appreciation of such securities.
Fundamental economic strength, credit quality and interest rate trends are the
principal factors considered by the Adviser in determining whether to increase
or decrease the emphasis placed upon a particular country or particular type of
security within the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by the Adviser. The Fund also may invest in securities rated
"Baa" by Moody's or "BBB" by S&P, but does not, as a general matter, intend to
invest more than 10% of its total assets in such securities. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such event in determining whether the Fund should continue
to hold the obligation. In no event will the Fund hold more than 5% of its total
net assets in securities rated below investment grade. See "Appendix B" below
for a description of these rating designations. The Adviser expects that the
Fund's 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 mar-
47
<PAGE>
kets or in U.S. dollar-denominated instruments. The Fund also may invest in
money market instruments.
GENERAL: Each of the Balanced and 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 may lend
its portfolio securities to qualified institutional investors and may invest in
repurchase agreements, restricted, private placement and other illiquid
securities. Nations Balanced Assets Fund, Nations U.S. Government Bond Fund,
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
forward foreign exchange contracts. Additionally, each Fund may purchase
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
The Funds also may invest in instruments issued by trusts or certain
partnerships including pass-through certificates representing participations in,
or debt investments backed by, the securities and other assets owned by such
trusts and partnerships.
Certain 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.
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.
PORTFOLIO TURNOVER (NON-MONEY MARKET FUNDS): Generally, the Equity Funds, the
Index 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, except for Nations Managed Value Index Fund and
Nations Managed SmallCap Value Index Fund, see "Financial Highlights." While it
is not possible to predict exactly annual portfolio turnover rates, it is
expected that under normal market conditions, the annual portfolio turnover rate
for each of Nations Managed Value Index Fund and Nations Managed SmallCap Value
Index Fund will not exceed 25%. With respect to Nations International Growth
Fund, it is expected that under normal market conditions, the annual portfolio
turnover rate will not exceed 100%.
RISK CONSIDERATIONS: Investments by a Fund in common stocks and other equity
securities are subject to stock market risks. The value of the stocks that the
Fund holds, like the broader stock market, may decline over short or even
extended periods. The U.S. stock market tends to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As of the
date of this Prospectus, the stock market, as measured by the S&P 500 Index and
other commonly used indices, was trading at or close to record levels. There can
be no guarantee that these levels will continue.
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."
Certain of the Funds may invest in securities of smaller and newer issuers.
Investments in such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also present greater
risks than investments in more established companies with longer operating
histories and greater financial capacity.
48
<PAGE>
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN NATIONS INTERNATIONAL
EQUITY FUND, NATIONS INTERNATIONAL GROWTH 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 of which
investors should be aware.
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 more volatile than in the
more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
The above risk considerations are also relevant to an investment in Nations
International Growth Fund.
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 International
Growth Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Income Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE INDEX FUNDS: The
techniques employed by the Adviser to seek to manage capital gain distributions
will generally only have the effect of deferring the realization of capital
gains. For example, to the extent that the capital gains recognized on a sale of
portfolio securities arise from the sale of specifically-identified securities
with higher tax bases, subsequent sales of the same portfolio securities will be
calculated by reference to the lower tax basis securities that remain in the
portfolio. Under this scenario, an investor who purchases shares of a Fund after
the first sale could receive capital gain distributions that are higher than the
distributions that would have been received if this methodology had not been
used. Therefore, certain investors actually could be disadvantaged by the
techniques employed by the Fund to seek to manage capital gain distributions,
depending on the timing of their pur-
49
<PAGE>
chase of Fund shares. Even if there are no subsequent sales, upon a redemption
or exchange of Fund shares an investor will have to recognize gain to the extent
that the net asset value of Fund shares at such time exceeds such investor's tax
basis in his or her Fund shares.
The various techniques employed by the Funds to manage capital gain
distributions may result in the accumulation of substantial unrealized gains in
the Funds' portfolios. Moreover, the realization of capital gains is not
entirely within a Fund's control because it is at least partly dependent on
shareholder purchase and redemption activity. Capital gain distributions may
vary considerably from year to year.
Furthermore, the U.S. Treasury has proposed legislation which would require
holders of substantially identical securities to determine their tax basis using
the average cost of all of their holdings in such securities. If enacted, the
legislation would prevent the Funds from specifically identifying each lot of
shares that they hold and from selling first those specific shares with the
highest tax basis. Thus, the legislation would restrict the Funds' ability to
manage capital gains.
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
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.
Nations International Growth Fund may not borrow money except as a temporary
measure and then only in amounts not exceeding 5% of the value of the Fund's
total assets or from banks or in connection with reverse repurchase agreements
provided that immediately after such borrowing, all borrowings of the Fund do
not exceed one-third of the Fund's total assets and no purchases of portfolio
instruments will be made while such Fund has borrowings outstanding in an amount
exceeding 5% of its total assets.
Each of Nations Small Company Growth Fund and Nations U.S. Government Bond Fund
may not borrow money except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase agreements
and mortgage rolls; provided that the Fund will maintain asset coverage of 300%
for all borrowings.
The investment objective and policies of each Fund, unless otherwise specified,
are non-fundamental and may be changed without shareholder approval.
Shareholders of Nations International Growth Fund, Nations Small Company Growth
Fund and Nations U.S. Government Bond Fund, however, must receive it at least 30
days' prior written notice in the event an investment objective is changed. If
the investment objective or policies of a Fund change, shareholders should
consider whether the Fund remains an appropriate investment in light of their
current position and needs.
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 SAI. 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.
50
<PAGE>
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 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 gain
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 gain 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.
Set forth below is certain performance data for the Enhanced Equity Index Common
Trust Fund and Enhanced Small Cap Equity Index Common Trust Fund (the "CTFs"),
each of which is currently managed on behalf of NationsBank by TradeStreet.
(Prior to the formation of TradeStreet in 1995, the CTFs were managed solely by
NationsBank.) The performance data for the CTFs is deemed relevant because the
Enhanced Equity Index and Enhanced Small Cap Equity Index Common Trust Funds
have investment objectives and policies that are substantially similar to those
of Nations Managed Index Fund and Nations Managed SmallCap Index Fund,
respectively. Moreover, the portfolio manager of TradeStreet (who currently
manages the CTFs and the Funds) employs the same quantitative investment process
for the Funds that has, and continues to be, utilized for the CTFs. THIS
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE OF THE CTFS AND IS NOT NECESSARILY
INDICATIVE OF THE FUTURE PERFORMANCE OF THE CTFS OR THE FUNDS.
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
INDICATED THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
Inception
One Year Three Year Five Year (12/31/88)**
Enhanced Equity
Index Common Trust
Fund* 19.98% 22.31% 16.08% 16.52%
S&P 500 Index 19.77% 22.28% 16.39% 16.28%
Lipper S&P 500
Index Funds
Average*** 19.19% 21.73% 15.89% 15.66%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Enhanced Lipper
Equity S&P 500
Index Index
Common S&P Funds
Year Trust Fund* 500 Index Average***
1989 34.12% 31.55% 30.58%
1990 -1.52% -3.15% -3.57%
1991 31.72% 30.56% 29.65%
1992 5.52% 7.64% 7.12%
1993 10.47% 9.99% 9.52%
1994 0.69% 1.31% 0.90%
1995 37.66% 37.45% 36.82%
1996 23.62% 23.08% 22.30%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Since
One Inception
Year (10/1/95)
Enhanced Small Cap Equity Index Common
Trust Fund* 11.76% 11.68%
S&P 600 Index 8.39% 9.83%
</TABLE>
51
<PAGE>
* The total returns above reflect the deduction of 0.50% of fees and expenses
per annum. The CTFs are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which if applicable, may have adversely
affected the performance results of the CTFs.
** Prior to 12/31/88 the Enhanced Equity Index Common Trust Fund was managed
with a different objective and policies and therefore performance prior
thereto is not included in the prior performance calculations.
*** The Lipper S&P 500 Index Funds Average represents the average performance of
mutual funds with similar objectives monitored by Lipper Analytical
Services, Inc. during the periods shown.
Set forth below is certain performance data for the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite,
reflecting the performance of private accounts, including U.K. authorized unit
trusts, managed by Gartmore plc, as defined below. The performance data for
these accounts is deemed relevant because the Pacific Ex-Japan Composite, the
Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite have
investment objectives, policies and restrictions that are substantially similar
to those of Nations Pacific Growth Fund, Nations Emerging Markets Fund and
Nations Global Government Income Fund, respectively. There is substantial
continuity between the portfolio managers of Gartmore plc who were responsible
for managing those accounts and the portfolio managers of Gartmore who are
responsible for managing Nations Pacific Growth Fund, Nations Emerging Markets
Fund and Nations Global Government Income Fund, respectively. THIS PERFORMANCE
DATA REPRESENTS PAST PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF THE FUTURE
PERFORMANCE OF GARTMORE OR THE FUNDS.
PACIFIC EX-JAPAN COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
One Year Two Years Three Years Four Years
Pacific Ex-Japan
Composite 3.95% 8.44% 7.79% 17.11%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Indexl -2.44% 8.58% 7.08% 15.62%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
Inception
Five Years Six Years Seven Years (1/1/88)
Pacific Ex-Japan
Composite 18.84% 18.08% 14.79% 20.42%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Indexl 16.69% 16.61% 15.77% 19.02%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Morgan Stanley
Capital
International
Pacific Combined Far East
Ex-Japan (Ex-Japan)
Composite Free Indexl
1988 11.9% 30.0%
1989 58.40% 32.1%
1990 0.0% -6.5%
1991 22.1% 31.0%
1992 22.9% 21.8%
1993 110.0% 103.4%
1994 -13.9% -17.5%
1995 4.0% 8.8%
1996 13.5 11.1
</TABLE>
* The average annual total returns and annual total returns are net of fees.
The fees for these accounts were 1% per annum until September 30, 1988, and
1.5% per annum thereafter. The accounts are not subject to certain investment
limitations, diversification requirements, and other restrictions imposed by
the 1940 Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results of the accounts.
l The Morgan Stanley Capital International Combined Far East (Ex-Japan) Free
Index is a capitalization-weighted index that tracks 7 countries and
represents only those securities that are available for investment by
international investors; many issues are still restricted to domestic
investors in certain Pacific Basin countries.
EMERGING MARKETS COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Four Years
Since
Inception
One Year Two Years Three Years 1/1/93
Emerging Markets
Composite 16.2% 11.1% -1.8% 10.2%
IFC Investables
Indexl 11.4% 13.4% 3.1% 13.39%
</TABLE>
52
<PAGE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Emerging
Markets IFC Investables
Composite Indexl
1993 76.5% 79.6%
1994 -19.0% -12.0%
1995 -11.3% -8.5%
1996 13.0% 9.4%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (1/1/93) and are net of fees. The fees for these
accounts were 1.5% per annum. The accounts are not subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable,
may have adversely affected the performance results of the accounts.
l The IFC Investables Index includes over 1,100 stocks representing 27 stock
markets in developing countries, and reflects the accessibility of markets and
individual stocks for foreign ownership.
GLOBAL GOVERNMENT BOND
EX-U.K. COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
One Year Two Years Three Years
Global Government Bond
Ex-U.K.
Composite** -1.2% 4.4% 6.1%
J.P. Morgan Global
Government Bonds
Indexl 1.0% 3.9% 6.5%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Since
Inception
Four Years Five Years 10/1/90
Global Government Bond
Ex-U.K. Composite** 6.2% 8.4% 10.31%
J.P. Morgan Global
Government Bonds Indexl 6.5% 7.9% 8.97%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Global J.P. Morgan
Government Global
Bond Ex-U.K. Government
Composite Bonds Indexl
1991 20.8% 16.0%
1992 4.8% 5.2%
1993 15.0% 11.6%
1994 -0.9% 1.5%
1995 22.8% 19.6%
1996 0.6% 3.5%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (10/1/90) and are net of fees. The fees on these
accounts varied by contractual agreement and have been assumed to be 1.5% per
annum. The accounts are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results of the accounts.
** The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J.P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
l The J.P. Morgan Global Government Bonds Index is a capitalization-weighted
index that tracks government bonds issued in 13 countries located in the
United States, Europe and the Far East.
Set forth below is the average annual total return and annual total return for
Nations International Equity Fund for the periods ending March 31, 1997:
NATIONS INTERNATIONAL
EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
INDICATED THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since Inception
One Year Three Years Five Years on 12/2/91
Nations
International
Equity Fund 1.32% 6.23% 8.24% 7.10%
Morgan Stanley
Capital
International
EAFE Indexl 1.46% 6.53% 10.57% 6.01%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C>
Morgan Stanley
Nations Capital
International International
Equity Fund EAFE Indexl
1992 -8.6% -12.2%
1993 27.21% 32.6%
1994 2.6% 7.8%
1995 8.5% 11.2%
1996 8.5% 6.1%
</TABLE>
l The Morgan Stanley Capital International EAFE Index represents an unmanaged
index used to portray the pattern of common stock price movement in Europe,
Australia and the Far East.
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
53
<PAGE>
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 Daily Shares. In addition to Primary A
Shares, the Non-Money Market Funds offer Primary B, Investor A, Investor B
(formerly Investor N) and Investor C 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 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 or by
calling Nations Funds at the toll-free number indicated on the cover of this
Prospectus.
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 Funds 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 investment
sub-adviser to all of the Funds except for those Funds listed below, for which
Gartmore or Boatmen's serves as investment sub-adviser. TradeStreet is a wholly
owned subsidiary of NationsBank. TradeStreet provides investment management
services to individuals, corporations and institutions.
Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as investment sub-adviser to Nations
International Equity Fund, Nations International Growth 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.
Boatmen's Capital Management, Inc. serves as investment sub-adviser to Nations
U.S. Government Bond Fund. Its principal offices are located at 100 North
Broadway, St. Louis, Missouri 63178-4737. Boatmen's is an indirect subsidiary of
NationsBank Corporation.
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
54
<PAGE>
is entitled to receive advisory fees, computed daily and paid monthly, at the
annual rates of: .25% of the first $250 million of the combined average daily
net assets of both Nations Prime Fund and Nations Treasury Fund, plus .20% of
the combined average daily net assets of such Funds in excess of $250 million;
.40% of the average daily net assets of Nations Government Money Market Fund;
.50% of the average daily net assets of Nations Managed Index Fund, Nations
Managed SmallCap Index Fund, Nations Managed Value Index Fund, Nations Managed
SmallCap Value Index Fund, and Nations Equity Index Fund; 1.00% of the average
daily net assets of Nations Small Company Growth Fund; .60% of the average daily
net assets of each of the Nations U.S. Government Bond Fund, Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund and Nations Strategic Fixed Income Fund; .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; .65% of the first $100 million of the Nations Government
Securities Fund's average daily net assets, plus .55% of the Fund's average
daily net assets in excess of $100 million and up to $250 million, plus .50% of
the Fund's average daily net assets in excess of $250 million; .75% of the first
$100 million of the Nations Equity Income Fund's average daily net assets, plus
.70% of the Fund's average daily net assets in excess of $100 million and up to
$250 million, plus .60% of the Fund's average daily net assets in excess of $250
million; .90% of the average daily net assets of Nations International Equity
Fund, Nations International Growth Fund and Nations Pacific Growth Fund; 1.10%
of the average daily net assets of Nations Emerging Markets Fund; and .70% of
the average daily net assets of Nations Global Government Income Fund.
For the services provided pursuant to sub-advisory agreements, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rates of .055% of Nations Prime Fund's, Nations Treasury Fund's and Nations
Government Money Market Fund's average daily net assets; .20% of Nations Equity
Income Fund's average daily net assets; .10% of Nations Managed Index Fund's,
Nations Managed SmallCap Index Fund's, Nations Managed Value Index Fund's,
Nations Managed SmallCap Value Index Fund's, and Nations Equity Index Fund's
average daily net assets; .25% of Nations Value Fund's, Nations Balanced Assets
Fund's, Nations Capital Growth Fund's, Nations Small Company Growth Fund's,
Nations Emerging Growth Fund's and Nations Disciplined Equity Fund's average
daily net assets; .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.
For services provided 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 .70% of Nations International Equity Fund's average daily
net assets. .85% of Nations Emerging Markets Fund's average daily net assets;
.70% of Nations Pacific Growth Fund's average daily net assets and .54% of
Nations Global Government Income Fund's average daily net assets. For services
provided and expenses assumed, Gartmore is entitled to receive from NBAI
sub-advisory fees, computed daily and paid monthly, at the annual rate of .40%
of Nations International Growth Fund's average daily net assets up to and
including $325,000,000 in assets and .25% on assets in excess of $325,000,000.
As of the date of this Prospectus, the Board of Directors has approved, and
recommended to shareholders that they approve, an increase in the fees to be
paid by NBAI to Gartmore to .70% of the Nations International Growth Fund's
average daily net assets. This increase will be implemented as soon as
practicable following receipt of shareholder approval.
For services provided pursuant to a sub-advisory agreement, NBAI will pay
Boatmen's sub-advisory fees at the rate of 0.15% of the average daily net assets
of Nations U.S. Government Bond Fund.
From time to time, NBAI (and/or TradeStreet, Gartmore or Boatmen's) 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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Government Money Market Fund -- .14%, Nations Value Fund -- .75%,
Nations Capital Growth Fund -- .75%, Nations Emerging Growth Fund -- .75%,
Nations Disciplined Equity Fund -- .75%, Nations Equity Index Fund -- .19%,
Nations Managed Index Fund -- .06%, Nations Managed SmallCap Index Fund -- .00%,
Nations Balanced Assets Fund -- .75%, Nations Short-Intermediate Government
Fund -- .40%, Nations Short-Term Income Fund -- .30%, Nations Diversified Income
Fund -- .50%, Nations Strategic Fixed Income Fund -- .50%. No fees were paid
with respect to Nations Managed Value Index Fund or Nations Managed SmallCap
Value Index Fund because neither Fund had yet commenced operations during the
period indicated above.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Prime Fund -- .16%, Nations Treasury Fund -- .16%, Nations Equity Income
Fund -- .67%, Nations International Equity Fund -- .90% and Nations Government
Securities Fund -- .50%.
55
<PAGE>
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid NBAI under the Investment Advisory Agreement fees at the
indicated rates of the following Funds' average daily net assets: Nations
Emerging Markets Fund -- 1.10%, Nations Pacific Growth Fund -- .90% and Nations
Global Government Income Fund -- .70%.
For the fiscal period from September 1, 1996 to May 16, 1997, after waivers, the
Pilot Funds paid Boatmen's Trust Company, under a previous investment advisory
agreement, advisory fees at the indicated rates of the following Funds' average
daily net assets: Nations Small Company Growth Fund (formerly the Pilot Small
Capitalization Equity Fund) -- .75%, Nations International Growth Fund (formerly
the Pilot International Equity Fund) -- .48%, and Nations U.S. Government Bond
Fund (formerly the Pilot U.S. Government Securities Fund) -- .40%. During the
same period, after waivers, the Pilot Funds paid Kleinwort Benson Investment
Management Americas Inc., under a previous sub-advisory agreement, sub-advisory
fees at the rate of .32% of Nations International Growth Fund's average daily
net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- .055%, Nations Value Fund -- .25%, Nations
Capital Growth Fund -- .25%, Nations Emerging Growth Fund -- .25%, Nations
Disciplined Equity Fund -- .25%, Nations Equity Index Fund -- .10%, Nations
Managed Index Fund -- .10%, Nations Managed SmallCap Index Fund -- .10%, Nations
Balanced Assets Fund -- .25%, Nations Short-Intermediate Government
Fund -- .15%, Nations Short-Term Income Fund -- .15%, Nations Diversified Income
Fund -- .15%, Nations Strategic Fixed Income Fund -- .15%, Nations Prime Fund --
.055%, Nations Treasury Fund -- .055%, Nations Equity Income Fund -- .20% and
Nations Government Securities Fund -- .15%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid Gartmore under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Emerging Markets Fund -- .85%, Nations Pacific Growth Fund -- .70%, Nations
Global Government Income Fund -- .54% and Nations International Equity
Fund -- .70%
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, Nations
Managed Index Fund and Nations Managed SmallCap Index Fund. He has been
Portfolio Manager for these Funds since their inception. Prior to assuming his
position with TradeStreet in 1996, 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 Chicago Quantitative Alliance, the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Jeffrey C. Moser is a Senior Product Manager, Equity Management for TradeStreet
and Senior Portfolio Manager for Nations Managed Value Index Fund and Nations
Managed SmallCap Value Index Fund. Mr. Moser has been with TradeStreet since
1996 and Portfolio Manager for Nations Managed Value Index Fund and Nations
Managed SmallCap Value Index Fund since the inception of the Funds. He is also
the Portfolio Manager for Nations Disciplined Equity Fund and has been 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.
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
56
<PAGE>
received a B.S. in Business Administration from the University of Texas at
Dallas.
Sharon M. Herrmann 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 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 is Principal Portfolio Manager of Nations International Equity
Fund and has been the Portfolio Manager since February, 1995. He joined Gartmore
as a Global Fund Manager in 1993 and currently holds the position of Head of the
International and Global Portfolio Team. Previously, Mr. Watson was a director
and global fund manager with James Capel Fund Managers, London, as well as
Client Services Manger for international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their Portfolio Management Division. He
began his career in 1976 when he joined the investment division at Samuel
Montagu. Mr. Watson is a member of the Securities Institute.
Philip Ehrmann is Principal Portfolio Manager of Nations Emerging Markets Fund
and is the Head of the Gartmore Emerging Markets Team. He has been the Portfolio
Manager for the Fund since 1995. Prior to joining Gartmore in 1995, Mr. Ehrmann
was the Director of Emerging Markets for Invesco in London. He began his career
in 1981 as an institutional stockbroker with Rowe & Pitman Inc. and also spent a
brief period with Prudential Bache Securities as an institutional salesman
before joining Invesco in 1984. Mr. Ehrmann graduated from the London School of
Economics with a degree in Economics, Industry and Trade.
Seok Teoh is Principal Portfolio Manager of Nations Pacific Growth Fund and has
been the Portfolio Manager since the Fund's inception. She has been associated
with Gartmore since 1990 as the London based manager on its Far East Team.
Previously, Ms. Teoh managed Far East equities for Rothschild Asset Management
in Tokyo and in Singapore. She was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh,
who is a native of Singapore, is fluent in Mandarin and Cantonese and received
an Economics degree from the University of Durham.
Philip J. Sanders 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.
Scott A. Billeadeau is a Senior Portfolio Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Emerging Growth Fund and
Nations Small Company Growth Fund. Mr. Billeadeau has been Portfolio Manager of
the Funds since June 1997. Previously he was Senior Analyst and Senior Portfolio
Manager for BankAmerica's Pacific Horizon Aggressive Growth Fund at Security
Pacific Corp. since 1991. Mr. Billeadeau has worked in the investment community
since 1986. His past experience also includes quantitative analysis for American
Express Financial Advisors, Inc. Mr. Billeadeau received an AB in Economics from
Princeton University. He holds the Chartered Financial Analyst designation and
is member of the Association for Investment Management and Research, as well as
the Seattle Society of Securities Analysts.
Julie L. Hale 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
57
<PAGE>
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.
Mark Rimmer is Principal Portfolio Manager of the Nations Global Government
Income Fund and has been the Portfolio Manager since the Fund's inception. He
has been associated with Gartmore since 1990 as an International Fixed Income
Fund Manager. Previously, Mr. Rimmer managed multi-currency funds for
institutional clients at Gulf International Bank in Bahrain, and prior to that
he was a senior trader for Sumitomo Finance International, London. He graduated
from Cambridge University with a degree in Economics.
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 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.
Christopher G. Gunster is a Portfolio Manager, Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Government Securities Fund. Mr.
Gunster has been the lead Portfolio Manager since July 1997. Prior to assuming
his position with TradeStreet, he was Assistant Vice President and Associate
Portfolio Manager for the Investment Management Group at NationsBank since 1993.
Mr. Gunster has worked in the investment community since 1987. His past
experience includes investment marketing for The Boston Company and options
trading for Shatkin Investments, a regional broker/dealer. Mr. Gunster received
a B.A. in Chemistry from Kenyon College and an M.B.A. in Finance from Babson
Graduate 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. Mr. Swaim has been Portfolio Manager for the 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.
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.
Brad Pope is a Product Manager, Fixed Income Management for TradeStreet and
Portfolio Manager for Nations Short-Term Income Fund. He is a senior member of
the Fixed Income Team. As such, his responsibilities include setting duration
policy for the Nations Funds fixed income funds. Mr. Pope has been the portfolio
manager for Nations Short-Term Income Fund since August 1996. Prior to assuming
this position, he was a manager in the structured products area. He joined the
Investment Management Group at NationsBank, TradeStreet's predecessor
organization in 1988. Mr. Pope has over nine years of investment experience,
including working on the trading floor of the Chicago Board of Trade. Mr. Pope
received a B.B.A. in Finance from the University of Texas at Austin.
The Fixed Income Committee of Boatmen's is responsible for the day-to-day
management of the investment portfolio of Nations U.S. Government Bond Fund.
Brian O'Neill is the Principal Senior Investment Manager of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Fund since July, 1997. Mr. O'Neill joined
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Gartmore as a Senior Investment Manager on the Global Portfolio Team in 1981
with responsibility for a variety of specialized global funds, including
resource funds. Mr. O'Neill began his career with Royal Insurance in 1970 as an
investment analyst specializing in United Kingdom research. He then expanded his
field of expertise to include management of global equities, and in 1978 he
moved to Antony Gibbs & Sons where he was appointed as a fund manager,
specializing in global equities. Mr. O'Neill graduated from Glasgow University
in 1969 with a MA Honours degree in Political Economy.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank has advised Nations Funds 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 Funds 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 .10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .09%, Nations Value Fund -- .10%, Nations Capital Growth
Fund -- .10%, Nations Emerging Growth Fund -- .10%, Nations Disciplined Equity
Fund -- .10%, Nations Managed Index Fund -- .10%, Nations Managed SmallCap Index
Fund -- .10%, Nations Balanced Assets Fund -- .10%, Nations Short-Intermediate
Government Fund -- .10%, Nations Short-Term Income Fund -- .10%, Nations
Diversified Income Fund -- .10% and Nations Strategic Fixed Income Fund -- .10%.
No fees were paid with respect to Nations Managed Value Index Fund or Nations
SmallCap Value Index Fund because neither Fund had yet commenced operations
during the period indicated above.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .09%,
Nations Treasury Fund -- .09%, Nations Equity Income Fund -- .10%, Nations
International Equity Fund -- .10% and Nations Government Securities
Fund -- .10%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Emerging Markets
Fund -- .10%, Nations Pacific Growth Fund -- .10% and Nations Global Government
Income Fund -- .10%.
NationsBank serves as sub-administrator for Nations Funds 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. Nations Funds
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.
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NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as custodian for the
assets of all Funds, except the international portfolios. 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 to the Nations Funds Family, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees at the rate of (i) $300,000
per annum, to be paid monthly in payments of $25,000 for custodian services for
up to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
BONY, Avenue des Arts, 35 1040 Brussels, Belgium, serves as Custodian for the
assets of Nations International Equity Fund, Nations International Growth Fund,
Nations Emerging Markets Fund and Nations Pacific Growth Fund and Nations Global
Government Income Fund.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, N.A., whereby BONY will serve as sub-custodian ("Sub-Custodian") for the
assets of all Nations Funds except the international portfolios, for which BONY
is already serving as Custodian. BONY is located at 90 Washington Street, New
York, New York 10286. In return for providing sub-custodial services, BONY
receives, in addition to out of pocket expenses, fees at the rate of (i) 3/4 of
one basis point per annum on the aggregate net assets of all Nations' Non-Money
Market Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Primary Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109. NationsBank of Texas also serves as the sub-transfer agent
for each Fund's Primary Shares and is entitled to receive an annual fee of
$251,000 from First Data for performing such services.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Their
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, Stephens and First Data; taxes;
interest; fees (including fees paid to Nations Funds' 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, Stephens or First Data
under their respective agreements with Nations Funds; 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 deems appropriate.
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Portfolios, Nations Institutional
Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family currently has
more than 52 distinct investment portfolios and total assets in excess of $27
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 Daily
Shares. The Non-Money Market Funds currently offer five classes of
shares -- Primary A Shares, Primary B Shares, Investor A Shares, Investor B
Shares (formerly Investor N Shares) and Investor C 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 Managed Index Fund, Nations Managed
SmallCap Index Fund, Nations Managed Value Index Fund, Nations Managed SmallCap
Value Index 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 Funds at 1-800-765-2668.
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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 1940 Act
requires voting by fund.
As of July 15, 1997, 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 420,000,000,000 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, Nations International Growth Fund, Nations Small Company Growth
Fund, Nations U.S. Government Bond 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 Funds at 1-800-765-2668.
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, 1997, 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 Funds at 1-800-765-2668.
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
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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, 1997, 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.
PENDING LEGAL PROCEEDINGS: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and Stephens
Inc. (Case No. 94-995-Civ.-T-23E). As relevant to Nations Government Securities
Fund and Nations Short-Intermediate Government Fund, plaintiffs allege that,
among other things, defendants violated the Securities Exchange Act of 1934 and
various state securities fraud statutes by employing a scheme to defraud
plaintiffs into purchasing shares of the funds and making untrue statements of
material fact and omitting to state material facts in connection with sales of
shares of the funds. Plaintiffs further allege that, among other things,
defendants concealed the risks associated with such funds by blurring the
distinctions between banks and non-bank subsidiaries and by obscuring the
differences between traditional, federally insured bank products and uninsured,
non-depository products.
About Your Investment
How To Buy Shares
There is a minimum initial investment of $250,000 for each record holder; there
is no minimum subsequent investment.
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,
endowments and to other funds in the Nations Funds Family.
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.
Nations Funds and Stephens reserve 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.
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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.
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 Funds.
Institutions should be aware that during periods of significant economic or
market change, telephone transactions may be difficult to complete.
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 Funds 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.
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 Funds. No charge for wiring redemption
payments is imposed by Nations Funds, 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.
Nations Funds 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 Funds 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 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 Funds 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 Funds 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 Funds 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 Funds 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, Martin Luther King, Jr. 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 Funds 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.
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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 (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 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
also declared and paid monthly by Nations Capital Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Income Fund, Nations Managed Index Fund,
Nations Value Fund and Nations Small Company Growth Fund. Dividends from net
investment income are declared and paid annually by Nations International Growth
Fund. Dividends from net investment income are declared and paid each calendar
quarter by all other Equity Funds, Index 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, Index 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 will be reduced by the amount of any
dividend or distribution. Accordingly, dividends and distributions on newly
purchased shares represent, in substance, a return of capital. However, such
dividends and distributions would nevertheless be taxable. 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
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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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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 tax. Federal
law also requires the Funds to withhold tax on dividends, distributions and
proceeds from the disposition of Fund shares paid to certain foreign
shareholders.
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 consists of securities of foreign
issuers it may elect to "pass through" to its shareholders these foreign taxes,
if any. Upon such an election, 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 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 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 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.
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MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of residential 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 of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized Mortgage Obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class pass-
through securities are interests in a trust composed of Mortgage Assets and all
references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of Mortgage Assets. A Fund will only invest in SMBS
whose Mortgage Assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments, which have maximum maturities of 40 years. The
average life is likely to be substantially less than the
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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.
The mortgage-backed securities in which the Funds invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the Funds
also may be subject to credit risk. Credit risk is the risk that the issuers of
securities in which a Fund invests may default in the payment of principal
and/or interest. Any such defaults or adverse changes in an issuer's financial
condition or credit rating may adversely affect the value of the Funds'
portfolio investments and, hence, the value of your investment in the
corresponding Fund.
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 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 Funds (except Nations Tax Exempt Fund and Nations International Growth 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 Small Company Growth
Fund and Nations U.S. Government Bond Fund will limit their investments in
interest-bearing savings deposits of commercial and sav-
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ings banks to 5% of total assets. Nations Prime Fund may invest up to 100% of
its assets in obligations issued by banks. 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. Pursuant to line of credit arrangements, certain of the
Funds may borrow 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, certain of 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.
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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 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 income (including interest, distributions and disposition
proceeds), 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
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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.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs, in registered
form, are designed for use in the U.S. securities market. GDRs are designed for
use in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the 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
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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 under the 1933 Act, or which
were issued under Section 4(2) of 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 or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, 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: 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.
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 serve 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: 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
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obligations with greater maturities provided such obligations are subject to
demand features or resets which are less 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 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 does not
intend 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
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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 securities with put or
demand features 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 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.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
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 Funds.
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 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
SHORT-TERM TRUST OBLIGATIONS: Certain of the Funds 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
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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. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. 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, some 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; 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. 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&Pto 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
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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 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.
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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 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
77
<PAGE>
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.
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+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
78
<PAGE>
Prospectus
PRIMARY A SHARES
AUGUST 1, 1997
NATIONS INTERNATIONAL
EQUITY FUND
NATIONS INTERNATIONAL
GROWTH 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.
TR-96129-897
(Nations Funds Logo appears here)
<PAGE>
Prospectus
PRIMARY A SHARES
AUGUST 1, 1997
This Prospectus describes four equity Nations International
portfolios -- NATIONS INTERNATIONAL Equity Fund
EQUITY FUND, NATIONS INTERNATIONAL GROWTH FUND,
NATIONS EMERGING MARKETS FUND and NATIONS PACIFIC
GROWTH FUND -- and one bond portfolio -- NATIONS
GLOBAL GOVERNMENT INCOME FUND (each, a "Fund") -- of Nations International
Nations Fund, Inc. and Nations Fund Portfolios, Inc. Growth Fund
("Nations Portfolios"), each an open-end management
investment company in the Nations Funds Family
("Nations Funds" or "Nations Funds Family"). This
Prospectus describes one class of shares of each Nations Emerging
Fund -- Primary A Shares. Markets Fund
This Prospectus sets forth concisely the information
about each Fund that a prospective purchaser of
Primary A Shares should consider before investing. Nations Pacific
Investors should read this Prospectus and retain it Growth Fund
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 Nations Global
and Exchange Commission (the "SEC") and Government Income Government Income
are available upon request without charge by writing Fund
or calling Nations Funds Fund at its address or telephone
number shown below. The SAIs for Nations Fund, Inc.
and Nations Portfolios, each dated August 1, 1997, are
incorporated by reference in their entirety into
this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAIs, material
incorporated by reference in this Prospectus and other
information regarding registrants that file electronically
with the SEC. NationsBanc Advisors, Inc. ("NBAI") is
investment adviser to the Funds. Gartmore Global
Partners ("Gartmore") is investment sub-adviser to
the Funds. As used herein the term "Adviser" shall
mean NBAI and/or Gartmore as the context may
require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
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.
For Fund information call:
1-800-765-2668
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Funds logo
appears here).
<PAGE>
Table Of Contents
Prospectus Summary 3
About The
Funds Expenses Summary 4
Financial Highlights 5
Objectives 8
How Objectives Are Pursued 9
How Performance Is Shown 13
How The Funds Are Managed 16
Organization And History 19
About Your How To Buy Shares 20
Investment
How To Redeem Shares 20
How To Exchange Shares 21
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 27
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 FUNDS OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUNDS 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 regions, including
developing countries.
(Bullet) Nations International Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of companies domiciled in countries outside the
United States and listed on major stock exchanges primarily in
Europe and the Pacific Basin.
(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 market 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 seek 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 52
investment company portfolios in the Nations Funds 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. Dividends from net investment income are declared and paid
annually by Nations International Growth Fund. 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: $250,000 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
<TABLE>
<Captions>
Nations
Global
Nations Nations Nations Nations Government
International International Emerging Pacific Growth Income
SHAREHOLDER TRANSACTION EXPENSES Equity Fund Growth Fund Markets Fund Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90% .90% 1.10% .90% .70%
All Other Expenses .26% .22% .64% .52% .56%
Total Operating Expenses 1.16% 1.12% 1.74% 1.42% 1.26%
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.
Nations
Global
Nations Nations Nations Nations Government
International International Emerging Pacific Growth Income
Equity Fund Growth Fund Markets Fund Fund Fund
1 Year $ 12 $ 11 $ 18 $ 14 $13
3 Years $ 37 $ 36 $ 55 $ 45 $40
5 Years $ 64 $ 62 $ 94 $ 78 $69
10 Years $141 $136 $205 $170 $152
</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 financial information has been derived from the audited 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.
Information for Primary A Shares of Nations International Growth Fund has been
derived from the audited financial statements dated May 16, 1997 for the Pilot
Shares of The Pilot Funds' Pilot International Equity Fund, the predecessor fund
to Nations International Growth Fund. This information has been audited by
Arthur Andersen LLP and is provided to help you understand the historical
performance of the Fund and its predecessor. The reports of Arthur Anderson LLP
accompany the financial statements dated May 16, 1997 and are incorporated by
reference in the SAI, which is available upon request.
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/97# 03/31/96(a)# 05/31/95# 05/31/94# 05/31/93#
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.50 $ 11.75 $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.08 0.07 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on
investments 0.11 1.80 (0.20) 1.44 0.21
Net increase/(decrease) in net asset value
from operation 0.19 1.87 (0.06) 1.53 0.30
Distributions:
Dividends from net investment income (0.11) (0.06) (0.03) (0.05) (0.08)
Distributions in excess of net investment
income (0.00)(c) (0.04) -- -- --
Distributions from net realized capital gains (0.42) (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized
capital gains (0.03) -- (0.10) -- --
Total dividends and distributions (0.56) (0.12) (0.25) (0.07) (0.10)
Net asset value, end of period $ 13.13 $ 13.50 $ 11.75 $ 12.06 $ 10.60
Total return++ 1.32% 16.01% (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 976,855 $ 849,731 $ 572,940 $ 401,559 $ 118,873
Ratio of operating expenses to average net
assets 1.16% 1.17%+ 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to
average net assets 0.62% 0.65%+ 1.17% 0.75% 1.03%
Portfolio turnover rate 36% 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) $ 0.0279 $ 0.0272 -- -- --
</TABLE>
PERIOD
ENDED
PRIMARY A SHARES 05/31/92*
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 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) --
* 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.
(c) Amount represents less than $0.01 per share.
5
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES* 05/16/97 08/31/96 08/31/95 08/31/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of the period $ 17.05 $ 16.24 $ 16.34 $ 14.14
Net investment income/(loss) 0.05 0.18 0.13(f) 0.11(f)
Net realized and unrealized gain/(loss) on investments 2.76 1.61 (0.22)(f) 1.65(f)
Net realized and unrealized gain/(loss) on foreign
currency related transactions (0.92) (0.13) 0.39(f) 0.59(f)
Total income (loss) from investment activities 1.89 1.66 0.30 2.35
Distributions from net investment income (0.17) (0.46) (0.11) --
Distributions from net realized gain on investments and
foreign currency related transactions (0.34) (0.39) (0.29) (0.15)
Net asset value at the end of the period $ 18.43 $ 17.05 $ 16.24 $ 16.34
Total return (a) 11.28%(c) 10.64% 2.08% 16.75%
Portfolio turnover rate (g) 33.68% 22.31% 35.91% 35.40%
Ratio of expenses to average net assets 1.18%(d) 1.08% 1.18% 1.12%
Ratio of net investment income (loss) to average net
assets 0.47%(d) 0.69% 0.82% 0.75%
Net assets at end of period (in 000's) $ 701,033 $ 579,019 $ 363,212 $ 307,561
Average Commission Rate (h) $ 0.0107 $ 0.0160 -- --
EIGHT
MONTHS
ENDED
PRIMARY A SHARES* 08/31/93 (b)
Operating performance:
Net asset value at the beginning of the period $ 13.15
Net investment income/(loss) (0.01)(f)
Net realized and unrealized gain/(loss) on investments 1.10(f)
Net realized and unrealized gain/(loss) on foreign
currency related transactions (0.10)(f)
Total income (loss) from investment activities 0.99
Distributions from net investment income --
Distributions from net realized gain on investments and
foreign currency related transactions --
Net asset value at the end of the period $ 14.14
Total return (a) 7.53%(c)
Portfolio turnover rate (g) 26.65%(e)
Ratio of expenses to average net assets 1.31%(d)
Ratio of net investment income (loss) to average net
assets (0.56)%(d)
Net assets at end of period (in 000's) $ 195,548
Average Commission Rate (h) --
</TABLE>
* Primary A Shares of Nations International Growth Fund were formerly Pilot
Shares of the Pilot International Equity Fund, a predecessor portfolio.
(a) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges.
(b) Pilot Shares were initially issued on July 26, 1993.
(c) Not annualized.
(d) Annualized.
(e) Excludes the transfer of assets effective on August 6, 1993 from a
collective trust for which Boatmen's Trust Company served as trustee.
(f) Calculated based on the average shares outstanding methodology.
(g) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued and is not
annualized.
(h) The average commission rate represents the total dollar amount of
commissions paid on portfolio transactions divided by the total number of
portfolio shares purchased and sold for which commissions were charged.
Disclosure is not required for prior periods.
6
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 03/31/97#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.34
Net investment income/(loss) 0.01
Net realized and unrealized gain on investments 1.21
Net increase in net asset value from operations 1.22
Dividends from net investment income (0.02)
Distributions in excess of net investment income (0.07)
Distributions from net realized capital gains (0.06)
Total dividends and distributions (0.15)
Net asset value, end of period $ 11.41
Total return++ 11.97%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 76,483
Ratio of operating expenses to average net assets 1.74%
Ratio of net investment income to average net assets 0.13%
Portfolio turnover rate 31%
Average commission rate paid (a) $ 0.0003
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
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.
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 03/31/97
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.24
Net investment income/(loss) 0.04
Net realized and unrealized gain/(loss) on investments 0.19
Net increase/(decrease) in net asset value from operations 0.23
Dividends from net investment income (0.03)
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 (0.06)
Net asset value, end of period 10.41
Total return++ 2.18%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 122,887
Ratio of operating expenses to average net assets 1.42%
Ratio of net investment income/(loss) to average net assets 0.39%
Portfolio turnover rate 78%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements --
Net investment income/(loss) per share without waivers and/or expense reimbursements --
Average commission rate paid (a) $ 0.0126
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
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 reimbursements --
Net investment income/(loss) per share without waivers and/or expense reimbursements --
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 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 A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 03/31/97#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.07
Net investment income 0.47
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase in net asset value from operations 0.44
Distributions:
Dividends from net investment income (0.46)
Distributions in excess of net investment income (0.10)
Distributions from net realized capital gains (0.16)
Total dividends and distributions (0.72)
Net asset value, end of period $ 9.79
Total return++ 4.25%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 28,130
Ratio of operating expenses to average net assets 1.26%
Ratio of net investment income to average net assets 4.60%
Portfolio turnover rate 100%
PERIOD
ENDED
PRIMARY A SHARES 03/31/96*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 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 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.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
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 regions, including developing countries.
NATIONS INTERNATIONAL GROWTH FUND: Nations International Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of companies domiciled in countries outside the United
States and listed on major stock exchanges primarily in Europe and the Pacific
Basin.
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 market 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 seek 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.
8
<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"), Global
Depositary Receipts ("GDRs"), 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 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, repurchase
agreements, and securities issued by other investment companies, consistent with
the Fund's investment objective and policies. See "Appendix A" for additional
information concerning the investment practices of the Fund.
NATIONS INTERNATIONAL GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in foreign equity securities listed on major exchanges, consisting of common
stocks, preferred stocks and convertible securities, such as warrants, rights
and convertible debt. The Fund may purchase the stock of small-, mid- and
large-capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Directors, the former Soviet Union and the
Middle East. Debt securities, if any, purchased by the Fund will be rated in the
top two categories by a nationally recognized statistical rating organization
("NRSRO"), or, if unrated, determined by the Adviser to be of comparable
quality. For temporary defensive purposes, the Fund may invest up to 100% of its
assets in debt and equity securities of U.S. issuers. Debt securities in which
the Fund may invest include short-term and intermediate-term obligations of
corporations, foreign governments and international organizations (such as the
International Bank for Reconstruction and Development (the "World Bank")) and
money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements.
The 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. The Fund also may lend its
portfolio securities to qualified institutional investors and may invest in
restricted, private placement and other illiquid securities. Additionally, the
Fund may invest in ADRs, GDRs, EDRs and ADSs, as well as purchase 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" 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 World Bank; and
9
<PAGE>
(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.
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, 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 to enhance return 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, repurchase agreements, and 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" 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
capac-
10
<PAGE>
ity 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 to enhance return 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, repurchase
agreements, and 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" 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 15 years under
normal market conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments
11
<PAGE>
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 and 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 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, repurchase
agreements, and 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" 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 of which investors
should be aware.
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.
The above risk considerations are also relevant to an investment in Nations
International Growth Fund.
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.
12
<PAGE>
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. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate will not exceed 100% for Nations International Growth
Fund.
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.
3. Nations International Equity Fund, Nations International Growth 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.
4. Nations International Growth Fund may not borrow money except as a temporary
measure and then only in amounts not exceeding 5% of the value of the Fund's
total assets or from banks or in connection with reverse repurchase agreements
provided that immediately after such borrowing, all borrowings of the Fund do
not exceed one-third of the Fund's total assets and no purchases of portfolio
instruments will be made while such Fund has borrowings outstanding in an amount
exceeding 5% of its total assets.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without shareholder approval. Shareholders of Nations
International Growth Fund, however, must receive at least 30 days' prior written
notice in the event an investment objective is changed. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current position and
needs.
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 SAI. 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 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
gain distributions. Aggregate total return reflects the total
per-
13
<PAGE>
centage change in the value of the investment over the measuring period again
assuming the reinvestment of all dividends and capital gain 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.
Set forth below is certain performance data for the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite,
reflecting the performance of private accounts, including U.K. authorized unit
trusts, managed by Gartmore plc, as defined below. The performance data for
these accounts is deemed relevant because the Pacific Ex-Japan Composite, the
Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite have
investment objectives, policies and restrictions that are substantially similar
to those of Nations Pacific Growth Fund, Nations Emerging Markets Fund and
Nations Global Government Income Fund, respectively. There is substantial
continuity between the portfolio managers of Gartmore plc who were responsible
for managing those accounts and the portfolio managers of Gartmore who are
responsible for managing Nations Pacific Growth Fund, Nations Emerging Markets
Fund and Nations Global Government Income Fund, respectively. THIS PERFORMANCE
DATA REPRESENTS PAST PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF THE FUTURE
PERFORMANCE OF GARTMORE OR THE FUNDS.
PACIFIC EX-JAPAN COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
One Year Two Years Three Years Four Years
<S> <C> <C> <C> <C>
Pacific Ex-Japan Composite 3.95% 8.44% 7.79% 17.11%
Morgan Stanley Capital
Int'l. Combined
Far East
(Ex-Japan)
Free Index(1) -2.44% 8.58% 7.08% 15.62%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
Since
Inception
Five Years Six Years Seven Years (1/1/88)
<S> <C> <C> <C> <C>
Pacific Ex-Japan
Composite 18.84% 18.08% 14.79% 20.42%
Morgan Stanley Capital
Int'l. Combined
Far East
(Ex-Japan)
Free Index(1) 16.69% 16.61% 15.77% 19.02%
ANNUAL TOTAL RETURNS*
Morgan Stanley
Capital
International
Pacific Combined Far East
Ex-Japan (Ex-Japan)
Composite Free Index**
1988 11.9% 30.0%
1989 58.40% 32.1%
1990 0.0% -6.5%
1991 22.1% 31.0%
1992 22.9% 21.8%
1993 110.0% 103.4%
1994 -13.9% -17.5%
1995 4.0% 8.8%
1996 13.5 11.1
</TABLE>
* The average annual total returns and annual total returns are net of fees.
The fees for these accounts were 1% per annum until September 30, 1988, and
1.5% per annum thereafter. The accounts are not subject to certain
investment limitations, diversification requirements, and other
restrictions imposed by the 1940 Act and the Internal Revenue Code, which,
if applicable, may have adversely affected the performance results of the
accounts.
(1) The Morgan Stanley Capital International Combined Far East (Ex-Japan) Free
Index is a capitalization-weighted index that tracks 7 countries and
represents only those securities that are available for investment by
international investors; many issues are still restricted to domestic
investors in certain Pacific Basin countries.
EMERGING MARKETS COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
Four Years
Since
Inception
One Year Two Years Three Years 1/1/93
<S> <C> <C> <C> <C>
Emerging Markets Composite 16.2% 11.1% -1.8% 10.2%
IFC Investables Index(1) 11.4% 13.4% 3.1% 13.39%
</TABLE>
14
<PAGE>
ANNUAL TOTAL RETURNS*
Emerging
Markets IFC Investables
Composite Index(1)
1993 76.5% 79.6%
1994 -19.0% -12.0%
1995 -11.3% -8.5%
1996 13.0% 9.4%
* The average annual total returns and annual total returns have been
calculated since inception (1/1/93) and are net of fees. The fees for these
accounts were 1.5% per annum. The accounts are not subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable,
may have adversely affected the performance results of the accounts.
(1) The IFC Investables Index includes over 1,100 stocks representing 27 stock
markets in developing countries, and reflects the accessibility of markets
and individual stocks for foreign ownership.
GLOBAL GOVERNMENT BOND
EX-U.K. COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
One Year Two Years Three Years
<S> <C> <C> <C>
Global Government Bond
Ex-U.K.
Composite** -1.2% 4.4% 6.1%
J.P. Morgan Global
Government Bonds
Index(1) 1.0% 3.9% 6.5%
Since
Inception
Four Years Five Years 10/1/90
Global Government Bond
Ex-U.K. Composite** 6.2% 8.4% 10.31%
J.P. Morgan Global
Government Bonds Index(1) 6.5% 7.9% 8.97%
</TABLE>
ANNUAL TOTAL RETURNS*
Global J.P. Morgan
Government Global
Bond Ex-U.K. Government
Composite Bonds Index(1)
1991 20.8% 16.0%
1992 4.8% 5.2%
1993 15.0% 11.6%
1994 -0.9% 1.5%
1995 22.8% 19.6%
1996 0.6% 3.5%
* The average annual total returns and annual total returns have been
calculated since inception (10/1/90) and are net of fees. The fees on these
accounts varied by contractual agreement and have been assumed to be 1.5%
per annum. The accounts are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results of the accounts.
** The accounts of the Global Government Bond Ex-U.K. Composite do not invest
in securities of U.K. issuers, which are permissible investments for Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J.P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
(1) The J.P. Morgan Global Government Bonds Index is a capitalization-weighted
index that tracks government bonds issued in 13 countries located in the
United States, Europe and the Far East.
Set forth below is the average annual total return and annual total return for
Nations International Equity Fund for the periods ending March 31, 1997:
NATIONS INTERNATIONAL
EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997
<TABLE>
<CAPTION>
Since
One Three Five Inception
Year Years Years on 12/2/91
<S> <C> <C> <C> <C>
Nations International
Equity Fund 1.32% 6.23% 8.24% 7.10%
Morgan Stanley Capital
International EAFE Indexl 1.46% 6.53% 10.57% 6.01%
</TABLE>
ANNUAL TOTAL RETURNS
Morgan Stanley
Nations Capital
International International
Equity Fund EAFE Indexl
1992 -8.6% -12.2%
1993 27.21% 32.6%
1994 2.6% 7.8%
1995 8.5% 11.2%
1996 8.5% 6.1%
(1) The Morgan Stanley Capital International EAFE Index represents an unmanaged
index used to portray the pattern of common stock price movement in Europe,
Australia and the Far East.
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
15
<PAGE>
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
B (formerly Investor N Shares) and Investor C 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. 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 or Servicing Agent directly to its customers'
accounts in connection with investments in the Funds will not be included in
calculations of total return or yield. Each Fund's annual report contains
additional performance information and is available upon request without charge
from the Funds' distributor or your Institution, as defined below or by calling
Nations Funds at the toll-free number indicated on the cover of this Prospectus.
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 Nations
Fund, Inc. and Nations Portfolios' SAIs contain the names of and general
background information concerning each Director of Nations Fund, Inc. and
Nations Portfolios.
Nations Funds 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 investment sub-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.
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: .90% of each of Nations International
Equity Fund's, Nations International Growth 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 .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: .70% of Nations International Equity
Fund's average daily net assets; .85% of Nations Emerging Markets Fund's average
daily net assets; .70% of Nations Pacific Growth Fund's average daily net
assets; and .54% of Nations Global Government Income Fund's average daily net
assets. For services provided, Gartmore is entitled to receive from NBAI sub-
advisory fees, computed daily and paid monthly, at the annual rate of .40% of
Nations International Growth Fund's average daily net assets up to and including
$325,000,000 in assets and .25% on assets in excess of $325,000,000. As of the
date of this prospectus, the Board of Directors has approved, and recommended to
shareholders that they approve, an increase in the fees
16
<PAGE>
to be paid by NBAI to Gartmore to .70% of Nations International Growth Fund's
average daily net assets. This increase will be implemented as soon as
practicable following receipt of shareholder approval.
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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Fund's average daily net assets:
Nations International Equity Fund -- .90%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Emerging Markets Fund -- 1.10%, Nations Pacific Growth Fund -- .90% and
Nations Global Government Income Fund -- .70%.
For the fiscal period from September 1, 1996 to May 16, 1997, after waivers, the
Pilot Funds paid Boatmen's Trust Company, under a previous investment advisory
agreement, advisory fees at the rate of .48% of Nations International Growth
Fund's (formerly the Pilot International Equity Fund) average daily net assets.
During the same period, after waivers, the Pilot Funds paid Kleinwort Benson
Investment Management Americas Inc., under a previous sub-advisory agreement,
sub-advisory fees at the rate of .32% of Nations International Growth Fund's
average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid Gartmore under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Emerging Markets Fund -- .85%, Nations Pacific Growth Fund -- .70% and Nations
Global Government Income Fund -- .54% and Nations International Equity
Fund -- .70%.
Stephen Watson is Principal Portfolio Manager of Nations International Equity
Fund and has been the Portfolio Manager since February, 1995. He joined Gartmore
as a Global Fund Manager in 1993 and currently holds the position of Head of the
International and Global Portfolio Team. Previously, Mr. Watson was a director
and global fund manager with James Capel Fund Managers, London, as well as
Client Services Manager for international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their Portfolio Management Division. He
began his career in 1976 when he joined the investment division at Samuel
Montagu. Mr. Watson is a member of the Securities Institute.
Mark Rimmer is Principal Portfolio Manager of the Nations Global Government
Income Fund and has been the Portfolio Manager since the Fund's inception. He
has been associated with Gartmore since 1990 as an International Fixed Income
Fund Manager. Previously, Mr. Rimmer managed multi-currency funds for
institutional clients at Gulf International Bank in Bahrain, and prior to that
he was a senior trader for Sumitomo Finance International, London. He graduated
from Cambridge University with a degree in Economics.
Philip Ehrmann is Principal Portfolio Manager of Nations Emerging Markets Fund
and is the Head of the Gartmore Emerging Markets Team. He has been the Portfolio
Manager for the Fund since 1995. Prior to joining Gartmore in 1995, Mr. Ehrmann
was the Director of Emerging Markets for Invesco in London. He began his career
in 1981 as an institutional stockbroker with Rowe & Pitman Inc. and also spent a
brief period with Prudential Bache Securities as an institutional salesman
before joining Invesco in 1984. Mr. Ehrmann graduated from the London School of
Economics with a degree in Economics, Industry and Trade.
Seok Teoh is Principal Portfolio Manager of Nations Pacific Growth Fund and has
been the Portfolio Manager since the Fund's inception. She has been associated
with Gartmore since 1990 as the London based manager on its Far East Team.
Previously, Ms. Teoh managed Far East equities for Rothschild Asset Management
in Tokyo and in Singapore. She was also reponsible for Singaporean and Malaysian
equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh, who is a
native of Singapore, is fluent in Mandarin and Cantonese and received an
Economics degree from the University of Durham.
Brian O'Neill is the Principal Senior Investment Manger of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Fund since July, 1997. Mr. O'Neill joined Gartmore as a Senior Investment
Manager on the Global Portfolio Team in 1981 with responsibility for a variety
of specialized global funds, including resource funds. Mr. O'Neill began his
career with Royal Insurance in 1970 as an investment analyst specializing in
United Kingdom research. He then expanded his field of expertise to include
management of global equities, and in 1978 he moved to Antony Gibbs & Sons where
he was appointed as a fund manager, specializing in global equities. Mr. O'Neill
graduated from Glasgow University in 1969 with a MA Honours degree in Political
Economy.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds 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
17
<PAGE>
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 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 Nations Funds 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 .10% of each
Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Fund's average daily net assets: Nations International Equity
Fund -- .10%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Emerging Markets Fund
-- .10%, Nations Pacific Growth Fund -- .10% and Nations Global Government
Income Fund -- .10%.
NationsBank serves as sub-administrator for Nations Funds 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. 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.
The 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 Shares.
NationsBank of Texas, N.A. serves as the sub-transfer agent for the Funds'
Primary 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 Shares of Nations Funds, 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 Funds. Their
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. Each Fund's expenses include, but
are not limited to: fees paid to the Adviser, Stephens and First Data; taxes;
interest; fees (including fees paid to Nations Funds' 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, Stephens or First Data under
their respective agreements with Nations Funds; 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 deems appropriate.
18
<PAGE>
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Portfolios, Nations Institutional
Reserves and Nations LifeGoal Funds, Inc.. The Nations Funds Family currently
has more than 52 distinct investment portfolios and total assets in excess of
$27 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 420,000,000,000 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 Nations International Equity Fund and Nations
International Growth 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 Funds at 1-800-765-2668.
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, 1997, 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 Funds at 1-800-765-2668.
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, 1997, 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 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
19
<PAGE>
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.
About Your Investment
How To Buy Shares
There is a minimum initial investment of $250,000 for each record holder; there
is no minimum subsequent investment.
Primary A Shares of the Funds 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, endowments and to other funds in the Nations Funds Family.
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").
Nations Funds 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 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 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 Funds.
Institutions should be aware that during periods of significant economic or
market change, telephone transactions may be difficult to complete.
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.
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 Funds. No charge for wiring redemption
payments is imposed by Nations Funds, 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.
20
<PAGE>
Nations Funds 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 Funds 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 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 Funds 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 Funds 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 Funds 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 Funds and Stephens reserve 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, Martin Luther King, Jr. 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.
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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. Dividends from net
investment income are declared and paid annually by Nations International Growth
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.
The net asset value of Primary A Shares in each Fund will be reduced by the
amount of any dividend or distribution. A dividend or distribution on newly
purchased shares would therefore represent, in substance, a return of capital.
However, such dividend or distribution would nevertheless be taxable. 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 Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code (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 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 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 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 Funds to withhold 31% from dividends paid by
Nations Funds 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
Funds 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 exchanges and redemptions in-kind).
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 tax on
dividends, distributions and proceeds from the disposition of Fund shares paid
to certain foreign shareholders.
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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, if more than 50% of
the value of the total assets of each of those Funds consists of securities of
foreign issuers, it may elect to "pass through" to its shareholders these
foreign taxes, if any. Upon such an election, 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 an 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 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 (except Nations International
Growth Fund) will limit its investments in bank obligations so they do not
exceed 25% 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. Pursuant to line of credit arrangements, the Funds may
borrow 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
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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. 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.
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 income (including interest, distributions and disposition
proceeds), 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.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designd for use in
both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
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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 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 under the 1933 Act, or which
were issued under Section 4(2) of 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 or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, 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: 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
accor-
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dance 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.
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. Pursuant to an exemptive order issued by the SEC, the Nations'
Non-Money Market Funds may purchase shares of Nations' Money Market Funds.
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 Funds.
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 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
33% of the value of its total assets. Cash collateral received by a Nations Fund
may be invested in a Nations' Money Market Fund.
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
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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. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. 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, some 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; 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. 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 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.
27
<PAGE>
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 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
28
<PAGE>
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.
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.
29
<PAGE>
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.
30
<PAGE>
Prospectus
PRIMARY B SHARES
AUGUST 1, 1997
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 Funds Family ("Nations Funds" or "Nations
Funds Family"). This Prospectus describes one class
of shares of each Fund -- Primary B Shares (formerly
called Trust B Shares).
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 THE MONEY MARKET 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 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, 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 Funds at its
address or telephone number shown below. The SAIs
for Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios each dated August 1, 1997, are
incorporated by reference in their entirety into
this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAIs,
material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to certain of the Funds,
Gartmore Global Partners ("Gartmore") is investment
sub-adviser to certain other Funds, and Boatmen's
Capital Management, Inc. ("Boatmen's") is investment
sub-adviser to Nations U.S. Government Bond Fund. As
used herein the term "Adviser" shall mean NBAI,
TradeStreet, Gartmore and/or Boatmen's as the
context may require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
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
Nations Tax Exempt Fund
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations International Growth Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Small Company Growth Fund
Nations Disciplined Equity Fund
INDEX FUNDS:
Nations Equity Index Fund
Nations Managed Index Fund
Nations Managed SmallCap Index Fund
Nations Managed Value Index Fund
Nations Managed SmallCap Value
Index Fund
BALANCED FUND:
Nations Balanced Assets Fund
BOND FUNDS:
Nations U.S. Government Bond 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 Global Government
Income Fund
For Fund information call:
1-800-621-2192
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
TR-96131-897
(Nations Funds Logo appears here)
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds Expenses Summary 5
Financial Highlights 8
Objectives 19
How Objectives Are Pursued 20
How Performance Is Shown 37
How The Funds Are Managed 40
Organization And History 46
About Your How To Buy Shares 48
Investment How To Redeem Shares 48
How To Exchange Shares 49
Shareholder Servicing Arrangements 50
How The Funds Value Their Shares 51
How Dividends And Distributions Are Made; Tax
Information 51
Appendix A -- Portfolio Securities 53
Appendix B -- Description Of Ratings 61
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 FUNDS OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUNDS 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 regions, including developing countries.
(Bullet) Nations International Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity securities
of companies domiciled in countries outside the United States and
listed on major stock exchanges primarily in Europe and the Pacific
Basin.
(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 market 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 Small Company Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity securities.
(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) INDEX FUNDS:
(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) Nations Managed Index Fund's investment objective is to seek, over
the long-term, to provide a total return which (gross of fees and
expenses) exceeds the total return of the Standard & Poor's 500
Composite Stock Price Index.
3
<PAGE>
(Bullet) Nations Managed SmallCap Index Fund's investment objective is to
seek, over the long-term, to provide a total return which (gross of
fees and expenses) exceeds the total return of the Standard & Poor's
SmallCap 600 Index.
(Bullet) Nations Managed Value Index Fund's investment objective is to seek,
over the long-term, to provide a total return that (gross of fees and
expenses) exceeds the total return of the S&P 500/BARRA Value Index.
(Bullet) Nations Managed SmallCap Value Index Fund's investment objective is
to seek, over the long-term, to provide a total return that (gross of
fees and expenses) exceeds the total return of the S&P SmallCap
600/BARRA Value 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 U.S. Government Bond Fund's investment objective is to
seek total return and preservation of capital by investing in
U.S. Government securities and repurchase agreements.
(Bullet) Nations Short-Intermediate Government Fund's
investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests
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 high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in
intermediate-term 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 high current income consistent with minimal fluctuation
of principal. The Fund invests in investment grade debt
securities.
(Bullet) Nations Diversified Income Fund's investment objective is to
seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income
securities.
(Bullet) Nations Strategic Fixed Income Fund's investment
objective is to seek total return by investing in
investment grade fixed income securities.
(Bullet) Nations Global Government Income Fund's investment
objective is to seek 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 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to certain
of the Funds, Gartmore Global Partners provides sub-advisory services
to certain other Funds and Boatmen's Capital Management, Inc. provides
sub-advisory services to Nations U.S. Government Bond Fund. See "How
The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are
declared and paid monthly by Nations Capital Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Income Fund, Nations Managed
Index Fund, Nations Value Fund and Nations Small Company Growth Fund.
Dividends from net investment income are declared and paid annually by
Nations International Growth Fund. All other Equity Funds, Index 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.
The U.S. stock market tends to be cyclical, with periods when stock
prices generally rise and periods when prices generally decline. As of
the date of this Prospectus, the stock market, as measured by the S&P
500 Index and other commonly used indices, was trading at or close to
record levels. There can be no guarantee that these levels will
continue. Certain of the Funds may invest in securities of smaller and
newer issuers. Investments in such companies may present greater
opportunities for capital appreciation because of high potential
earnings growth, but also present greater risks than investments in
more established companies with longer operating histories and greater
financial capacity. 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 (as defined below), 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 instru-
<PAGE>
ments 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
may invest in securities of developing countries, which presents
special risks such as foreign currency fluctuations and economic and
political risks. 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 International Growth 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 International Growth 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."
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 MONEY MARKET AND EQUITY FUNDS PRIMARY B SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations Nations
Govern- Nations Inter-
SHAREHOLDER ment Nations Equity national
TRANSACTION Nations Prime Nations Money Market Nations Tax Value Income Equity
EXPENSES Fund Treasury Fund Fund Exempt Fund Fund Fund Fund
Sales Load Imposed on
Purchases1 None None None None None None None
Deferred Sales Load None None None None None None None
<CAPTION>
Nations
Inter- Nations Nations
SHAREHOLDER national Emerging Pacific
TRANSACTION Growth Markets Growth
EXPENSES Fund Fund Fund
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>
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(After Fee Waivers) .16% .16% .14% .16% .75% .67% .90%
Other Expenses .39% .39% .41% .39% .69% .72% .76%
Total Operating Expenses
(After Fee Waivers) .55% .55% .55% .55% 1.44% 1.39% 1.66%
<CAPTION>
Management Fees
Other Expenses .72% 1.14% 1.02%
Total Operating Expenses
(After Fee Waivers) 1.62% 2.24% 1.92%
<CAPTION>
(After Fee Waivers) .90% 1.10% .90%
</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 (as defined below). Institutions, however, may charge the accounts
of their customers for services provided in connection with the purchase or
redemption of shares.
5
<PAGE>
NATIONS FUND EQUITY, INDEX AND BALANCED FUNDS PRIMARY B SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Nations Nations Small Nations Nations Nations Managed
SHAREHOLDER Capital Emerging Company Disciplined Equity Managed SmallCap
TRANSACTION Growth Growth Growth Equity Index Index Index
EXPENSES Fund Fund Fund Fund Fund Fund Fund
Sales Load Imposed on
Purchases1 None None None None None None None
Deferred Sales Load None None None None None None None
<CAPTION>
Nations
Managed
Nations SmallCap
SHAREHOLDER Managed Value Value Nations
TRANSACTION Index Index Balanced
EXPENSES Fund Fund Assets Fund
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>
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(After Fee Waivers) .75% .75% .75% .75% .20% .30% .30%
Other Expenses .71% .73% .70% .75% .65% .70% .70%
Total Operating Expenses
(After Fee Waivers) 1.46% 1.48% 1.45% 1.50% .85% 1.00% 1.00%
<CAPTION>
Management Fees
Other Expenses .70% .70% .75%
Total Operating Expenses
(After Fee Waivers) 1.00% 1.00% 1.50%
<CAPTION>
(After Fee Waivers) .30% .30% .75%
</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 (as defined below). 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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations
Short- Nations Nations Nations
SHAREHOLDER Nations U.S. Intermediate Government Short-Term Diversified
TRANSACTION Government Bond Government Securities Income Income
EXPENSES Fund Fund Fund Fund Fund
Sales Load Imposed on Purchases1 None None None None None
Deferred Sales Load None None None None None
<CAPTION>
Nations
Strategic Nations
SHAREHOLDER Fixed Global
TRANSACTION Income Government
EXPENSES Fund Income Fund
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>
<S> <C> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .40% .40% .50% .30% .50%
Other Expenses .70% .57% .80% .60% .75%
Total Operating Expenses (After Fee
Waivers) 1.10% .97% 1.30% .90% 1.25%
<CAPTION>
Management Fees (After Fee Waivers) .50% .70%
<S> <C> <C>
Other Expenses .70% 1.06%
Total Operating Expenses (After Fee
Waivers) 1.20% 1.76%
</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.
6
<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>
<S> <C> <C> <C> <C> <C>
Nations Treasury Nations Government Nations Tax Exempt
Nations Prime Fund Fund Money Market Fund Fund Nations Value Fund
1 Year $ 6 $ 6 $ 6 $ 6 $ 15
3 Years $ 18 $ 18 $ 18 $ 18 $ 46
5 Years $ 31 $ 31 $ 31 $ 31 $ 79
10 Years $ 69 $ 69 $ 69 $ 69 $ 172
<CAPTION>
Nations Nations Nations Nations
International Emerging Pacific Capital Nations Emerging
Growth Fund Markets Fund Growth Fund Growth Fund Growth Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 16 $ 23 $ 19 $ 15 $ 15
3 Years $ 51 $ 70 $ 60 $ 46 $ 47
5 Years $ 88 $ 120 $ 104 $ 80 $ 81
10 Years $ 192 $ 257 $ 224 $ 175 $ 177
<CAPTION>
Nations Nations
Nations Managed Nations Managed
Nations Managed SmallCap Managed Value SmallCap Value
Equity Index Index Index Index Index
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 9 $ 10 $ 10 $ 10 $ 10
3 Years $ 27 $ 32 $ 32 $ 32 $ 32
5 Years $ 47 $ 55 $ 55 N/A N/A
10 Years $ 105 $ 122 $ 122 N/A N/A
<CAPTION>
Nations
Short-
Intermediate Nations Government Nations Nations Strategic
Government Securities Short-Term Income Nations Diversified Fixed Income
Fund Fund Fund Income Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 10 $ 13 $ 9 $ 13 $ 12
3 Years $ 31 $ 41 $ 29 $ 40 $ 38
5 Years $ 54 $ 71 $ 50 $ 69 $ 66
10 Years $ 119 $ 157 $ 111 $ 151 $ 145
<CAPTION>
Nations Nations
Equity International
Income Fund Equity Fund
1 Year $ 14 $ 17
3 Years $ 44 $ 52
5 Years $ 76 $ 90
10 Years $ 167 $ 197
Nations Nations
Small Company Disciplined
Growth Fund Equity Fund
<S> <C> <C>
1 Year $ 15 $ 15
3 Years $ 46 $ 47
5 Years $ 79 $ 82
10 Years $ 174 $ 179
Nations
Nations Balanced U.S. Government
Assets Fund Bond Fund
<S> <C> <C>
1 Year $ 15 $ 11
3 Years $ 47 $ 35
5 Years $ 82 $ 61
10 Years $ 179 $ 134
Nations Global
Government Income
Fund
<S> <C> <C>
1 Year $ 18
3 Years $ 55
5 Years $ 95
10 Years $ 207
</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/or reimbursements will continue.
In particular, to the extent other expenses are less than expected, waivers
and/or reimbursements of management fees, if any, may decrease. Shareholders
will be notified of any decrease that materially increases Total Operating
Expenses. 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."
7
<PAGE>
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for Primary
B Shares of the indicated Fund would have been as follows: Nations Prime
Fund -- .20% and .59%, respectively; Nations Treasury Fund -- .20% and .59%,
respectively; Nations Government Money Market Fund -- .40% and .81%,
respectively; Nations Tax Exempt Fund -- .40% and .79%, respectively; Nations
Small Company Growth Fund -- 1.00% and 1.70%, respectively; Nations Equity Index
Fund -- .50% and 1.15%, respectively; Nations Managed Index Fund -- .50% and
1.20%, respectively; Nations Managed SmallCap Index Fund -- .50% and 1.20%,
respectively; Nations Managed Value Index Fund -- .50% and 1.20%, respectively;
Nations Managed SmallCap Value Index Fund -- .50% and 1.20%, respectively;
Nations U.S. Government Bond Fund -- .60% and 1.30%, respectively; Nations
Short-Intermediate Government Fund -- .60% and 1.17%, respectively; Nations
Government Securities Fund -- .64% and 1.44%, respectively; Nations Short-Term
Income Fund -- .60% and 1.20%, respectively; Nations Diversified Income
Fund -- .60% and 1.35%, respectively; and Nations Strategic Fixed Income
Fund -- .60% and 1.30%, 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 financial information on the following pages has been derived from the
audited 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. 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. Financial
Highlights for Nations Managed Value Index Fund and Nations Managed SmallCap
Value Index Fund are not provided below because neither Fund had yet commenced
operations during the period indicated below. Financial Highlights for Primary B
shares of Nations International Growth Fund are not provided below because such
Fund's share class had not yet commenced operation during the period indicated
below. Financial Highlights for Primary B shares of Nations Small Company Growth
Fund are not provided below because such Fund's share class had not yet
commenced operation during the period indicated below. Financial Highlights for
Primary B shares of Nations U.S. Government Bond Fund are not provided below
because such Fund's share class had not yet commenced operation during the
period indicated below.
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR PERIOD
ENDED ENDED
PRIMARY B SHARES 03/31/97 03/31/96(a)
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0495 0.0447
Dividends from net investment income (0.0495) (0.0447)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 5.05% 4.57%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 184,021 $ 96,305
Ratio of operating expenses to average net assets 0.55% 0.55%+
Ratio of net investment income to average net assets 4.96% 5.37%+
Ratio of operating expenses to average net assets without waivers and/or reimbursements 0.60% 0.62%+
Net investment income per share without waivers and/or reimbursements $ 0.0491 $ 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)
Net asset value, end of period $ 1.00
Total return++ 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (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 reimbursements 0.63%+
Net investment income per share without waivers and/or 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.
8
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR PERIOD
ENDED ENDED
PRIMARY B SHARES 03/31/97 03/31/96(a)
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0484 0.0437
Dividends from net investment income (0.0484) (0.0437)
Distributions from net realized capital gains -- (0.0000)#
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 4.96% 4.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 55,170 $ 47,488
Ratio of operating expenses to average net assets 0.55% 0.55%+
Ratio of net investment income to average net assets 4.84% 5.27%+
Ratio of operating expenses to average net assets without waivers and/or
reimbursements 0.60% 0.62%+
Net investment income per share without waivers and/or reimbursements $ 0.0479 $ 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)**
Net asset value, end of period $ 1.00
Total return++ 4.56%
Ratios to average net assets/supplemental data:
Net assets, end of period (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
reimbursements 0.60%+
Net investment income per share without waivers and/or 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>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD YEAR
ENDED ENDED ENDED
PRIMARY B SHARES 03/31/97 03/31/96(a) 11/30/95
Operating performance:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0478 0.0165 0.0533
Distributions:
Dividends from net investment income (0.0478) (0.0165) (0.0533)
Distributions from net realized gains -- -- --
Total distributions (0.0478) (0.0165) (0.0533)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00
Total return++ 4.93% 1.66% 5.45%
Ratios to average net assets/supplemental data:
Net assets, end of year (000's) $ 19,450 $ 31,581 $ 27,122
Ratio of operating expenses to average net assets 0.55% 0.55%+ 0.55%
Ratio of net investment income to average net assets 4.78% 4.95%+ 5.33%
Ratio of operating expenses to average net assets without
waivers 0.82% 0.84%+ 0.82%
Net investment income per share without waivers $ 0.0451 $ 0.0155 $ 0.0506
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 11/30/94*
Operating performance:
Net asset value, beginning of year $ 1.00
Net investment income 0.0200
Distributions:
Dividends from net investment income (0.0200)
Distributions from net realized gains (0.0000)#
Total distributions (0.0200)
Net asset value, end of year $ 1.00
Total return++ 2.02%
Ratios to average net assets/supplemental data:
Net assets, end of year (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 0.84%+
Net investment income per share without waivers $ 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.
# 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.
9
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD YEAR
ENDED ENDED ENDED
PRIMARY B SHARES 03/31/97 03/31/96(a) 11/30/95
Operating performance:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0300 0.0104 0.0335
Dividends from net investment income (0.0300) (0.0104) (0.0335)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00
Total return++ 3.04% 1.04% 3.39%
Ratios to average net assets/supplemental data:
Net assets, end of year (000's) $ 13,151 $ 9,370 $ 11,666
Ratio of operating expenses to average net assets 0.55% 0.55%+ 0.55%
Ratio of net investment income to average net assets 3.00% 3.10%+ 3.37%
Ratio of operating expenses to average net assets without
waivers 0.80% 0.83%+ 0.82%
Net investment income per share without waivers $ 0.0274 $ 0.0095 $ 0.0309
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 11/30/94*
Operating performance:
Net asset value, beginning of year $ 1.00
Net investment income 0.0116
Dividends from net investment income (0.0116)
Net asset value, end of year $ 1.00
Total return++ 1.17%
Ratios to average net assets/supplemental data:
Net assets, end of year (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 0.84%+
Net investment income per share without waivers $ 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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS VALUE FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*
Operating performance:
Net asset value, beginning of period $ 17.19
Net investment income 0.14
Net realized and unrealized gain/(loss) on investments 2.10
Net increase/(decrease) in net asset value from operations 2.24
Distributions:
Dividends from net investment income (0.14)
Distributions from net realized capital gains (1.42)
Total dividends and distributions (1.56)
Net asset value, end of period $ 17.87
Total return++ 13.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 27,586
Ratio of operating expenses to average net assets 1.47%+(c)
Ratio of net investment income to average net assets 1.01%+
Portfolio turnover rate 47%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.47%+(c)
Net investment income/(loss) per share without waivers and/or expense reimbursements $ 0.14(c)
Average commission rate paid (b) $ 0.0649
</TABLE>
* Nations Value Fund's Primary B Shares commenced operations on June 28, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursments and net investment income per share was less than 0.01% and
$0.01, respectively.
10
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*
Operating performance:
Net asset value, beginning of period $ 13.50
Net investment income 0.25
Net realized and unrealized gain/(loss) on investments 1.21
Net increase/(decrease) in net asset value from operations 1.46
Distributions:
Dividends from net investment income (0.25)
Distributions from net realized capital gains (2.41)
Total dividends and distributions (2.66)
Net asset value, end of period $ 12.30
Total return++ 11.17%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,484
Ratio of operating expenses to average net assets 1.41%+(c)
Ratio of net investment income to average net assets 2.59%+
Portfolio turnover rate 102%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.41%+(
c)
Net investment income/(loss) per share without waivers and/or expense reimbursements $ 0.25(c)
Average commission rate paid (b) $ 0.0609
</TABLE>
* Nations Equity Income Fund's Primary B Shares commenced operations on June
28, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursments and net investment income per share was less than 0.01% and
$0.01, respectively.
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*#
Operating performance:
Net asset value, beginning of period $ 13.65
Net investment income/(loss) 0.01
Net realized and unrealized gain/(loss) on investments (0.09)(a)
Net increase/(decrease) in net asset value from operations (0.08)
Distributions:
Dividends from net investment income (0.01)
Distributions in excess of net investment income (0.00)**
Distributions from net realized capital gains (0.42)
Distributions in excess of net realized capital gains (0.03)
Total dividends and distributions (0.46)
Net asset value, end of period $ 13.11
Total return++ (0.66)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,526
Ratio of operating expenses to average net assets 1.66%+
Ratio of net investment income/(loss) to average net assets 0.12%+
Portfolio turnover rate 36%
Average commission rate paid (b) $ 0.0279
</TABLE>
* Nations International Equity Fund's Primary B Shares commenced operations on
June 28, 1996.
** 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 share
method, which more appropriately represents the per share data for the
period, since the use of the undistributed income method did not accord with
results of operations.
(a) The amount shown at the caption for each share outstanding throughout the
period may not accord with the net realized and unrealized gain/(loss) for
the period because of the timing of purchase and withdrawals of shares in
relation to the fluctuating market value of the portfolio.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
11
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*#
Operating performance:
Net asset value, beginning of period $ 10.71
Net investment income/(loss) (0.04)
Net realized and unrealized gain/(loss) on investments 0.82
Net increase/(decrease) in net asset value from operations 0.78
Distributions:
Dividends from net investment income (0.01)
Distributions in excess of net investment income (0.02)
Distributions from net realized capital gains (0.06)
Total dividends and distributions (0.09)
Net asset value, end of period $ 11.40
Total return++ 7.34%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 301
Ratio of operating expenses to average net assets 2.24%+
Ratio of net investment income/(loss) to average net assets (0.37)%
+
Portfolio turnover rate 31%
Average commission rate paid (a) $ 0.0003
</TABLE>
* Nations Emerging Markets Fund's Primary B Shares commenced operations on June
28, 1996.
+ 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 represents the per share data for the
period, since the use of the undistributed income method did not accord with
results of operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*#
Operating performance:
Net asset value, beginning of period $ 10.34
Net investment income/(loss) 0.01
Net realized and unrealized gain/(loss) on investments 0.07
Net increase/(decrease) in net asset value from operations 0.08
Distributions:
Dividends from net investment income (0.02)
Distributions in excess of net investment income (0.01)
Total dividends and distributions (0.03)
Net asset value, end of period $ 10.39
Total return++ 0.75%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 618
Ratio of operating expenses to average net assets 1.92%+
Ratio of net investment income/(loss) to average net assets (0.11)%+
Portfolio turnover rate 78%
Average commission rate paid (a) $ 0.0126
</TABLE>
* Nations Pacific Growth Fund's Primary B Shares commenced operations on June
28, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
12
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*#
Operating performance:
Net asset value, beginning of period $ 13.96
Net investment income/(loss) (0.01)
Net realized and unrealized gain/(loss) on investments 1.12
Net increase/(decrease) in net asset value from operations 1.11
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains (3.39)
Total dividends and distributions (3.39)
Net asset value, end of period $ 11.68
Total return++ 7.07%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 12,367
Ratio of operating expenses to average net assets 1.46%+(a)
Ratio of net investment income/(loss) to average net assets (0.11)%+
Portfolio turnover rate 75%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.46%+
Net investment income/(loss) per share without waivers and/or expense reimbursements $ (0.01)
Average commission rate paid (b) $ 0.0604
</TABLE>
* Nations Capital Growth Fund's Primary B Shares commenced operations on June
28, 1996.
+ 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 represents the per share data for the
period, since the use of the undistributed income method did not accord with
results of operations.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*#
Operating performance:
Net asset value, beginning of period $ 15.08
Net investment income/(loss) (0.08)
Net realized and unrealized gain/(loss) on investments (0.85)
Net increase/(decrease) in net asset value from operations (0.93)
Distributions:
Distributions from net realized capital gains (1.34)
Total dividends and distributions (1.34)
Net asset value, end of period $ 12.81
Total return++ (6.80)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,897
Ratio of operating expenses to average net assets 1.48%+(a)
Ratio of net investment income/(loss) to average net assets (0.76)%+
Portfolio turnover rate 93%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.48%+(a)
Net investment income/(loss) per share without waivers and/or expense reimbursements $ (0.08)(a)
Average commission rate paid (b) $ 0.0562
</TABLE>
* Nations Emerging Growth Fund's Primary B Shares commenced operations on June
28, 1996.
+ 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 represents the per share data for the
period, since the use of the undistributed income method did not accord with
results of operations.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
13
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*
Operating performance:
Net asset value, beginning of period $ 17.84
Net investment income/(loss) 0.03
Net realized and unrealized gain/(loss) on investments 2.15
Net increase/(decrease) in net asset value from operations 2.18
Distributions:
Dividends from net investment income (0.04)
Distributions from net realized capital gains (1.51)
Total dividends and distributions (1.55)
Net asset value, end of period $ 18.47
Total return++ 12.13%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,121
Ratio of operating expenses to average net assets 1.54%+(b)
Ratio of net investment income/(loss) to average net assets 0.20%+
Portfolio turnover rate 120%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.54%+
Net investment income/(loss) per share without waivers and/or expense reimbursments $ 0.03
Average commission rate paid (a) $ 0.0377
</TABLE>
* Nations Disciplined Equity Fund's Primary B Shares commenced operations on
June 28, 1996.
+ 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 represents the per share data for the
period, since the use of the undistributed income method did not accord with
results of operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
(b) The effect of interest expense on the operating expense ratio was less than
0.01%.
NATIONS EQUITY INDEX FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*
Operating performance:
Net asset value, beginning of period $ 14.13
Net investment income/(loss) 0.16
Net realized and unrealized gain/(loss) on investments 1.80
Net increase/(decrease) in net asset value from operations 1.96
Distributions:
Dividends from net investment income (0.15)
Distributions from net realized capital gains (0.05)
Total dividends and distributions (0.20)
Net asset value, end of period $ 15.89
Total return++ 13.93%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,505
Ratio of operating expenses to average net assets 0.85%+(b)
Ratio of net investment income/(loss) to average net assets 1.41%+
Portfolio turnover rate 5%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.20%+(b)
Net investment income/(loss) per share without waivers and/or expense reimbursments $ 0.11(b)
Average commission rate paid (a) $ 0.0173
</TABLE>
* Nations Equity Index Fund's Primary B Shares commenced operations on June 28,
1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
14
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS MANAGED SMALLCAP INDEX FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.02
Net realized and unrealized gain/(loss) on investments (0.17)
Net increase/(decrease) in net asset value from operations (0.15)
Distributions:
Dividends from net investment income (0.02)
Distributions in excess of net investment income (0.00)(b)
Total dividends and distributions (0.02)
Net asset value, end of period $ 9.83
Total return++ (1.51)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 86
Ratio of operating expenses to average net assets 1.00%+
Ratio of net investment income/(loss) to average net assets 0.55%+
Portfolio turnover rate 18%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.71%+
Net investment income/(loss) per share without waivers and/or expense reimbursments $ 0.00(b)
Average commission rate paid (a) $ 0.0279
</TABLE>
* Nations Managed SmallCap Index Fund's Primary B Shares commenced operations
on October 15, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
(b) Amount represents less than $0.01 per share.
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*
Operating performance:
Net asset value, beginning of period $ 11.87
Net investment income/(loss) 0.21
Net realized and unrealized gain/(loss) on investments 0.85
Net increase/(decrease) in net asset value from operations 1.06
Distributions:
Dividends from net investment income (0.25)
Distributions from net realized capital gains (1.54)
Total dividends and distributions (1.79)
Net asset value, end of period $ 11.14
Total return++ 9.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,537
Ratio of operating expenses to average net assets 1.50%+(b)
Ratio of net investment income/(loss) to average net assets 2.81%+
Portfolio turnover rate 264%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.50%+(b)
Net investment income/(loss) per share without waivers and/or expense reimbursments $ 0.21(b)
Average commission rate paid (a) $ 0.0563
</TABLE>
* Nations Balanced Assets Fund's Primary B Shares commenced operations on June
28, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
15
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*#
Operating performance:
Net asset value, beginning of period $ 4.02
Net investment income/(loss) 0.16
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net asset value from operations 0.13
Distributions:
Dividends from net investment income (0.16)
Total dividends and distributions (0.16)
Net asset value, end of period $ 3.99
Total return ++ 3.31%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 16,980
Ratio of operating expenses to average net assets 0.98%(a)(b)+
Ratio of net investment income/(loss) to average net assets 5.38%+
Portfolio turnover rate 529%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.18%(b)+
Net investment income/(loss) per share without waivers and/or expense reimbursments $ 0.15(b)
</TABLE>
* Nations Short-Intermediate Government Fund's Primary B Shares commenced
operations on June 28, 1996.
+ 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 represents the per share data for the
period, since the use of the undistributed income method did not accord with
results of operations.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*#
Operating performance:
Net asset value, beginning of period $ 9.51
Net investment income/(loss) 0.40
Net realized and unrealized gain/(loss) on investments (0.12)
Net increase/(decrease) in net asset value from operations 0.28
Distributions:
Dividends from net investment income (0.40)
Distributions from capital $ (0.00)(a)
Total dividends and distributions (0.40)
Net asset value, end of period $ 9.39
Total return++ 2.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 755
Ratio of operating expenses to average net assets 1.30%+
Ratio of net investment income/(loss) to average net assets 5.78%+
Portfolio turnover rate 468%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.44%+
Net investment income/(loss) per share without waivers and/or expense reimbursments $ 0.39
</TABLE>
* Nations Government Securities Fund's Primary B Shares commenced operations on
June 28, 1996.
+ 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 represents the per share data for the
period, since the use of the undistributed income method did not accord with
results of operations.
(a) Amount represents less than 0.01%.
16
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*
#
Operating performance:
Net asset value, beginning of period $ 9.71
Net investment income/(loss) 0.41
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net asset value from operations 0.38
Distributions:
Dividends from net investment income (0.41)
Total dividends and distributions (0.41)
Net asset value, end of period $ 9.68
Total return++ 3.95%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 953
Ratio of operating expenses to average net assets 0.90%
(a)+
Ratio of net investment income/(loss) to average net assets 5.62%
+
Portfolio turnover rate 172%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.20%
+
Net investment income/(loss) per share without waivers and/or expense reimbursments $ 0.39
</TABLE>
* Nations Short-Term Income Fund's Primary B Shares commenced operations on
June 28, 1996.
+ 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 represents the per share data for the
period, since the use of the undistributed income method did not accord with
results of operations.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*#
Operating performance:
Net asset value, beginning of period $ 10.28
Net investment income/(loss) 0.47
Net realized and unrealized gain/(loss) on investments (0.04)
Net increase/(decrease) in net asset value from operations 0.43
Distributions:
Dividends from net investment income (0.47)
Distributions from net realized capital gains (0.13)
Total dividends and distributions (0.60)
Net asset value, end of period $ 10.11
Total return++ 4.22%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 41
Ratio of operating expenses to average net assets 1.25%(a)+
Ratio of net investment income/(loss) to average net assets 6.23%+
Portfolio turnover rate 278%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.35%(a)+
Net investment income/(loss) per share without waivers and/or expense reimbursments $ 0.47(a)
</TABLE>
* Nations Diversified Income Fund's Primary B Shares commenced operations on
June 28, 1996.
+ 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 represents the per share data for the
period, since the use of the undistributed income method did not accord with
results of operations.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
17
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*#
Operating performance:
Net asset value, beginning of period $ 9.81
Net investment income/(loss) 0.41
Net realized and unrealized gain/(loss) on investments (0.08)
Net increase/(decrease) in net asset value from operations 0.33
Distributions:
Dividends from net investment income (0.41)
Distributions from net realized capital gains (0.11)
Distributions from capital $ (0.00)(a)
Total dividends and distributions $ (0.52)
Net asset value, end of period $ 9.62
Total return++ 3.35%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 29,235
Ratio of operating expenses to average net assets 1.21%(b
)+
Ratio of net investment income/(loss) to average net assets 5.48%+
Portfolio turnover rate 368%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.31%(b
)+
Net investment income/(loss) per share without waivers and/or expense reimbursments $ 0.43(b)
</TABLE>
* Nations Strategic Fixed Income Fund's Primary B Shares commenced operations
on June 28, 1996.
+ 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 represents the per share data for the
period, since the use of the undistributed income method did not accord with
results of operations.
(a) Amount represents less than $0.01.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 03/31/97*#
Operating performance:
Net asset value, beginning of period $ 10.13
Net investment income/(loss) 0.43
Net realized and unrealized gain/(loss) on investments (0.22)
Net increase/(decrease) in net asset value from operations 0.21
Distributions:
Dividends from net investment income (0.32)
Distributions in excess of net investment income (0.07)
Distributions from net realized capital gains (0.16)
Total dividends and distributions (0.55)
Net asset value, end of period $ 9.79
Total return++ 1.93%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5
Ratio of operating expenses to average net assets 1.76%
+
Ratio of net investment income/(loss) to average net assets 4.10%
+
Portfolio turnover rate 100%
</TABLE>
* Nations Global Government Income Fund's Primary B Shares commenced operations
on June 28, 1996.
+ 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 represents the per share data for the
period, since the use of the undistributed income method did not accord with
results of operations.
18
<PAGE>
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 regions, including developing countries.
NATIONS INTERNATIONAL GROWTH FUND: Nations International Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of companies domiciled in countries outside the United
States and listed on major stock exchanges primarily in Europe and the Pacific
Basin.
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 market 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 SMALL COMPANY GROWTH FUND: Nations Small Company Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities.
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.
INDEX FUNDS:
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.
NATIONS MANAGED INDEX FUND: Nations Managed Index Fund's investment objective is
to seek, over the long-term, to provide a total return which (gross of fees and
expenses) exceeds the total return of the Standard & Poor's 500 Composite Stock
Price Index.
NATIONS MANAGED SMALLCAP INDEX FUND: Nations Managed SmallCap Index Fund's
investment objective is to seek, over the long-term, to provide a total return
which (gross of fees and expenses) exceeds the total return of the Standard &
Poor's SmallCap 600 Index.
NATIONS MANAGED VALUE INDEX FUND: Nations Managed Value Index Fund's investment
objective is to seek, over the long-term, to provide a total return that (gross
of fees and expenses) exceeds the total return of the S&P 500/BARRA Value Index.
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: Nations Managed SmallCap Value Index
Fund's investment objective is to seek, over the long-term, to provide a total
return that (gross of fees and expenses) exceeds the total return of the S&P
SmallCap 600/BARRA Value Index.
19
<PAGE>
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 U.S. GOVERNMENT BOND FUND: Nations U.S. Government Bond Fund's
investment objective is to seek total return and preservation of capital by
investing in U.S. Government securities and repurchase agreements.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests 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 high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-term
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 high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing 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 in investment grade
fixed income securities.
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to seek 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. Investments in a Fund
are not insured against loss of principal.
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"), other obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities (together with U.S. Treasury Obligations, "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 certain
trusts, partnerships or other special purpose issuers including pass-through
certificates representing participation in, or debt instruments backed by, the
securities and other assets owned by such issuers. In addition, the Fund may
lend its portfolio securities to qualified institutional investors. Although the
Fund is permitted to invest a portion of its assets in second tier securities
(as defined below) in accordance with Rule 2a-7 under the Investment Company Act
of 1940, as amended (the "1940 Act") the Fund invests only in first tier
securities (as defined below). 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 and
repurchase agreements secured by such obligations. The Fund may lend its
portfolio securities to qualified institutional investors. Although the Fund is
permitted to invest a portion of its assets in second tier securities (as
defined below) in accordance with Rule 2a-7 under the 1940 Act, the Fund invests
only in first tier securities (as defined below). For more information
concerning these instruments, see "Appendix A."
20
<PAGE>
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations. Although the Fund may invest in
repurchase agreements it does not currently intend to do so. 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. Although the Fund is permitted to invest a portion of
its assets in second tier securities (as defined below) in accordance with Rule
2a-7 under the 1940 Act, the Fund invests only in first tier securities (as
defined below). 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; having a long-term rating of
"A" or higher from D&P, Fitch, S&P, IBCA, BankWatch or Moody's in the case of
certain bonds which are 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, "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."
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 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.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
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 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 greater maturity provided such obligations are subject to
demand features or resets which are less than 397 days, 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 by 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
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<PAGE>
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 the 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.
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 also may invest in various money market instruments and repurchase
agreements. 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 provided by the stocks in the
Standard & Poor's 500 Composite Stock Price Index1 (the "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 secur-
1 "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
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<PAGE>
ities 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 and repurchase
agreements. 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"), Global
Depositary Receipts ("GDRs"), 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 defensive purposes, the Fund may temporarily
invest substantially all of its assets in U.S. financial markets or in U.S.
dollar-denominated instruments.
NATIONS INTERNATIONAL GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in foreign equity securities listed on major exchanges, consisting of common
stocks, preferred stocks and convertible securities, such as warrants, rights
and convertible debt. The Fund may purchase the stock of small-, mid- and
large-capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Directors, the former Soviet Union and the
Middle East. Debt securities, if any, purchased by the Fund will be rated in the
top two categories by a NRSRO or, if unrated, determined by the Adviser to be of
comparable quality. For temporary defensive purposes, the Fund may invest up to
100% of its assets in debt and equity securities of U.S. issuers. Debt
securities in which the Fund may invest include short-term and intermediate-term
obligations of corporations, foreign governments and international organizations
(such as the International Bank for Reconstruction and Development (the "World
Bank")), and money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements. The Fund also 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.
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 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
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<PAGE>
in equity securities of emerging market issuers offers significant potential for
long-term capital appreciation.
Emerging market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the 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.
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, 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
International Growth 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.
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
International Growth 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
crite-
24
<PAGE>
ria, 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 may invest in ADRs, EDRs, GDRs 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.
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 and repurchase
agreements. 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 equity securities,
consisting of common stocks, preferred stocks and convertible securities, such
as warrants, rights 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 and repurchase agreements. 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 greater 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, it may invest up to
20% of its assets in foreign securities.
NATIONS SMALL COMPANY GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in equity securities, consisting of common stocks, preferred stocks and
convertible securities, such as warrants, rights and convertible debt. In
addition, the Fund
25
<PAGE>
will invest at least 65% of its total assets in companies with a market
capitalization of $1 billion or less.
In making investment decisions for the Fund, the Adviser, on a quarterly basis,
classifies approximately 6,000 companies by market value and eliminates the
largest 20%. The remaining companies constitute the Fund's small-capitalization
universe and generally represent only one-tenth of the aggregate U.S. equity
market capitalization. Due to the large number of small stocks to choose from,
the Adviser's selection process uses advanced quantitative techniques to
identify, buy and sell candidates in a timely and objective manner. The strategy
is to own those investments offering both attractive fundamental valuation and
relatively good prospects for earnings improvement. Typically, two types of
companies are candidates for purchase: (i) mature companies which may have
fallen from a larger market value due to business difficulties, but which now
exhibit improving prospects; and (ii) smaller or younger companies which are
experiencing strong trends in earnings growth, but remain reasonably valued and
therefore offer premium growth at a discount in comparison to other companies.
The Adviser's internally designed investment approach uses a sophisticated
valuation process which measures changes in current earnings estimates and
longer-term growth trends, compares recent earnings results with market
expectations, and evaluates a company's earnings power relative to its stock
price. Companies become purchase candidates based upon a composite ranking of
these factors, and the top 20% are further evaluated on additional criteria.
Candidates for investment must also possess a sound financial structure and
demonstrate consistent factor rankings before being added to the Fund's
portfolio.
The Fund's weighted median capitalization generally is not expected to exceed
125% of the weighted median capitalization of the Russell 2000 Small Stock Index
(the "Russell 2000") as measured on a quarterly basis, although this may vary
from time to time. Furthermore, a stock may be sold if the composite rank falls
into the bottom 20% of the universe, financial quality weakens significantly, or
if individual factors demonstrate patterns of deterioration.
The Fund may invest up to 35% of its total assets in securities of issuers with
a market capitalization greater than $1 billion and in debt securities. However,
the Fund will not invest more than 10% of its total assets in debt securities,
unless the Fund assumes a temporary defensive position as discussed below. Debt
securities, if any, purchased by the Fund will be rated AA or above by S&P or Aa
or above by Moody's or, if unrated, determined by the Adviser to be of
comparable quality. For temporary defensive purposes, the Fund may invest up to
100% of its assets in debt securities. Debt securities in which the Fund may
invest include short-term and intermediate-term obligations of corporations, the
U.S. and foreign governments and international organizations (such as the World
Bank) and money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements. The Fund currently intends to limit any investment in foreign
securities to 5% of total assets.
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 the Fund, the Adviser utilizes quantitative analysis and
optimization tools. This approach seeks to identify companies with improving
profit potential through analysis of 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. The quantitative analysis also includes ranking the attractiveness
of equity securities according to a multi-factor valuation model. Both value and
growth factors are considered in the ranking process. Value factors such as book
value, earnings yield and cash flow measure a stock's intrinsic worth versus its
market price, while growth characteristics such as price momentum, earnings
growth and earnings acceleration measure a stock relative to others in the same
industry. The objective is to maintain a broadly diversified portfolio which
ranks in the top quartile on earnings momentum and in the top third on
valuation. This approach generally produces a dividend yield less than the
market average. Although this Fund seeks to invest in attractively priced
securities with increasing earnings, its investment objective focuses on
long-term capital appreciation; income is not an objective of this 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
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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, money
market instruments and repurchase agreements. For more information concerning
these and other investments in which the Funds may invest and their investment
practices, see "Appendix A."
GENERAL: Each Equity Fund may invest in certain specified derivative securities,
including: exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
Commodity Futures Trading Commission ("CFTC") and options thereon for market
exposure risk management. Each Equity Fund may lend its portfolio securities to
qualified institutional investors and may invest in repurchase agreements,
restricted, private placement and other illiquid securities. In addition, each
Equity Fund may invest in real estate investment trust securities and may invest
in securities issued by other investment companies, consistent with the Fund's
investment objective and policies. Nations International Equity Fund, Nations
International Growth Fund, Nations Emerging Markets Fund and Nations Pacific
Growth Fund may invest in forward foreign exchange contracts.
INDEX FUNDS:
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.
Subject to applicable law, the Fund will purchase stock of NationsBank
Corporation to the extent of its proportional make-up of the S&P 500 Index.
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 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.
The correlation between the performance of Nations Equity Index Fund (before
fees and expenses) 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 gain 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,
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<PAGE>
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.
NATIONS MANAGED INDEX FUND: In seeking to achieve its investment objective, the
Fund will invest in selected equity securities that are included in the S&P 500
Index. The S&P 500 Index is a market capitalization weighted index consisting of
500 common stocks chosen for market size, liquidity and industry group
representation.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P 500 Index while minimizing
the downside risk of underperforming the S&P 500 Index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index. The
Adviser ranks the attractiveness of each security according to a multi-factor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration measure a stock relative to others in the same industry. A second
quantitative model which measures the earnings momentum of each security is
added to the screening process to serve as a validity check in the portfolio
construction process. Each stock is assigned a ranking from 1 to 10 (best to
worst). The Adviser then either underweights or eliminates the less attractive
securities and modestly emphasizes the most attractive stocks resulting in a
portfolio of 300 to 400 holdings that capture the investment characteristics of
the S&P 500 Index.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical and, in any event the Fund will invest at least
80% of its total assets, in common stocks which are included in the S&P 500
Index. The Fund is expected, however, to maintain a 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
Obligations and repurchase agreements.
NATIONS MANAGED SMALLCAP INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the Standard & Poor's SmallCap 600 Index (the "S&P 600 Index").2 The S&P 600
Index is a market capitalization weighted index consisting of 600 domestic
stocks which capture the economic and industry characteristics of small stock
performance. Most of these stocks are listed on either the New York, American or
NASDAQ stock exchanges.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P 600 Index while minimizing
the downside risk of underperforming the Index over time.
From the initial S&P 600 Index stock universe the Adviser ranks the
attractiveness of each security according to a multi-factor valuation model.
Both value and momentum factors are considered in the ranking process. Value
factors such as book value, earnings yield and cash flow measure a stock's
intrinsic worth versus its market price, while momentum characteristics such as
price momentum, earnings growth and earnings acceleration measure a stock
relative to others in the same industry. A second quantitative model which
measures the earnings momentum of each security is added to the screening
process to serve as a validity check in the portfolio construction process. Each
stock is assigned a ranking from 1 to 10 (best to worst). The Adviser then
either underweights or eliminates the less attractive securities and modestly
emphasizes the most attractive stocks resulting in a portfolio of approximately
400 to 500 holdings that capture the investment characteristics of the S&P 600
Index.
Under normal conditions, substantially all of the Fund's assets, and, in any
event at least 80% of its total assets, will be invested in common stocks which
are included in the S&P 600 Index. The Fund is expected, however, to maintain a
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 Obligations and repurchase agreements.
NATIONS MANAGED VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P/BARRA Value Index. The S&P/BARRA Value Index is a subset of the S&P
500 Index. The S&P 500 Index is a market capitalization weighted index
consisting of 500 common stocks chosen for market size, liquidity and industry
group representation. The S&P/BARRA Value Index is a market capitalization
weighted index consisting of approximately 340 common stocks selected from the
S&P 500 Index on the basis of a higher than average price-to-book ratio. Because
of their higher than average price-to-book ratios, stocks in the S&P/BARRA Value
Index, on average, typically exhibit higher yields than
2 "Standard & Poor's SmallCap 600" is a registered service mark of S&P.
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<PAGE>
stocks in the S&P 500 Index. Historically, stocks in the S&P/BARRA Value Index,
on average, have exhibited less short-term volatility than stocks in the S&P 500
Index.
S&P constructs in the S&P/BARRA Value Index semi-annually by ranking all common
stocks included in the S&P 500 Index by their price-to-book ratios. The
resulting list is then divided in half by market capitalization. Stocks in the
half of the list that have higher price-to-book ratios are included in the
S&P/BARRA Value Index.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity value index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA Value Index while
reducing the downside risk of underperforming the S&P/BARRA Value Index over
time.
The initial stock universe considered by the Adviser is the S&P/BARRA Value
Index. The Adviser ranks the attractiveness of each security according to a
multi-factor valuation model. Although the universe consists exclusively of
value stocks, both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration are useful in determining a stock's value in relation to lenders in
the same industry. A second quantitative model which measures the earnings
momentum of each security is added to the screening process to serve as a
validity check in the portfolio construction process. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweights or
eliminates the less attractive securities and modestly emphasizes the most
attractive stocks resulting in a portfolio of 100 to 200 holdings that capture
the overall investment characteristics of the S&P/BARRA Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets, in common stocks which are included in the S&P/BARRA Value Index. The
Fund is expected, however, to maintain a 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 obligations
("U.S. Government Obligations") and repurchase agreements.
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P/BARRA SmallCap Value Index. The S&P/BARRA SmallCap Value Index is a
subset of the S&P 600 Index. The S&P 600 Index is a market capitalization
weighted index consisting of 600 domestic stocks which capture the economic and
industry characteristics of small stock performance. The S&P/BARRA SmallCap
Value Index is a market capitalization weighted index consisting of
approximately 375 companies selected from the S&P 600 Index on the basis of
price-to-book ratios. Those companies with lower price-to-book ratios make up
the S&P/BARRA SmallCap Value Index. The S&P/BARRA SmallCap Value Index is
rebalanced semi-annually to reflect changes in the S&P 600 Index. Most of these
stocks are listed on either the New York, American or NASDAQ stock exchanges.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser,
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA SmallCap Value Index
while reducing the downside risk of underperforming the S&P/BARRA SmallCap Value
Index over time.
The initial stock universe considered by the Adviser is the S&P/BARRA SmallCap
Value Index. The Adviser ranks the attractiveness of each security according to
a multi-factor valuation model. Although the universe consists exclusively of
value stocks, both value and momentum factors are considered in the ranking
process. Value factors are considered in the ranking process. Value factors such
as book value, earnings yield and cash flow measure a stock's intrinsic worth
versus its market price, while momentum characteristics such as price momentum,
earnings growth and earnings acceleration are useful in determining a stock's
value in relation to others in the same industry. A second quantitative model
which measures the earnings momentum of each security is added to the screening
process to serve as a validity check in the portfolio construction process. Each
stock is assigned a ranking from 1 to 10 (best to worst). The Adviser then
either underweights or eliminates the less attractive securities and modestly
emphasizes the most attractive stocks resulting in a portfolio of 200 to 300
holdings that capture the overall investment characteristics of the S&P/BARRA
SmallCap Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets in common stocks which are included in the S&P/BARRA SmallCap Value
Index. The Fund is expected, however, to maintain a 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 or deposit, bankers' acceptances and time deposits, U.S. Government
Obligations and repurchase agreements.
ABOUT THE INDEXES: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The S&P
SmallCap 600 Index is composed of 600 domestic stocks, which are chosen by S&P
based on, among other things, market size, liquidity and industry group
representation. The S&P SmallCap 600 Index is designed to be a
bench-
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mark of small capitalization stock performance. Most of these stocks are listed
on either the New York, American or NASDAQ stock exchanges.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index (collectively,
the "BARRA Value Indexes") are constructed by dividing the stocks in the S&P 500
Index and the S&P 600 Index, respectively, according to a single attribute:
price-to-book ratios. The BARRA Value Indexes are capitalization-weighted,
meaning that each stock is weighted in the approximate index in proportion to
its market value. Additionally, price-to-book ratios tend to be more stable over
time than alternative measures such as price-to-earnings ratios, historical
earnings growth rates, or return on equity. This results in indexes with
relatively low turnover. Generally, the companies in the BARRA Value Indexes
also exhibit characteristics associated with "value" stocks: lower
price-to-earnings ratios, higher dividend yields, and lower historical and
predicted earnings growth than the S&P 500 Index or the S&P 600 Index,
respectively.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index are relatively
concentrated. The S&P/BARRA Value Index tends to be more heavily concentrated in
the Energy, Utility, and Financial sectors than the S&P 500 Index. Additionally,
the S&P/BARRA SmallCap Value Index tends to be more heavily concentrated in the
Utility and Financial sectors than the S&P 600 Index.
The inclusion of a stock in the S&P 500 Index, the S&P 600 Index, S&P/BARRA
Value Index or the S&P/BARRA SmallCap Value Index in no way implies that S&P or
BARRA believes the stock to be an attractive investment. The Indexes are
determined, composed and calculated by S&P and BARRA without regard to the
Funds. Neither S&P or BARRA is a sponsor of, or in any way affiliated with, the
Funds, and neither S&P or BARRA makes any representation or warranty, expressed
or implied, on the advisability of investing in the Funds or as to the
advisability of investing in the Funds or as to the ability of the Indexes to
track general stock market performance. S&P and BARRA disclaim all warranties of
merchantability or fitness for a particular purpose or use with respect to the
Indexes or any data included therein.
GENERAL: Each Index 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. exchange-traded financial futures approved by the CFTC and
options thereon for market exposure risk management. Each Fund may lend its
portfolio securities to qualified institutional investors and may invest in
repurchase agreements, restricted, private placement and other illiquid
securities. In addition, the Funds may invest in securities issued by other
investment companies, consistent with the Fund's investment objective and
policies.
In addition, when consistent with the Fund's respective investment objective,
each of the Funds will employ various techniques to manage capital gain
distributions. These techniques include utilizing a share identification
methodology whereby the Fund will specifically identify each lot of shares of
portfolio securities that it holds, which will allow the Fund to sell first
those specific shares with the highest tax basis in order to reduce the amount
of recognized capital gains as compared with a sale of identical portfolio
securities, if any, with a lower tax basis. The Fund will sell first those
shares with the highest tax basis only when it is in the best interest of the
Fund to do so, and reserves the right to sell other shares when appropriate. In
addition, the Fund may, at times, sell portfolio securities in order to realize
capital losses. Such capital losses would be used to offset realized capital
gains thereby reducing capital gain distributions. Additionally, the Adviser
will, consistent with the portfolio construction process discussed above, employ
a low portfolio turnover strategy designed to defer the realization of capital
gains.
Equity mutual funds, like other investors in equity securities, incur
transaction (brokerage) costs in connection with the purchase and sale of
portfolio securities. For some funds, these costs can have a material negative
impact on performance. With respect to the Index Funds, the Adviser to the Funds
will attempt to minimize these transaction costs by utilizing program trades and
computerized exchanges called "crossing networks" which allow institutions to
execute trades at the mid-point of the bid/ask spread and at a reduced
commission rate.
For more information concerning these and other instruments in which the Funds
may invest and their investment practices, see "Appendix A."
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.
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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 and
asset-backed securities. Most obligations acquired by the Fund will be issued by
companies or governmental entities located within the United States. Debt
obligations acquired by the Fund will be rated investment grade at the time of
purchase by an NRSRO, 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 and repurchase
agreements. 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.
BOND FUNDS:
NATIONS U.S. GOVERNMENT BOND FUND: Under normal market conditions, the Fund will
invest at least 65% of its total assets in U.S. Government securities and
repurchase agreements collateralized by such securities. While the maturity of
individual securities will not be restricted, except during temporary defensive
periods or unusual market conditions, the average weighted maturity of the Fund
will be between five and thirty years. The Fund may invest in a variety of U.S.
Government Obligations. The Fund may also invest in interests in the foregoing
securities, including collateralized mortgage obligations issued or guaranteed
by a U.S. Government agency or instrumentality. U.S. Government Obligations have
historically had a very low risk of loss of principal if held to maturity. The
Fund, however, can give no assurance that the U.S. Government would provide
financial support to its agencies or instrumentalities if it were not legally
required to do so.
The Fund may also invest up to 35% of its total assets in debt securities of
U.S. and foreign corporate and foreign government issuers, ADRs and EDRs, zero
coupon bonds and cash equivalents. The Fund will purchase only those
non-government investments which are rated investment grade or better by at
least one NRSRO or, if unrated, are determined by the Adviser to be of
comparable quality. If a portfolio security held by the Fund ceases to be rated
investment grade by at least one NRSRO or if the Adviser determines that an
unrated portfolio security held by the Fund is no longer of comparable quality
to an investment grade security, the security will be sold in an orderly manner
as quickly as possible. Additionally, the Fund may also invest in futures
contracts, interest rate swaps and options.
The value of the Fund's portfolio (and consequently its shares) is expected to
fluctuate inversely in relation to changes in the direction of interest rates.
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 dollar-weighted maturity of the Fund's portfolio will be between three
and five 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-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.
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 proportion as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
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 dollar-weighted maturity of the Fund's portfolio will be between three
and 10 years
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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-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.
The Fund also may invest in "high quality" money market instruments, 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, prevailing market or economic 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
dollar-weighted maturity of the Fund will not exceed five years and the 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. The Fund also may invest in
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, 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
dollar-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; 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-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 NRSRO's, or if not so rated,
determined by the Adviser to be of comparable quality.
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
32
<PAGE>
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,
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 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 fixed income securities. It is expected
that the average dollar-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-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. 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.
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, 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 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 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
33
<PAGE>
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. The
Fund also may invest in money market instruments.
GENERAL: Each of the Balanced and 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 Fund also may lend its
portfolio securities to qualified institutional investors and may invest in
repurchase agreements, restricted, private placement and other illiquid
securities. Nations Balanced Assets Fund, Nations U.S. Government Bond Fund,
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
forward foreign exchange contracts. Additionally, each Fund may purchase
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
The Funds may also 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 and partnerships.
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 (NON-MONEY MARKET FUNDS): Generally, the Equity Funds, the
Index 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, except for Nations Managed Value Index Fund and
Nations Managed SmallCap Value Index Fund, see "Financial Highlights." While it
is not possible to predict exactly annual portfolio turnover rates, it is
expected that under normal market conditions, the annual portfolio turnover rate
for each of Nations Managed Value Index Fund and Nations Managed SmallCap Value
Index Fund will not exceed 25%. With respect to Nations International Growth
Fund, it is expected that under normal market conditions, the annual portfolio
turnover rate will not exceed 100%.
RISK CONSIDERATIONS: Investments by a Fund in common stocks and other equity
securities are subject to stock market risks. The value of the stocks that the
Fund holds, like the broader stock market, may decline over short or even
extended periods. The U.S. stock market tends to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As of the
date of this Prospectus the stock market, as measured by the S&P 500 Index and
other commonly used indices, was trading at or close to record levels. There can
be no guarantee that these levels will continue.
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, 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."
Certain of the Funds may invest in securities of smaller and newer issuers.
Investments in such companies may
34
<PAGE>
present greater opportunities for capital appreciation because of high potential
earnings growth, but also present greater risks than investments in more
established companies with longer operating histories and greater financial
capacity.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN NATIONS INTERNATIONAL
EQUITY FUND, NATIONS INTERNATIONAL GROWTH 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 of which
investors should be aware.
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 more volatile than in the
more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
The above risk considerations are also relevant to an investment in Nations
International Growth Fund.
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 International
Growth Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Income Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE INDEX FUNDS: The
techniques employed by the Adviser to seek to manage capital gain distributions
will generally only have the effect of deferring the realization of capital
gains. For example, to the extent that the capital gains recognized on a sale of
portfolio securities arise from the sale of specifically-identified securities
with higher tax bases, subsequent sales of the same portfolio securities will be
calculated by reference to the lower tax basis securities that remain in the
portfolio. Under this scenario, an investor who purchases shares of a Fund after
the first sale could receive capital gain distributions that are higher than the
distributions that would have been received if this methodology had not been
used. Therefore, certain investors actually could be disadvantaged by the
techniques employed by the Fund to seek to manage capital gain distributions,
depending on the timing of their purchase of Fund shares. Even if there are no
subsequent sales, upon a redemption or exchange of Fund shares an investor will
have to recognize gain to the extent that the net asset value of Fund shares at
such time exceeds such investor's tax basis in his or her Fund shares.
35
<PAGE>
The various techniques employed by the Funds to manage capital gain
distributions may result in the accumulation of substantial unrealized gains in
the Funds' portfolios. Moreover, the realization of capital gains is not
entirely within a Fund's control because it is at least partly dependent on
shareholder purchase and redemption activity. Capital gain distributions may
vary considerably from year to year.
Furthermore, the U.S. Treasury has proposed legislation which would require
holders of substantially identical securities to determine their tax basis using
the average cost of all of their holdings in such securities. If enacted, the
legislation would prevent the Funds from specifically identifying each lot of
shares that they hold and from selling first those specific shares with the
highest tax basis. Thus, the legislation would restrict the Funds' ability to
manage capital gains.
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 1940 Act, as amended 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.
Nations International Growth Fund may not borrow money except as a temporary
measure and then only in amounts not exceeding 5% of the value of the Fund's
total assets or from banks or in connection with reverse repurchase agreements
provided that immediately after such borrowing, all borrowings of the Fund do
not exceed one-third of the Fund's total assets and no purchases of portfolio
instruments will be made while such Fund has borrowings outstanding in an amount
exceeding 5% of its total assets.
Each of Nations Small Company Growth Fund and Nations U.S. Government Bond Fund
may not borrow money except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase agreements
and mortgage rolls; provided that the Fund will maintain asset coverage of 300%
for all borrowings.
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 objective and policies of each Fund, unless otherwise specified,
are non-fundamental may be changed without shareholder approval. Shareholders of
Nations International Growth Fund, Nations Small Company Growth Fund and Nations
U.S. Government Bond Fund, however, must receive at least 30 days' prior written
notice in the event an investment objective is changed. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their 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 SAI. 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.
36
<PAGE>
How Performance Is Shown
NATIONS MONEY MARKET FUNDS: 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 the
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 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 gain 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 gain 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.
Set forth below is certain performance data for the Enhanced Equity Index Common
Trust Fund and Enhanced Small Cap Equity Index Common Trust Fund (the "CTFs"),
each of which is currently managed on behalf of NationsBank by TradeStreet.
(Prior to the formation of TradeStreet in 1995, the CTFs were managed solely by
NationsBank.) The performance data for the CTFs is deemed relevant because the
Enhanced Equity Index and Enhanced Small Cap Equity Index Common Trust Funds
have investment objectives and policies that are substantially similar to those
of Nations Managed Index Fund and Nations Managed SmallCap Index Fund,
respectively. Moreover, the portfolio manager of TradeStreet (who currently
manages the CTFs and the Funds) employs the same quantitative investment process
for the Funds that has, and continues to be, utilized for the CTFs. THIS
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE OF THE CTFS AND IS NOT NECESSARILY
INDICATIVE OF THE FUTURE PERFORMANCE OF THE CTFS OR THE FUNDS.
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
INDICATED THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
One Three Five Inception
Year Year Year (12/31/88)**
Enhanced Equity Index
Common Trust Fund* 19.98% 22.31% 16.08% 16.52%
S&P 500 Index 19.77% 22.28% 16.39% 16.28%
Lipper S&P 500 Index
Funds Average*** 19.19% 21.73% 15.89% 15.66%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Enhanced Lipper Equity
Equity Index Index
Common Trust S&P Funds
Year Fund* 500 Index Average***
1989 34.12% 31.55% 30.58%
1990 -1.52% -3.15% -3.57%
1991 31.72% 30.56% 29.65%
1992 5.52% 7.64% 7.12%
1993 10.47% 9.99% 9.52%
1994 0.69% 1.31% 0.90%
1995 37.66% 37.45% 36.82%
1996 23.62% 23.08% 22.30%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
INDICATED THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Since
One Inception
Year (10/1/95)
Enhanced Small Cap Equity Index Common
Trust Fund* 11.76% 11.68%
S&P 600 Index 8.39% 9.83%
</TABLE>
37
<PAGE>
* The total returns reflect the deduction of 0.50% of fees and expenses per
annum. The CTFs are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which if applicable, may have adversely
affected the performance results of the CTFs.
** Prior to 12/31/88 the Enhanced Equity Index Common Trust Fund was managed
with a different objective and policies and therefore performance prior
thereto is not included in the prior performance calculations.
*** The Lipper S&P 500 Index Funds Average represents the average performance of
mutual funds with similar objectives monitored by Lipper Analytical
Services, Inc. during the periods shown.
Set forth below is certain performance data for the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite,
reflecting the performance of private accounts, including U.K. authorized unit
trusts, managed by Gartmore plc, as defined below. The performance data for
these accounts is deemed relevant because the Pacific Ex-Japan Composite, the
Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite have
investment objectives, policies and restrictions that are substantially similar
to those of Nations Pacific Growth Fund, Nations Emerging Markets Fund and
Nations Global Government Income Fund, respectively. There is substantial
continuity between the portfolio managers of Gartmore plc who were responsible
for managing those accounts and the portfolio managers of Gartmore who are
responsible for managing Nations Pacific Growth Fund, Nations Emerging Markets
Fund and Nations Global Government Income Fund, respectively. THIS PERFORMANCE
DATA REPRESENTS PAST PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF THE FUTURE
PERFORMANCE OF GARTMORE OR THE FUNDS.
PACIFIC EX-JAPAN COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
One Year Two Years Three Years Four Years
Pacific Ex-Japan
Composite 3.95% 8.44% 7.79% 17.11%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Indexl -2.44% 8.58% 7.08% 15.62%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
Six Inception
Five Years Years Seven Years (1/1/88)
Pacific Ex-Japan
Composite 18.84% 18.08% 14.79% 20.42%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Indexl 16.69% 16.61% 15.77% 19.02%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Morgan Stanley
Capital
International
Pacific Combined Far East
Ex-Japan (Ex-Japan)
Composite Free Indexl
1988 11.9% 30.0%
1989 58.40% 32.1%
1990 0.0% -6.5%
1991 22.1% 31.0%
1992 22.9% 21.8%
1993 110.0% 103.4%
1994 -13.9% -17.5%
1995 4.0% 8.8%
1996 13.5 11.1
</TABLE>
* The average annual total returns and annual total returns are net of fees.
The fees for these accounts were 1% per annum until September 30, 1988, and
1.5% per annum thereafter. The accounts are not subject to certain investment
limitations, diversification requirements, and other restrictions imposed by
the 1940 Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results of the accounts.
l The Morgan Stanley Capital International Combined Far East (Ex-Japan) Free
Index is a capitalization-weighted index that tracks 7 countries and
represents only those securities that are available for investment by
international investors; many issues are still restricted to domestic
investors in certain Pacific Basin countries.
EMERGING MARKETS COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Four Years
Since
Inception
One Year Two Years Three Years 1/1/93
Emerging Markets
Composite 16.2% 11.1% -1.8% 10.2%
IFC Investables
Indexl 11.4% 13.4% 3.1% 13.39%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Emerging
Markets IFC Investables
Composite Indexl
1993 76.5% 79.6%
1994 -19.0% -12.0%
1995 -11.3% -8.5%
1996 13.0% 9.4%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (1/1/93) and are net of fees. The fees for these
accounts were 1.5% per annum. The accounts are not subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable,
may have adversely affected the performance results of the accounts.
l The IFC Investables Index includes over 1,100 stocks representing 27 stock
markets in developing countries, and reflects the accessibility of markets and
individual stocks for foreign ownership.
38
<PAGE>
GLOBAL GOVERNMENT BOND
EX-U.K. COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
One Year Two Years Three Years
Global Government Bond
Ex-U.K.
Composite** -1.2% 4.4% 6.1%
J.P. Morgan Global
Government Bonds
Indexl 1.0% 3.9% 6.5%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997**
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Since
Inception
Four Years Five Years 10/1/90
Global Government Bond Ex-
U.K. Composite** 6.2% 8.4% 10.31%
J.P. Morgan Global
Government Bonds Indexl 6.5% 7.9% 8.97%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Global J.P. Morgan
Government Global
Bond Ex-U.K. Government
Composite Bonds Indexl
1991 20.8% 16.0%
1992 4.8% 5.2%
1993 15.0% 11.6%
1994 -0.9% 1.5%
1995 22.8% 19.6%
1996 0.6% 3.5%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (10/1/90) and are net of fees. The fees on these
accounts varied by contractual agreement and have been assumed to be 1.5% per
annum. The accounts are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results of the accounts.
** The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J.P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
l The J.P. Morgan Global Government Bonds Index is a capitalization-weighted
index that tracks government bonds issued in 13 countries located in the
United States, Europe and the Far East.
Set forth below is the average annual total return and annual total return for
Nations International Equity Fund for the periods ending March 31, 1997:
NATIONS INTERNATIONAL
EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since Inception
One Year Three Years Five Years on 12/2/91
Nations
International
Equity Fund 1.32% 6.23% 8.24% 7.10%
Morgan Stanley
Capital
International EAFE
Indexl 1.46% 6.53% 10.57% 6.01%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C>
Morgan Stanley
Nations Capital
International International EAFE
Equity Fund Indexl
1992 -8.6% -12.2%
1993 27.21% 32.6%
1994 2.6% 7.8%
1995 8.5% 11.2%
1996 8.5% 6.1%
</TABLE>
l The Morgan Stanley Capital International EAFE Index represents an unmanaged
index used to portray the pattern of common stock price movement in Europe,
Australia and the Far East.
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 Daily Shares. In addition to Primary B
Shares, the Non-Money Market Funds offer Primary A, Investor A, Investor B
(formerly Investor N) and Investor C 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
39
<PAGE>
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 or by calling Nations Funds at the
toll-free number indicated on the cover.
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 Funds 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 investment
sub-adviser to all of the Funds except for those Funds listed below, for which
Gartmore or Boatmen's serves as investment sub-adviser. TradeStreet is a wholly
owned subsidiary of NationsBank. TradeStreet provides investment management
services to individuals, corporations and institutions.
Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as investment sub-adviser to Nations
International Equity Fund, Nations International Growth 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.
Boatmen's Capital Management, Inc. serves as investment sub-adviser to Nations
U.S. Government Bond Fund. Its principal offices are located at 100 North
Broadway, St. Louis, Missouri 63178-4737. Boatmen's is an indirect subsidiary of
NationsBank Corporation, a registered bank holding company.
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. 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: .25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus .20% of the combined average daily net assets of such Funds
in excess of $250 million; .40% of the average daily net assets of each of
Nations Government Money Market Fund and Nations Tax Exempt Fund; .50% of the
average daily net assets of each of Nations Managed Index Fund, Nations Managed
SmallCap Index Fund, Nations Managed Value Index Fund, Nations Managed SmallCap
Value Index Fund, and Nations Equity Index Fund; 1.00% of the average daily net
assets of Nations Small Company Growth Fund; .60% of the average daily net
assets of each of Nations U.S. Government Bond Fund, Nations Short-Intermediate
Government Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund
and Nations Strategic Fixed Income Fund; .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; .65% of
the first $100 million of Nations Government Securities Fund's average daily net
assets, plus .55% of the Fund's average daily net assets in excess of $100
million and up to $250 million, plus .50% of the Fund's average daily
40
<PAGE>
net assets in excess of $250 million; .75% of the first $100 million of Nations
Equity Income Fund's average daily net assets, plus .70% of the Fund's average
daily net assets in excess of $100 million and up to $250 million, plus .60% of
the Fund's average daily net assets in excess of $250 million; .90% of the
average daily net assets of Nations International Equity Fund, Nations
International Growth Fund and Nations Pacific Growth Fund; 1.10% of the average
daily net assets of Nations Emerging Markets Fund; and .70% of the average daily
net assets of Nations Global Government Income Fund.
For the services provided pursuant to sub-advisory agreements, NBAI will pay to
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rates of: .055% of the average daily net assets of Nations Prime Fund, Nations
Treasury Fund, Nations Government Money Market Fund, and Nations Tax Exempt
Fund; .10% of the average daily net assets of each of Nations Managed Index
Fund, Nations Managed SmallCap Index Fund, Nations Managed Value Index Fund,
Nations Managed SmallCap Value Index Fund, and Nations Equity Index Fund; .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; .20% of
the average daily net assets of each of Nations Equity Income Fund; and .25% of
the average daily net assets of each of Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Small Company Growth Fund,
Nations Disciplined Equity Fund and Nations Balanced Assets Fund.
For services provided pursuant to sub-advisory agreements, NBAI will pay
Gartmore sub-advisory fees, computed daily and paid monthly, at the annual rates
of: .70% of Nations International Equity Fund's average daily net assets; .85%
of Nations Emerging Markets Fund's average daily net assets; .70% of Nations
Pacific Growth Fund's average daily net assets; and .54% of Nations Global
Government Income Fund's average daily net assets. For services provided and
expenses assumed, Gartmore is entitled to receive from NBAI sub-advisory fees,
computed daily and paid monthly, at the annual rate of .40% of Nations
International Growth Fund's average daily net assets up to and including
$325,000,000 in assets and .25% on assets in excess of $325,000,000. As of the
date of this prospectus, the Board of Directors has approved, and recommended to
shareholders that they approve, an increase in the fees to be paid by NBAI to
Gartmore to .70% of Nations International Growth Fund's average daily net
assets. This increase will be implemented as soon as practicable following
receipt of shareholder approval.
For services provided pursuant to a sub-advisory agreement, NBAI will pay
Boatmen's sub-advisory fees at the rate of 0.15% of the average daily net assets
of Nations U.S. Government Bond Fund.
From time to time, NBAI (and/or TradeStreet, Gartmore or Boatmen's) 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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Fund's average daily net assets:
Nations Government Money Market Fund -- .14%, Nations Tax Exempt Fund -- .16%,
Nations Value Fund -- .75%, Nations Capital Growth Fund -- .75%, Nations
Emerging Growth Fund -- .75%, Nations Disciplined Equity Fund -- .75%, Nations
Equity Index Fund -- .19%, Nations Managed Index Fund -- .06%, Nations Managed
SmallCap Index Fund -- .00%, Nations Balanced Assets Fund -- .75%, Nations
Short-Intermediate Government Fund -- .40%, Nations Short-Term Income
Fund -- .30%, Nations Diversified Income Fund -- .50%, and Nations Strategic
Fixed Income Fund -- .50%. No fees were paid with respect to Nations Managed
Value Index Fund or Nations Managed SmallCap Value Index Fund because neither
Fund had yet commenced operations during the period indicated above.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Prime Fund -- .16%, Nations Treasury Fund -- .16%, Nations Equity Income
Fund -- .67%, Nations International Equity Fund -- .90% and Nations Government
Securities Fund -- .50%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Emerging Markets Fund -- 1.10%, Nations Pacific Growth Fund -- .90%; and
Nations Global Government Income Fund -- .70%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- 0.55%; Nations Tax Exempt Fund -- 0.55%; Nations
Value Fund -- .25%, Nations Capital Growth Fund -- .25%, Nations Emerging Growth
Fund -- 0.25%, Nations Disciplined Equity Fund -- .25%, Nations Equity Index
Fund -- .10%, Nations Managed Index Fund -- .10%, Nations Managed SmallCap Index
Fund -- .10%, Nations Balanced Assets Fund -- .25%, Nations Short-Intermediate
Government Fund -- .15%, Nations Short-Term Income Fund -- .15%, Nations
Diversified Income Fund -- .15%, Nations Strategic Fixed Income Fund -- .15%,
Nations Prime Fund -- .055%, Nations Treasury Fund -- .055%, Nations Equity
Income Fund -- .20% and Nations Government Securities Fund -- .15%.
For the fiscal period from September 1, 1996 to May 16, 1997, after waivers, the
Pilot Funds paid Boatmen's Trust Company, under a previous investment advisory
agreement, advisory fees at the indicated rates of the following Funds' average
daily net assets: Nations Small Company Growth Fund (formerly the Pilot Small
Capitalization Equity Fund) -- .75%, Nations International
41
<PAGE>
Growth Fund (formerly the Pilot International Equity Fund) -- .48%, and Nations
U.S. Government Bond Fund) formerly the Pilot U.S. Government Securities
Fund) -- .40%. During the same period, after waivers, the Pilot Funds paid
Kleinwort Benson Investment Management Americas Inc., under a previous
sub-advisory agreement, sub-advisory fees at the rate of .32% of Nations
International Growth Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid Gartmore under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Emerging Markets Fund -- .85%, Nations Pacific Growth Fund -- .70% and Nations
Global Government Income Fund -- .54% and Nations International Equity
Fund -- .70%.
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. Prior to assuming her
position with TradeStreet, she was Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. 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.
Sharon M. Herrmann 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 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 is Principal Portfolio Manager of Nations International Equity
Fund and has been the Portfolio Manager since February, 1995. He joined Gartmore
as a Global Fund Manager in 1993 and currently holds the position of Head of the
International and Global Portfolio Team. Previously, Mr. Watson was a director
and global fund manager with James Capel Fund Managers, London, as well as
Client Services Manager for international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their Portfolio Management Division. He
began his career in 1976 when he joined the investment division at Samuel
Montagu. Mr. Watson is a member of the Securities Institute.
Philip J. Sanders 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
42
<PAGE>
as well as the North Carolina Society of Financial Analysts, Inc.
Scott A. Billeadeau is a Senior Portfolio Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Emerging Growth Fund and
Nations Small Company Growth Fund. Mr. Billeadeau has been Portfolio Manager of
the Funds since June 1997. Previously he was Senior Analyst and Senior Portfolio
Manager for BankAmerica's Pacific Horizon Aggressive Growth Fund at Security
Pacific Corp. since 1991. Mr. Billeadeau has worked in the investment community
since 1986. His past experience also includes quantitative analysis for American
Express Financial Advisors, Inc. Mr. Billeadeau received an A.B. in Economics
from Princeton University. He holds the Chartered Financial Analyst designation
and is a member of the Association for Investment Management and Research, as
well as the Seattle Society of Securities Analysts.
Jeffery C. Moser is a Senior Product Manager, Equity Management for TradeStreet
and Senior Portfolio Manager for Nations Managed Value Index Fund and Nations
Managed SmallCap Value Index Fund. Mr. Moser has been with TradeStreet since
1996 and Portfolio Manager for Nations Managed Value Index Fund and Nations
Managed SmallCap Value Index Fund since the inception of the Funds. He also is
the Portfolio Manager of the Nations Disciplined Equity Fund and has been 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 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.
Brad Pope is a Product Manager, Fixed Income Management for TradeStreet and
Portfolio Manager for Nations Short-Term Income Fund. He is a senior member of
the Fixed Income Team. As such, his responsibilities include setting duration
policy for the Nations Funds fixed income funds. Mr. Pope has been the portfolio
manager for Nations Short-Term Income Fund since August 1996. Prior to assuming
this position, he was a manager in the structured products area. He joined the
Investment Management Group at NationsBank, TradeStreet's predecessor
organization in 1988. Mr. Pope has over nine years of investment experience,
including working on the trading floor of the Chicago Board of Trade. Mr. Pope
received a B.B.A. in Finance from the University of Texas at Austin.
Mark S. Ahnrud 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.
Christopher G. Gunster is a Portfolio Manager, Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Government Securities Fund. Mr.
Gunster has been the lead Portfolio Manager since July 1997. Prior to assuming
his position with TradeStreet, he was Assistant Vice President and Associate
Portfolio Manager for the Investment Management Group at NationsBank since 1993.
Mr. Gunster has worked in the investment community since 1987. His past
experience includes investment marketing for The Boston Company and
options-trading for Shatkin Investments, a regional broker/dealer. Mr. Gunster
received a B.A. in Chemistry from Kenyon College and an M.B.A. in Finance from
Babson Graduate School of Business. He holds the Chartered Financial Analyst
designation and is a mem-
43
<PAGE>
ber 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. Mr. Swaim has been Portfolio Manager for the 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.
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 of Nations Global Government Income
Fund and has been the Portfolio Manager since the Fund's inception. He has been
associated with Gartmore since 1990 as an International Fixed Income Fund
Manager. Previously, Mr. Rimmer managed multi-currency funds for institutional
clients at Gulf International Bank in Bahrain, and prior to that he was a senior
trader for Sumitomo Finance International, London. He graduated from Cambridge
University with a degree in Economics.
Philip Ehrmann is Principal Portfolio Manager of Nations Emerging Markets Fund
and is the Head of the Gartmore Emerging Markets Team. He has been the Portfolio
Manager for the Fund since 1995. Prior to joining Gartmore in 1995, Mr. Ehrmann
was the Director of Emerging Markets for Invesco in London. He began his career
in 1981 as an institutional stockbroker with Rowe & Pitman Inc. and also spent a
brief period with Prudential Bache Securities as an institutional salesman
before joining Invesco in 1984. Mr. Ehrmann graduated from the London School of
Economics with a degree in Economics, Industry and Trade.
Seok Teoh is Principal Portfolio Manager of Nations Pacific Growth Fund and has
been the Portfolio Manager since the Fund's inception. She has been associated
with Gartmore since 1990 as the London based manager on its Far East Team.
Previously, Ms. Teoh managed Far East equities for Rothschild Asset Management
in Tokyo and in Singapore. She was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh,
who is a native of Singapore, is fluent in Mandarin and Cantonese and received
an Economics degree from the University of Durham.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund, Nations
Managed Index Fund and Nations Managed SmallCap Index Fund. He has been
Portfolio Manager for these Funds since their inception. Prior to assuming his
position with TradeStreet in 1996, 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 Chicago Quantitative Alliance, the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Brian O'Neill is the Principal Senior Investment Manager of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Fund since July, 1997. Mr. O'Neill joined Gartmore as a Senior Investment
Manager on the Global Portfolio Team in 1981 with responsibility for a variety
of specialized global funds, including resource funds. Mr. O'Neill began his
career with Royal Insurance in 1970 as an investment analyst specializing in
United Kingdom research. He then expanded his field of expertise to include
management of global equities, and in 1978 he moved to Antony Gibbs & Sons where
he was appointed as a fund manager, specializing in global equities. Mr. O'Neill
graduated from Glasgow University in 1969 with a MA Honours degree in Political
Economy.
The Fixed Income Committee of Boatmen's is responsible for the day-to-day
management of the investment portfolio of Nations U.S. Government Bond Fund.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds 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 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.
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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 Funds 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 .10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .09%, Nations Tax Exempt Fund -- .09%, Nations Value
Fund -- .10%, Nations Capital Growth Fund -- .10%, Nations Emerging Growth
Fund -- .10%, Nations Disciplined Equity Fund -- .10%, Nations Managed Index
Fund -- .10%, Nations Managed SmallCap Index Fund -- .10%, Nations Balanced
Assets Fund -- .10%, Nations Short-Intermediate Government Fund -- .10%, Nations
Short-Term Income Fund -- .10%, Nations Diversified Income Fund -- .10% and
Nations Strategic Fixed Income Fund -- .10%. No fees were paid with respect to
Nations Managed Value Index Fund or Nations Managed SmallCap Value Index Fund
because neither Fund had yet commenced operations during the period indicated
above.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .09%,
Nations Treasury Fund -- .09%, Nations Equity Income Fund -- .10%, Nations
International Equity Fund -- .10% and Nations Government Securities
Fund -- .10%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid its administrators combined fees at the rates of the
following Funds' average daily net assets: Nations Emerging Markets
Fund -- .10%, Nations Pacific Growth Fund -- .10% and Nations Global Government
Income Fund -- .10%.
NationsBank serves as sub-administrator for Nations Funds 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. Nations Funds
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 B Shares of the Funds.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as custodian for the
assets of all Funds, except the international portfolios. 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 to the Nations Funds Family, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees at the rate of (i) $300,000
per annum, to be paid monthly in payments of $25,000 for custodian services for
up to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
BONY, Avenue des Arts, 35 1040 Brussels, Belgium, serves as Custodian for the
assets of Nations International Equity Fund, Nations International Growth Fund,
Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global
Government Income Fund.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all Funds except the international portfolios, for which BONY is already
serving as Custodian. BONY is located at 90 Washington Street, New York, New
York 10286. In return for providing sub-custodial services, BONY receives, in
addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Primary Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109. NationsBank of Texas also serves as the sub-transfer agent
for each Fund's Primary Shares and is entitled to receive an annual fee of
$251,000 from First Data for performing such services.
Price Waterhouse LLP serves as independent accountants to Nations Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Primary B Shares, are deducted from the Fund's total accrued
income before dividends are declared. These expenses include,
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but are not limited to: fees paid to the Adviser, 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, Stephens or First Data
under their respective agreements with Nations Funds; and any extraordinary
expenses. Primary B Shares also bear certain shareholder servicing and
shareholder administration 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 deems
appropriate.
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Portfolios, Nations Institutional
Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family currently has
more than 52 distinct investment portfolios and total assets in excess of $27
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 Daily
Shares. The Non-Money Market Funds currently offer five classes of
shares -- Primary A Shares, Primary B Shares, Investor A Shares, Investor B
(formerly Investor N) Shares and Investor C 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
Government Money Market Fund, Nations Tax Exempt Fund, Nations Managed Index
Fund, Nations Managed SmallCap Index Fund, Nations Managed Value Index Fund,
Nations Managed SmallCap Value Index 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 Funds 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, 1997, 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 420,000,000,000 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 Prime Fund, Nations Treasury Fund, Nations Small Company
Growth Fund, Nations U.S. Government Bond Fund, Nations International Equity
Fund, Nations International Growth Fund and Nations Government Securities Fund.
To obtain additional information regarding the Funds' other classes of shares
which may be available to
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you, contact your Institution (as defined below) or Nations Funds 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 Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1997, 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 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 Funds 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, 1997, 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.
PENDING LEGAL PROCEEDINGS: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and
Stephens, Inc. (Case No. 94-995-Civ.-T-23E). As relevant to Nations Government
Securities Fund and Nations Short-Intermediate Government Fund, plaintiffs
allege that, among other things, defendants violated the Securities Exchange Act
of 1934 and various state securities fraud statutes by employing a scheme to
defraud plaintiffs into purchasing shares of the funds and making untrue
statements of material fact and omitting to state material facts in connection
with sales of shares of the funds. Plaintiffs further allege that, among other
things, defendants concealed the risks associated with such funds by blurring
the distinctions between banks and non-bank subsidiaries and by obscuring the
differences between traditional, federally insured bank products and uninsured,
non-depository products.
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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 a shareholder administration agreement
(an "Administration Agreement") or a shareholder servicing agreement (a
"Servicing Agreement") with Nations Funds and/or a selling agreement 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 Money Market Funds may be effected on days on which the Federal
Reserve Bank of New York is open for business (a "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 ("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.
Pursuant to the Administration and Servicing Agreements, Institutions will
provide various shareholder services for their Customers that own Primary B
Shares. From time to time, Nations Funds may voluntarily reduce the maximum fees
payable for shareholder services.
Nations Funds and Stephens reserve 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 -- 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 (12:00 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.
EFFECTIVE TIME OF PURCHASES -- NON-MONEY
MARKET FUNDS: 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.
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 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 Funds.
Institutions should be aware that during periods of significant economic or
market change, telephone transactions may be difficult to complete.
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 Funds. No charge for wiring
redemption payments is imposed by Nations Funds, although the Institutions may
charge their Customer accounts for these or other services provided in
connection with the redemption of Primary B
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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 Money Market Funds, 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
Funds 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.
With respect to the Non-Money Market Funds, redemption proceeds are normally
remitted in federal funds wired to the redeeming Institution within three
Business Days following receipt of the order.
Nations Funds 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 Funds 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 Funds 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 Funds 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 Funds 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 Funds and Stephens reserve 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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Shareholder Servicing Arrangements
The Money Market 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 Funds. 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.
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 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.
The Non-Money Market 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 administration services supplement the services provided by
Stephens, First Data and the Transfer Agent to shareholders of record. The
shareholder administration 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 Funds may suspend or reduce payments under the Servicing or
Administration Plan at any time, and payments are subject to the continuation of
the Servicing or Administration Plan described above and the terms of the
Servicing or Administration Agreement ,as the case may be, between Institutions
and Nations Funds. See the SAIs for more details on the Servicing or
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 Funds 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 or Administration Agreement with Nations
Funds. The Servicing or Administration Agreement requires an Institution to
disclose to its Customers any compensation payable to the Institution by Nations
Funds 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 Funds 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.
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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 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.
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, Martin Luther
King, Jr. 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 Funds 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 (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
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.
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
also declared and paid monthly by Nations Capital Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Income Fund, Nations Managed Index Fund,
Nations Value Fund and Nations Small Company Growth Fund. Dividends from net
investment income are declared and paid annually by Nations International Growth
Fund. Dividends from net investment income are declared and paid each calendar
quarter by all other Equity Funds, Index 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, Index 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.
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 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. Accordingly, dividends and distributions on newly purchased
shares represent, in substance, a return of capital. However, such dividends and
distributions would nevertheless be taxable. 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
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the amount of administration fees payable to Institutions under the
Administration 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 Nations International Equity Fund,
Nations International Growth 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 Funds, if
any, will be distributed at least annually to such 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 such Funds' shares and whether such gains are received in
cash or reinvested in additional shares.
Portions of the Nations International Equity Fund, Nations International Growth
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, if more
than 50% of the value of the total assets of each Fund consists of securities it
may elect to "pass through" to its shareholders these foreign taxes, if any.
Upon such an election, 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.
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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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 tax on dividends, distributions and
proceeds from the disposition of Fund shares paid to certain foreign
shareholders.
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 taxes.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospec-
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tus 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 the rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
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 of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class pass-
through securities are interests in a trust composed of Mortgage Assets and all
references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially
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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, 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 and duration of the
Funds. For additional information concerning mortgage-backed securities, see the
related SAI.
The mortgage-backed securities in which the Funds invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the Funds
also may be subject to credit risk. Credit risk is the risk that the issuers of
securities in which a Fund invests may default in the payment of principal
and/or interest. Any such defaults or adverse changes in an issuer's financial
condition or credit rating may adversely affect the value of the Funds'
portfolio investments and, hence, the value of your investment in the
corresponding Fund.
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 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
pay-
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ments 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 Funds (except Nations Tax Exempt Fund and Nations International Growth 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 Small Company Growth
Fund and Nations U.S. Government Bond Fund will limit their investments in
interest-bearing savings deposits of commercial and savings banks to 5% of total
assets. Nations Prime Fund may invest up to 100% of its assets in obligations
issued by banks. 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 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 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,
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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.
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 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.
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 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).
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Such investments may subject a Fund to special investment risks, including
future political and economic developments, the possible imposition of
withholding taxes on income (including interest, distributions and disposition
proceeds), 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.
Certain Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as equity swap contracts, interest rate swaps,
currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the 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 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 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
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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 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 under the 1933 Act, or which
were issued under Section 4(2) of 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 or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise 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 available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition 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: 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
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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 or 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. 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 securities with put or demand features 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
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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. Pursuant to an exemptive order issued by the SEC, the Nations'
Non-Money Market Funds may purchase shares of Nations' Money Market Funds.
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 Funds.
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 33% of
the value of its total assets. Cash collateral received by a Nations Fund may be
invested in a Nations' Money Market Fund.
SHORT-TERM TRUST OBLIGATIONS: Certain of the Funds 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: 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. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. 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 the U.S. Treasury, some 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; some are
supported by the right of the
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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. 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.
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.
61
<PAGE>
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
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
62
<PAGE>
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 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 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
prin-
63
<PAGE>
cipal 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 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.
64
<PAGE>
Prospectus
INVESTOR A SHARES
AUGUST 1, 1997
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 Funds Family ("Nations Funds" or "Nations
Funds 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 Funds at its address or telephone number
shown below. The SAIs dated August 1, 1997 are
incorporated by reference in their entirety into
this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAIs,
material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the "Adviser" shall mean NBAI and/or TradeStreet as
the context may require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
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 Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS
FUNDS
NF-96132-897
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 10
How Objectives Are Pursued 10
How Performance Is Shown 13
How the Funds Are Managed 14
Organization And History 18
How To Buy Shares 20
About Your
Investment
How To Redeem Shares 22
How To Exchange Shares 24
Shareholder Servicing And Distribution Plans 25
How The Funds Value Their Shares 26
How Dividends And Distributions Are Made; Tax
Information 27
Appendix A -- Portfolio Securities 28
Appendix B -- Description Of Ratings 36
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 FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS 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 52
investment company portfolios in the Nations Funds 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>
INVESTOR A SHARES
<S> <C> <C> <C>
Nations
Nations Prime Nations Treasury Government Money
SHAREHOLDER TRANSACTION EXPENSES Fund Fund Market Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Charge None None None
<CAPTION>
Nations Tax
SHAREHOLDER TRANSACTION EXPENSES Exempt Fund
Sales Load Imposed on Purchases None
Deferred Sales Charge None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .16% .16% .14%
Rule 12b-1 Fees .10% .10% .10%
Other Expenses .39% .39% .41%
Total Operating Expenses (After Fee Waivers) .65% .65% .65%
<S> <C>
Management Fees (After Fee Waivers) .16%
Rule 12b-1 Fees .10%
Other Expenses .39%
Total Operating Expenses (After Fee Waivers) .65%
</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>
<S> <C> <C> <C>
Nations Treasury Nations Government
Nations Prime Fund Fund Money Market Fund
1 Year $ 7 $ 7 $ 7
3 Years $21 $21 $21
5 Years $36 $36 $36
10 Years $81 $81 $81
<CAPTION>
Nations Tax Exempt
Fund
1 Year $ 7
3 Years $21
5 Years $36
10 Years $81
</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/or reimbursements will continue. In
particular, to the extent other expenses are less than expected, waivers and/or
reimbursements of management fees, if any, may decrease. Shareholders will be
notified of any decrease that materially increases Total Operating Expenses. 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."
4
<PAGE>
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for
Investor A Shares of the indicated Fund would have been as follows: Nations
Government Money Market Fund -- .40% and .91% respectively; Nations Tax Exempt
Fund -- .40% and .89%, respectively. Nations Prime Fund -- .20% and .69%,
respectively; and Nations Treasury Fund -- .20% and .69%, 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 financial information on the following pages has been derived from the
audited 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.
5
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 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 $ 1.00
Net investment income 0.0485 0.0438 0.0475 0.0283 0.0293 0.0470
Dividends from net
investment income (0.0485) (0.0438) (0.0475) (0.0283) (0.0293) (0.0470)
Total dividends and
distributions (0.0485) (0.0438) (0.0475) (0.0283) (0.0293) (0.0470)
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.96% 4.48% 4.85% 2.86% 2.97% 4.81%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 1,157,724 $ 1,099,490 $ 698,358 $ 511,833 $ 306,376 $ 281,101
Ratio of operating
expenses to average
net assets 0.65% 0.65%+ 0.75% 0.65% 0.65% 0.65%
Ratio of net investment
income to average net
assets 4.86% 5.27%+ 4.78% 2.85% 2.90% 4.67%
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 0.70% 0.72%+ 0.83% 0.72% 0.71% 0.77%
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.0481 $ 0.0433 $ 0.0467 $ 0.0276 $ 0.0287 $ 0.0458
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 5/31/91*
Operating performance:
Net asset value,
beginning of period $ 1.00
Net investment income 0.0617
Dividends from net
investment income (0.0617)
Total dividends and
distributions (0.0617)
Net asset value, end of
period $ 1.00
Total return++ 7.31%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 144,202
Ratio of operating
expenses to average
net assets 0.65%+
Ratio of net investment
income to average net
assets 6.69%+
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 $ 0.0603
</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.
6
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 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 $ 1.00
Net investment income $ 0.0474 0.0429 0.0457 0.0262 0.0272 0.0448
Dividends from net
investment income $ (0.0474) (0.0429) (0.0457) (0.0262) (0.0272) (0.0448)
Distributions from net
realized capital gains -- (0.0000)# (0.0000)# -- -- --
Total dividends and
distributions $ (0.0474) (0.0429) (0.0457) (0.0262) (0.0272) (0.0448)
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.85% 4.36% 4.65% 2.67% 2.77% 4.57%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $ 719,199 $ 89,584 $ 107,475 $ 74,195 $ 105,828 $ 90,917
Ratio of operating
expenses to average net
assets 0.65% 0.65%+ 0.67% 0.65% 0.65% 0.64%
Ratio of net investment
income to average net
assets 4.74% 5.17%+ 4.62% 2.62% 2.67% 4.47%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 0.70% 0.72%+ 0.72% 0.71% 0.71% 0.76%
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.0469 $ 0.0424 $ 0.0452 $ 0.0257 $ 0.0266 $ 0.0435
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 5/31/91*
Operating performance:
Net asset value,
beginning of period $ 1.00
Net investment income 0.0592
Dividends from net
investment income (0.0592)
Distributions from net
realized capital gains --
Total dividends and
distributions (0.0592)
Net asset value, end of
period $ 1.00
Total return++ 6.98%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $ 37,265
Ratio of operating
expenses to average net
assets 0.61%+
Ratio of net investment
income to average net
assets 6.53%+
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 0.83%+
Net investment income per
share without waivers
and/or expense
reimbursements $ 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.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 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 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income $ 0.0468 0.0162 0.0522 0.0340 0.0256 0.0358 0.0571
Dividends from net
investment income $ (0.0468) (0.0162) (0.0522) (0.0340) (0.0256) (0.0358) (0.0571)
Dividends from net
realized capital gains -- -- -- (0.0000)# -- -- --
Total dividends and
distributions $ (0.0468) (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 $ 1.00
Total return++ 4.80% 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) $ 18,717 $ 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% 0.65% 0.61% 0.42% 0.43%+
Ratio of net investment
income to average net
assets 4.68% 4.85%+ 5.23% 3.44% 2.60% 3.55% 5.49%+
Ratio of operating
expenses to average net
assets without waivers 0.92% 0.94%+ 0.92% 0.94% 0.87% 0.58% 0.62% +
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.0441 $ 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.
8
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 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 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income $ 0.0300 0.0104 0.0335 0.0231 0.0198 0.0266 0.0422
Dividends from net
investment income $ (0.0300) (0.0104) (0.0335) (0.0231) (0.0198) (0.0266) (0.0422)
Total dividends and
distributions $ (0.0300) (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 $ 1.00
Total return++ 3.04% 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) $ 145,337 $ 128,414 $ 126,207 $ 151,714 $ 119,552 $ 80,158 $ 1,690
Ratio of operating
expenses to average net
assets 0.55% 0.55%+ 0.55% 0.52% 0.48% 0.55% 0.42%+
Ratio of net investment
income to average net
assets 3.00% 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 0.80% 0.83%+ 0.82% 0.84% 0.84% 0.72% 0.60%+
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.0274 $ 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.
9
<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.
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 for any
investor. Investments in a Fund are not insured against loss 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 (together, with U.S. Treasury Obligations, "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 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. In addition, the Fund may
lend its portfolio securities to qualified institutional investors. Although the
Fund is permitted to invest a portion of its assets in second tier securities
(as defined below) in accordance with Rule 2a-7 under the Investment Company Act
of 1940, as amended (the "1940 Act"), the Fund invests only in first tier
securities (as defined below). For more information concerning these
instruments, see "Appendix A."
10
<PAGE>
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 and
repurchase agreements secured by such obligations. The Fund may lend its
portfolio securities to qualified institutional investors. Although the Fund is
permitted to invest a portion of its assets in second tier securities (as
defined below) in accordance with Rule 2a-7 under the 1940 Act, the Fund invests
only in first tier securities (as defined below). 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. Although the Fund may invest in
repurchase agreements it does not currently intend to do so. 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. Although the Fund is permitted to invest a portion of
its assets in second tier securities (as defined below) in accordance with Rule
2a-7 under the 1940 Act, the Fund invests only in first tier securities (as
defined below). 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; having a long-term rating of
"A" or higher from D&P, Fitch, S&P, IBCA, BankWatch or Moody's in the case of
certain bonds which are 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
11
<PAGE>
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."
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 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.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
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.
12
<PAGE>
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 SAI. 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 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 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 greater maturities, provided such obligations are subject to
demand features or resets which are less than 397 days, 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.
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
13
<PAGE>
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 Daily 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 Agent (as defined below) or by calling Nations Funds at the toll-free
number indicated on the cover of this Prospectus.
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 Funds 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 investment
sub-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 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
14
<PAGE>
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: 25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus 20% of the combined average daily net assets of such Funds
in excess of $250 million; and 40% of the average daily net assets of each of
Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided pursuant to sub-advisory agreements, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rate of .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. 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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Government Money Market Fund -- .14% and Nations Tax Exempt
Fund -- .16%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Prime Fund -- .16% and Nations Treasury Fund -- .16%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- .055%, Nations Tax Exempt Fund -- .055%, Nations
Prime Fund -- .055% and Nations Treasury Fund -- .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. Prior to assuming her
position with TradeStreet, she was Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. 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.
15
<PAGE>
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 Funds and special counsel to
NationsBank, has advised Nations Funds 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 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 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
.10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .09% and Nations Tax Exempt Fund -- .09%.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .09% and
Nations Treasury Fund -- .09%.
NationsBank serves as sub-administrator for Nations Funds pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-
16
<PAGE>
Administration Agreement, NationsBank assists Stephens in supervising,
coordinating and monitoring various aspects of the Funds' administrative
operations. For providing such services, NationsBank is 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. Nations Funds
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. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of all Nations Funds, except the international portfolios. 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 to the Nations Funds Family, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees at the rate of (i) $300,000
per annum, to be paid monthly in payments of $25,000 for custodian services for
up to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all Nations Funds except the international portfolios, for which BONY is
already serving as Custodian. BONY is located at 90 Washington Street, New York,
New York 10286. In return for providing sub-custodial services, BONY receives,
in addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market 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. Their
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, 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, Stephens or First Data under their respective agreements with Nations
Funds; and any extraordinary expenses. Investor A Shares may bear certain class
specific 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.
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Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family
currently has more than 52 distinct investment portfolios and total assets in
excess of $27 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 Daily 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 you, contact your Agent (as defined below) or Nations Funds 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, 1997, 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 420,000,000,000 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
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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 Agent (as defined below)
or Nations Funds 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, 1997, 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.
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About Your Investment
How To Buy Shares
Investor A Shares are available to the following categories of Investors:
(Bullet) Investors who purchase through accounts established with certain
fee-based investment advisers or financial planners, including
Nations Funds Personal Investment Planner accounts, wrap fee
accounts and other managed agency/asset allocation accounts.
(Bullet) Directors, officers, and employees of NationsBank Corporation, its
affiliates and subsidiaries.
(Bullet) Individuals investing a distribution received from a NationsBank
trust account and certain other rollovers or distributions
received from NationsBank fiduciary accounts.
(Bullet) Current Investor A shareholders who purchased Investor A Shares
prior to August 1, 1997.
(Bullet) Employee benefit plans making an initial investment of $1 million
or more in the Nations Funds Family.
(Bullet) Investors who purchase shares through a cash sweep option in
connection with a brokerage or similar account.
(Bullet) Investors who purchase shares through a mutual fund "supermarket."
(Bullet) Investors (other than those described above) investing $1 million
or more in the Nations Funds Family through an Agent (as defined
below) (a "Substantial Investor"). In determining whether an
investor qualifies as a Substantial Investor, all current holdings
of Funds in the Nations Funds Family other than the Nations Funds
money market or index funds, Nations Short-Term Income Fund and
Nations Short-Term Municipal Income Fund, will be considered.
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 Funds ("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."
Purchases of Investor A Shares through a Nations Funds Personal Investment
Planner account, which is a managed agency/asset allocation account established
with NBAI (an "Account"), are governed by the terms and conditions of the
Account, which are set forth in the Client Agreement and Disclosure Statement
provided by NBAI to each investor who establishes an Account. Because of the
nature of the Account, certain of the features described in this Prospectus are
not available to investors purchasing Investor A Shares through an Account.
Potential investors through an Account should refer to the Client Agreement and
Disclosure Statement for more information regarding the Account, including
information regarding the fees and expenses charged in connection with an
Account.
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There is a minimum initial investment of $1,000 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"), Savings Incentives Method Plans for Employees
("SIMPLE IRAs"), salary reduction-Individual Retirement Accounts ("SAR-IRAs") or
similar types of accounts. However, the assets of such plans must reach an asset
value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs 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 Funds 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 Funds 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: Certain 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 Funds
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Nations Funds at 1-800-321-7854 for an account
number and use the following wire instructions:
Nations Funds
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 Nations Funds at 1-800-321-7854.
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: 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
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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 Agent transmitting the order, and any funds received will
be returned promptly to the sending 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 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 Agents are responsible for transmitting orders for purchases by their
customers ("Customers") and delivering required funds on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Funds.
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 the last day of the applicable month. Subject
to certain exceptions for employees of NationsBank and its affiliates and pre-
existing SIP accounts, the systematic investment amount may be in any amount
from $50 to $100,000. For more information concerning the SIP, contact your
Agent or Nations Funds.
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 Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
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 Nations Funds,
at 1-800-321-7854 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. The Agents are responsible for
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transmitting 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 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.
Nations Funds 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 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 Funds 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 Funds 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 Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CHECKWRITING PRIVILEGES: 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 the Funds if the value of the
Investor A Shares in his/her accounts within the Nations Funds 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 Agent or by Nations Funds at any time.
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How To Exchange Shares
The exchange feature enables a shareholder of Investor A Shares of a Money
Market Fund (other than those shareholders who purchased such shares through a
cash sweep option or through a mutual fund supermarket) to acquire Investor A
Shares of another Fund (other than an index fund) when that shareholder believes
that a shift between Funds is an appropriate investment decision. Exchanges from
Investor A Shares of a Money Market Fund to a Non-Money Market Fund effected
after July 31, 1997 will be treated as a new purchase for purposes of any
applicable redemption fee. Exchanges from Investor A Shares of a Money Market
Fund to a Non-Money Market Fund effected prior to January 1, 1996 will be
treated as a new purchase for purposes of any applicable contingent deferred
sales charge ("CDSC"). 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.
For shareholders who maintain an account directly with a Fund, exchange requests
should be communicated to the Fund by calling Nations Funds at 1-800-321-7854 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 Funds IRA that
initially invests in Investor A Shares of a Money Market Fund may exchange those
shares for Investor B Shares of a non-money market fund offered by Nations
Funds. Additionally, Investor B Shares of a non-money market fund acquired
through such an exchange prior to January 1, 1996 or after July 31, 1997, 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 purchase of the Investor B Shares.
The Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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 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 Funds reserves the right to reject any exchange
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<PAGE>
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.
AUTOMATIC EXCHANGE FEATURE: An investor who is participating in the Nations
Funds Automatic Exchange Feature ("AEF") may acquire Investor A or Investor C
Shares of a non-money market fund offered by Nations Funds. In addition,
Investor C Shares of a non-money market fund acquired prior to August 1, 1997
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 last 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 more information concerning the AEF, an investor should contact
his/her Agent or Nations Funds.
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. Aggregate 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 .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 Funds 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.
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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 Funds 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 Sales Support Agreements 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 Funds 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
.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 Funds 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 Funds 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 Funds. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Funds 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
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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 Funds 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 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 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
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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.
Federal law requires Nations Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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 tax on dividends, distributions and proceeds from the disposition of
Fund shares paid to certain foreign shareholders.
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.
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
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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.
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. 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. Nations Treasury Fund and Nations Government Money Market 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 enforc-
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<PAGE>
ing 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. Pursuant to line of credit arrangements, certain of the Funds may
borrow 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, each of the Funds (except Nations Tax Exempt
Fund) 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 creditworthy. 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 interest of the Fund to do so. In this case, such
reverse repurchase agreements
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<PAGE>
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. 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 obligations (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 income
(including interest, dividends and disposition proceeds), 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
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greater fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
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 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 under the 1933 Act, or which
were issued under Section 4(2) of 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 or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, the level of illiquidity of a
Fund holding such securities may increase during such period.
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INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of 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 obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less 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
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<PAGE>
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 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 securities with put or demand features 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
invest-
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ment 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.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
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 Funds.
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 creditworthy 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 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
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, U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. 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, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the
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Government National Mortgage Association, 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. 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 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.
36
<PAGE>
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 these major categories.
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
37
<PAGE>
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.
38
<PAGE>
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term 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.
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
39
<PAGE>
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+ -- When issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
40
<PAGE>
Prospectus
INVESTOR A SHARES
AUGUST 1, 1997
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Funds") of Nations Fund
Trust, Nations Fund, Inc. and Nations Fund
Portfolios, Inc. ("Nations Portfolios"), each an
open-end management investment company in the
Nations Funds Family ("Nations Funds" or "Nations
Funds Family"). This Prospectus describes one class
of shares of each Fund -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust,
Nations Fund, Inc. and Nations 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 Funds at its address or
telephone number shown below. The SAIs dated August
1, 1997, are incorporated by reference in their
entirety into this Prospectus. The SEC maintains a
Web site (http://www.sec.gov) that contains the
SAIs, material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to certain of the Funds,
Gartmore Global Partners ("Gartmore") is
sub-adviser to certain other Funds and Boatmen's
Capital Management, Inc. ("Boatmen's") is
sub-adviser to Nations U.S. Government Bond Fund.
As used herein the term "Adviser" shall mean NBAI
and/or TradeStreet and/or Gartmore and/or Boatmen's
as the context may require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
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 Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Small Company Growth Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations International Growth Fund
BALANCED FUND
Nations Balanced Assets Fund
BOND FUNDS
Nations Global Government Income Fund
Nations Short-Term Income Fund
Nations Short-Intermediate Government Fund
Nations Government Securities Fund
Nations Strategic Fixed Income Fund
Nations Diversified Income Fund
Nations U.S. Government Bond Fund
TAX-EXEMPT FUNDS
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
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 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
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS Funds
NF-96134-897
<PAGE>
Table Of Contents
About The Funds Prospectus Summary 3
Expenses Summary 7
Financial Highlights 14
Objectives 56
How Objectives Are Pursued 60
How Performance Is Shown 77
How The Funds Are Managed 81
Organization And History 90
About Your
Investment How To Buy Shares 93
How To Redeem Shares 95
How To Exchange Shares 97
Shareholder Servicing And Distribution Plan 98
How The Funds Value Their Shares 100
How Dividends And Distributions Are Made;
Tax Information 100
Appendix A -- Portfolio Securities 102
Appendix B -- Description Of Ratings 115
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 FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS 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 COMPANY: Open-end management investment company.
(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 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 Small Company Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity securities.
(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 regions, including 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 market 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 International Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity securities
of companies domiciled in countries outside the United States and
listed on major stock exchanges primarily in Europe and the Pacific
Basin.
(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 Global Government Income Fund's investment objective is to
seek total return by investing primarily in high quality debt
securities issued by governments, banks and supranational entities
located throughout the world.
(Bullet) Nations Short-Term Income Fund's investment objective is to seek high
current income consistent with minimal fluctuation of principal. The
Fund invests in investment grade debt securities.
(Bullet) Nations Short-Intermediate Government Fund's investment objective is
to seek high current income consistent with modest fluctuation of
principal. The Fund invests 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
high current income consistent with moderate fluctuation of
principal. The Fund invests primarily in intermediate-term 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 in investment grade fixed income
securities.
(Bullet) Nations Diversified Income Fund's investment objective is to seek
total return with an emphasis on current income by investing in a
diversified portfolio of fixed income securities.
(Bullet) Nations U.S. Government Bond Fund's investment objective is to seek
total return and preservation of capital by investing in U.S.
Government securities and repurchase agreements.
(Bullet) TAX-EXEMPT FUNDS:
(BULLET) Nations Municipal Income Fund's investment objective is to seek high
current income exempt from Federal income tax with the potential for
principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
(Bullet) Nations Short-Term Municipal Income Fund's investment objective is to
seek high current income exempt from Federal income tax consistent
with minimal fluctuation of principal. The Fund invests in investment
grade, short-term municipal securities.
(Bullet) Nations Intermediate Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal income tax consistent
with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
(Bullet) Nations Florida Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal income
and the Florida state intangibles taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations Florida Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal income and the Florida state
intangibles taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) Nations Georgia Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
Georgia state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Georgia Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal and Georgia state income
taxes with the potential for principal fluctuation
4
<PAGE>
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) Nations Maryland Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
Maryland state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Maryland Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal and Maryland state
income taxes with the potential for principal fluctuation associated
with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
(Bullet) Nations North Carolina Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
North Carolina state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations North Carolina Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and North Carolina
state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) Nations South Carolina Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
South Carolina state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations South Carolina Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and South Carolina
state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) Nations Tennessee Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal income
tax and the Tennessee Hall Income Tax on unearned income consistent
with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
(Bullet) Nations Tennessee Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal income tax and the
Tennessee Hall Income Tax on unearned income with the potential for
principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
(Bullet) Nations Texas Intermediate Municipal Bond Fund's investment objective
is to seek high current income exempt from Federal income tax
consistent with moderate fluctuation of principal. The Fund invests
in investment grade, intermediate-term municipal securities.
(Bullet) Nations Texas Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal income tax with the potential
for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
(Bullet) Nations Virginia Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
Virginia state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Virginia Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal and Virginia state
income taxes with the potential for principal fluctuation
5
<PAGE>
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are
declared and paid monthly by Nations Capital Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Income Fund, Nations Value Fund
and Nations Small Company Growth Fund. Dividends from net investment
income are declared and paid annually by Nations International Growth
Fund. All other Equity Funds and Nations Balanced Assets 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.
The U.S. stock market tends to be cyclical, with periods when stock
prices generally rise and periods when prices generally decline. As of
the date of this Prospectus, the stock market, as measured by the S&P
500 Index (as defined below) and other commonly used indices, was
trading at or close to record levels. There can be no guarantee that
these levels will continue. Certain of the Funds may invest in
securities of smaller and newer issuers. Investments in such companies
may present greater opportunities for capital appreciation because of
high potential earnings growth, but also present greater risks than
investments in more established companies with longer operating
histories and greater financial capacity. 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 (as defined
below), 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. 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."
(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."
6
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in a Fund. The
following tables summarize shareholder transaction and operating expenses for
the Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor A Shares of a Fund
over specified periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations
SHAREHOLDER TRANSACTION Nations Value Equity Capital Emerging
EXPENSES Fund Income Fund Growth Fund Growth 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
Redemption Fees Payable to the Fund(2) 1.00% 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .75% .67% .75% .75%
Rule 12b-1 Fees (including shareholder
servicing fees) .25% .25% .25% .25%
Other Expenses .19% .22% .21% .23%
Total Operating Expenses (After Fee Waivers) 1.19% 1.14% 1.21% 1.23%
</TABLE>
Nations
SHAREHOLDER TRANSACTION Disciplined
EXPENSES Equity 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
Redemption Fees Payable to the Fund(2) 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .75%
Rule 12b-1 Fees (including shareholder
servicing fees) .25%
Other Expenses .25%
Total Operating Expenses (After Fee Waivers) 1.25%
(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) There is a 1% redemption fee retained by the Fund or Funds which
is imposed only on certain redemptions of Investor A Shares held less than
18 months. See "How To Redeem Shares -- Redemption Fee."
7
<PAGE>
<TABLE>
<CAPTION>
Nations Small Nations Nations Nations
SHAREHOLDER TRANSACTION Company International Emerging Pacific
EXPENSES Growth Fund Equity Fund Markets Fund Growth 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
Redemption Fees Payable to the Fund(2) 1.00% 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .75% .90% 1.10% .90%
Rule 12b-1 Fees (including shareholder
servicing fees) .25% .25% .25% .25%
Other Expenses .20% .26% .64% .52%
Total Operating Expenses (After Fee Waivers) 1.20% 1.41% 1.99% 1.67%
<CAPTION>
Nations
SHAREHOLDER TRANSACTION International
EXPENSES Growth 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
Redemption Fees Payable to the Fund(2) 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .90%
Rule 12b-1 Fees (including shareholder
servicing fees) .25%
Other Expenses .22%
Total Operating Expenses (After Fee Waivers) 1.37%
</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) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months.
See "How To Redeem Shares -- Redemption Fee."
<TABLE>
<CAPTION>
Nations
Nations Nations Short-
Nations Global Short- Intermediate
SHAREHOLDER TRANSACTION Balanced Government Term Income Government
EXPENSES Assets Fund Income Fund Fund 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
Redemption Fees Payable to the Fund(2) 1.00% 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .75% .70% .30% .40%
Rule 12b-1 Fees (including shareholder
servicing fees) (After Fee Waivers) .25% .25% .20%(3) .20%
Other Expenses .25% .56% .25% .22%
Total Operating Expenses (After Fee Waivers) 1.25% 1.51% .75% .82%
<CAPTION>
Nations
SHAREHOLDER TRANSACTION Government
EXPENSES Securities 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
Redemption Fees Payable to the Fund(2) 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .50%
Rule 12b-1 Fees (including shareholder
servicing fees) (After Fee Waivers) .25%
Other Expenses .30%
Total Operating Expenses (After Fee Waivers) 1.05%
</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) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months.
See "How To Redeem Shares -- Redemption Fee."
(3) Shareholder servicing fees for Nations Short-Term Income Fund are paid
pursuant to a separate Shareholder Servicing Plan. See "Shareholder
Servicing And Distribution Plans."
8
<PAGE>
<TABLE>
<CAPTION>
Nations Nations
Nations Nations U.S. Short-Term
SHAREHOLDER TRANSACTION Strategic Fixed Diversified Government Municipal
EXPENSES Income Fund Income Fund Bond Fund 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
Redemption Fees Payable to the Fund(2) 1.00% 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .50% .50% .40% .30%
Rule 12b-1 Fees (including shareholder
servicing fees) (After Fee Waivers) .20% .25% .25% .20%(3)
Other Expenses .20% .25% .20% .10%
Total Operating Expenses (After Fee Waivers) .90% 1.00% .85% .60%
<CAPTION>
Nations
Intermediate
SHAREHOLDER TRANSACTION Municipal
EXPENSES Bond 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
Redemption Fees Payable to the Fund(2) 1.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .30%
Rule 12b-1 Fees (including shareholder
servicing fees) (After Fee Waivers) .20%
Other Expenses .20%
Total Operating Expenses (After Fee Waivers) .70%
</TABLE>
(1) Certain Investor A Shares purchased in the amount of $1,000,000 or more are
subject to a Deferred Sales Charge if redeemed within one year of purchase.
See "How To Redeem Shares -- Contingent Deferred Sales Charge."
(2) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months.
See "How To Redeem Shares -- Redemption Fee."
(3) Shareholder servicing fees for Nations Short-Term Municipal Income Fund are
paid pursuant to a separate Shareholder Servicing Plan. See "Shareholder
Servicing And Distribution Plan."
<TABLE>
<CAPTION>
Nations Florida Nations Georgia
Nations Intermediate Nations Florida Intermediate
SHAREHOLDER TRANSACTION Municipal Municipal Bond Municipal Bond Municipal Bond
EXPENSES Income Fund Fund Fund 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
Redemption Fees Payable to the Fund(2) 1.00% 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees (After Fee Waivers) .40% .30% .40% .30%
Rule 12b-1 Fees (including shareholder servicing
fees) (After Fee Waivers) .20% .20% .20% .20%
Other Expenses .20% .20% .20% .20%
Total Operating Expenses (After Fee Waivers) .80% .70% .80% .70%
<CAPTION>
Nations Georgia
SHAREHOLDER TRANSACTION Municipal Bond
EXPENSES 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
Redemption Fees Payable to the Fund(2) 1.00%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees (After Fee Waivers) .40%
Rule 12b-1 Fees (including shareholder servicing
fees) (After Fee Waivers) .20%
Other Expenses .20%
Total Operating Expenses (After Fee Waivers) .80%
</TABLE>
(1) Certain Investor A Shares purchased in the amount of $1,000,000 or more are
subject to a Deferred Sales Charge if redeemed within one year of purchase.
See "How To Redeem Shares -- Contingent Deferred Sales Charge."
(2) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months.
See "How To Redeem Shares -- Redemption Fee."
9
<PAGE>
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations
Maryland Nations North Carolina Nations South Carolina
Intermediate Maryland Intermediate North Carolina Intermediate
SHAREHOLDER TRANSACTION Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
EXPENSES Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
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
Redemption Fees Payable to the
Fund(2) 1.00% 1.00% 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .30% .40% .30% .40% .30%
Rule 12b-1 Fees (including
shareholder servicing fees)
(After Fee Waivers) .20% .20% .20% .20% .20%
Other Expenses .20% .20% .20% .20% .20%
Total Operating Expenses (After
Fee Waivers) .70% .80% .70% .80% .70%
<CAPTION>
Nations
South Carolina
SHAREHOLDER TRANSACTION Municipal Bond
EXPENSES 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
Redemption Fees Payable to the
Fund(2) 1.00%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .40%
Rule 12b-1 Fees (including
shareholder servicing fees)
(After Fee Waivers) .20%
Other Expenses .20%
Total Operating Expenses (After
Fee Waivers) .80%
</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) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months.
See "How To Redeem Shares -- Redemption Fee."
10
<PAGE>
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations
Tennessee Nations Texas Virginia
Intermediate Tennessee Intermediate Nations Intermediate
SHAREHOLDER TRANSACTION Municipal Bond Municipal Bond Municipal Bond Texas Municipal Municipal Bond
EXPENSES Fund Fund Fund Bond Fund Fund
<S> <C> <C> <C> <C> <C>
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
Redemption Fees Payable to the
Fund(2) 1.00% 1.00% 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .30% .40% .30% .40% .30%
Rule 12b-1 Fees (including
shareholder servicing fees)
(After Fee Waivers) .20% .20% .20% .20% .20%
Other Expenses .20% .20% .20% .20% .20%
Total Operating Expenses (After
Fee Waivers) .70% .80% .70% .80% .70%
<CAPTION>
Nations
Virginia
SHAREHOLDER TRANSACTION Municipal Bond
EXPENSES 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
Redemption Fees Payable to the
Fund(2) 1.00%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .40%
Rule 12b-1 Fees (including
shareholder servicing fees)
(After Fee Waivers) .20%
Other Expenses .20%
Total Operating Expenses (After
Fee Waivers) .80%
</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) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months.
See "How To Redeem Shares -- Redemption Fee."
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 Small Nations
Nations Value Nations Equity Nations Capital Nations Emerging Company Growth Disciplined
Fund Income Fund Growth Fund Growth Fund Fund Equity Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 12 $ 12 $ 12 $ 13 $ 12 $ 13
3 Years $ 38 $ 36 $ 38 $ 39 $ 38 $ 40
5 Years $ 65 $ 63 $ 66 $ 68 $ 66 $ 69
10 Years $ 144 $ 139 $ 147 $ 149 $ 145 $ 151
<CAPTION>
Nations
International Nations Emerging
Equity Fund Market Fund
1 Year $ 14 $ 20
3 Years $ 45 $ 62
5 Years $ 77 $ 107
10 Years $ 169 $ 232
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Nations Nations Global Nations Nations Short-
Nations Pacific International Nations Balanced Government Income Short-Term Income Intermediate
Growth Fund Growth Fund Assets Funds Fund Fund Government Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 17 $ 14 $ 13 $ 15 $ 8 $ 8
3 Years $ 53 $ 43 $ 40 $ 48 $ 24 $ 26
5 Years $ 91 $ 75 $ 69 $ 82 $ 42 $ 46
10 Years $ 198 $ 165 $ 151 $ 180 $ 93 $ 101
<CAPTION>
Nations
Government Nations Strategic
Securities Fund Fixed Income Fund
1 Year $ 11 $ 9
3 Years $ 33 $ 29
5 Years $ 58 $ 50
10 Years $ 128 $ 111
</TABLE>
<TABLE>
<CAPTION>
Nations Nations Nations Florida
Nations Nations U.S. Short-Term Intermediate Intermediate
Diversified Government Bond Municipal Income Municipal Bond Nations Municipal Municipal Bond
Income Fund Fund Fund Fund Income Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 10 $ 9 $ 6 $ 7 $ 8 $ 7
3 Years $ 32 $ 27 $ 19 $ 22 $ 26 $ 22
5 Years $ 55 $ 47 $ 33 $ 39 $ 44 $ 39
10 Years $ 122 $ 105 $ 75 $ 87 $ 99 $ 87
<CAPTION>
Nations Georgia
Nations Florida Intermediate
Municipal Bond Municipal Bond
Fund Fund
1 Year $ 8 $ 7
3 Years $ 26 $ 22
5 Years $ 44 $ 39
10 Years $ 99 $ 87
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations South
Nations Maryland North Carolina Nations Carolina
Nations Georgia Intermediate Nations Maryland Intermediate North Carolina Intermediate
Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 8 $ 7 $ 8 $ 7 $ 8 $ 7
3 Years $ 26 $ 22 $ 26 $ 22 $ 26 $ 22
5 Years $ 44 $ 39 $ 44 $ 39 $ 44 $ 39
10 Years $ 99 $ 87 $ 99 $ 87 $ 99 $ 87
<CAPTION>
Nations
South Nations Tennessee
Carolina Intermediate
Municipal Bond Municipal Bond
Fund Fund
1 Year $ 8 $ 7
3 Years $ 26 $ 22
5 Years $ 44 $ 39
10 Years $ 99 $ 87
</TABLE>
<TABLE>
<CAPTION>
Nations Texas Nations Virginia
Nations Tennessee Intermediate Nations Intermediate Nations Virginia
Municipal Bond Municipal Bond Texas Municipal Municipal Bond Municipal Bond
Fund Fund Bond Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 8 $ 7 $ 8 $ 7 $ 8
3 Years $ 26 $ 22 $ 26 $ 22 $ 26
5 Years $ 44 $ 39 $ 44 $ 39 $ 44
10 Years $ 99 $ 87 $ 99 $ 87 $ 99
</TABLE>
12
<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. The
"Other Expenses" figures in the above tables for Investor A Shares of the
following Funds are based on estimated amounts for the Fund's current fiscal
year and reflect anticipated fee waivers and reimbursements: Nations Florida
Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations North
Carolina Intermediate Municipal Bond Fund, Nations North Carolina 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 and Nations
Virginia Municipal Bond Fund. The figures for the other Funds reflect amounts
incurred during the 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/or reimbursements will continue. In particular, to the
extent other expenses are less than expected, waivers and/or reimbursements of
management fees, if any, may decrease. Shareholders will be notified of any
decrease that materially increases Total Operating Expenses. 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 Plan."
Absent fee waivers, "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 1.07%,
respectively; and Nations Strategic Fixed Income Fund -- .60%, .25% and 1.05%,
respectively; Nations Short-Term Municipal Income Fund -- .50%, .25% and .85%,
respectively; Nations Intermediate Municipal Bond Fund -- .50%, .25% and .95%,
respectively; Nations Municipal Income Fund -- .60%, .25% and 1.05%,
respectively; Nations Florida Intermediate Municipal Bond Fund -- .50%, .25% and
.95%, respectively; Nations Florida Municipal Bond Fund -- .60%, .25% and 1.05%,
respectively; Nations Georgia Intermediate Municipal Bond Fund -- .50%, .25% and
.95%, respectively; Nations Georgia Municipal Bond Fund -- .60%, .25% and 1.05%,
respectively; Nations Maryland Intermediate Municipal Bond Fund -- .50%, .25%
and .95%, respectively; Nations Maryland Municipal Bond Fund -- .60%, .25% and
1.05%, respectively; Nations North Carolina Intermediate Municipal Bond Fund --
.50%, .25% and .95%, respectively; Nations North Carolina Municipal Bond
Fund -- .60%, .25% and 1.05%, respectively; Nations South Carolina Intermediate
Municipal Bond Fund -- .50%, .25% and .95%, respectively; Nations South Carolina
Municipal Bond Fund -- .60%, .25% and 1.05%, respectively; Nations Tennessee
Intermediate Municipal Bond Fund -- .50%, .25% and .95%, respectively; Nations
Tennessee Municipal Bond Fund -- .60%, .25% and 1.05%, respectively; Nations
Texas Intermediate Municipal Bond Fund -- .50%, .25% and .95%, respectively;
Nations Texas Municipal Bond Fund -- .60%, .25% and 1.05%, respectively; Nations
Virginia Intermediate Municipal Bond Fund -- .50%, .25% and .95%, respectively;
and Nations Virginia Municipal Bond Fund -- .60%, .25% and 1.05%, respectively.
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for
Investor A Shares of the indicated Fund would have been as follows: Nations
Small Company Growth Fund -- 1.00% and 1.45%, respectively; Nations Government
Securities Fund -- .64% and 1.19%, respectively; Nations Diversified Income
Fund -- .60% and 1.10%, respectively; and Nations U.S. Government Bond
Fund -- .60% and 1.05%, 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.
13
<PAGE>
Financial Highlights
The following financial information has been derived from the audited 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 fiscal year ended March 31, 1997 accompany the financial statements for
such period and are incorporated by reference in the SAI, which is 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.
Information for Investor A Shares of Nations International Growth Fund, Nations
Small Company Growth Fund and Nations U.S. Government Bond Fund has been derived
from the audited financial statements dated May 16, 1997 for the Class A Shares
of The Pilot Funds' Pilot International Equity Fund, Pilot Small Capitalization
Equity Fund and Pilot U.S. Government Securities Fund, the predecessor Funds to
Nations International Growth Fund, Nations Small Company Growth Fund and Nations
U.S. Government Bond Fund, respectively. This information has been audited by
Arthur Andersen LLP and is provided to help you understand the historical
performance of the Funds and their predecessors. The reports of Arthur Andersen
LLP accompany the financial statements dated May 16, 1997 and are incorporated
by reference in the SAI, which is available upon request.
14
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS VALUE FUND
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C> <C> <C>
Operating
performance:
Net asset value,
beginning of
period $ 16.60 $ 16.21 $ 12.98 $ 13.72 $ 12.45 $ 11.16
Net investment
income 0.21 0.05 0.23 0.20 0.22 0.26
Net realized and
unrealized
gain/(loss) on
investments 2.70 1.06 3.92 (0.20) 1.35 1.59
Net
increase/(decrease)
in net asset value
from operations 2.91 1.11 4.15 0.00 1.57 1.85
Distributions:
Dividends from net
investment income (0.22) (0.10) (0.25) (0.20) (0.21) (0.27)
Distributions from
net realized
capital gains (1.42) (0.62) (0.67) (0.54) (0.09) (0.29)
Total dividends and
distributions (1.64) (0.72) (0.92) (0.74) (0.30) (0.56)
Net asset value, end
of period $ 17.87 $ 16.60 $ 16.21 $ 12.98 $ 13.72 $ 12.45
Total return++ 17.80% 7.07% 34.22% (0.17)% 12.80% 16.96%+++
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 70,305 $ 54,341 $ 48,440 $ 35,445 $ 32,607 $ 24,536
Ratio of operating
expenses to
average net assets 1.22%(c) 1.21%+ 1.19% 1.18% 1.21% 1.06%
Ratio of net
investment income
to average net
assets 1.26% 1.05%+ 1.65% 1.60% 1.73% 2.15%
Portfolio turnover
rate 47% 12% 63% 75% 64% 60%
Ratio of operating
expenses to
average net assets
without waivers
and/or expense
reimbursements 1.22%(c) 1.21%+ 1.19% 1.18% 1.22% 1.15%
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.21(c) $ 0.05 $ 0.23 $ 0.21 $ 0.22 $ 0.25
Average commission
rate paid (b) $ 0.0649 $ 0.0648 N/A N/A N/A N/A
<CAPTION>
YEAR PERIOD
ENDED ENDED
INVESTOR A SHARES 11/30/91 11/30/90*
Operating
performance:
Net asset value,
beginning of
period $ 9.71 $ 10.04
Net investment
income 0.34 0.35
Net realized and
unrealized
gain/(loss) on
investments 1.47 (0.36)
Net
increase/(decrease)
in net asset value
from operations 1.81 (0.01)
Distributions:
Dividends from net
investment income (0.36) (0.32)
Distributions from
net realized
capital gains -- --
Total dividends and
distributions (0.36) (0.32)
Net asset value, end
of period $ 11.16 $ 9.71
Total return++ 18.79%+++ (0.16)%+++
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 13,514 $ 7,020
Ratio of operating
expenses to
average net assets 0.53% 0.21%+
Ratio of net
investment income
to average net
assets 3.33% 4.19%+
Portfolio turnover
rate 51% 24%
Ratio of operating
expenses to
average net assets
without waivers
and/or expense
reimbursements 0.99% 1.11%+
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.30 $ 0.26
Average commission
rate paid (b) N/A 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
15
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EQUITY INCOME FUND
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96 (a) 05/31/95 05/31/94 05/31/93 05/31/92
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 13.11 $ 11.78 $ 11.41 $ 12.02 $ 11.40 $ 10.19
Net investment income 0.36 0.27 0.40 0.37 0.34 0.29
Net realized and unrealized
gain on investments 1.58 1.77 1.10 0.21 1.05 1.27
Net increase in net asset value
from operations 1.94 2.04 1.50 0.58 1.39 1.56
Distributions:
Dividends from net investment
income (0.38) (0.34) (0.40) (0.38) (0.32) (0.28)
Distributions from net realized
capital gains (2.41) (0.37) (0.73) (0.81) (0.45) (0.07)
Total dividends and
distributions (2.79) (0.71) (1.13) (1.19) (0.77) (0.35)
Net asset value, end of period $ 12.26 $ 13.11 $ 11.78 $ 11.41 $ 12.02 $ 11.40
Total return++ 15.30% 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) $ 47,891 $ 42,606 $ 35,538 $ 33,691 $ 32,760 $ 3,418
Ratio of operating expenses to
average net assets 1.16%(c) 1.15%+ 1.17% 1.19% 1.17% 1.35%
Ratio of net investment income
to average net assets 2.84% 2.59%+ 3.50% 3.16% 3.12% 2.90%
Portfolio turnover rate 102% 59% 158% 116% 55% 84%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.16%(c) 1.15%+ 1.18% 1.20% 1.29% 2.46%
Net investment income/(loss)
per share without waivers
and/or expense reimbursements $ 0.36(c) $ 0.27 $ 0.40 $ 0.37 $ 0.33 $ 0.18
Average commission rate paid
(b) $ 0.0609 $ 0.0287 N/A N/A N/A N/A
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/91*
Operating performance:
Net asset value, beginning of
period $ 10.04
Net investment income 0.05
Net realized and unrealized
gain on investments 0.10
Net increase in net 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/(loss)
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 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
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
16
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS CAPITAL GROWTH FUND
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97## 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 13.41 $ 14.22 $ 11.21 $ 11.06 $ 10.67
Net investment income 0.02 0.01 0.06 0.07 0.07
Net realized and unrealized gain on
investments 1.65 0.38 3.28 0.14 0.41
Net increase in net asset value
from operations 1.67 0.39 3.34 0.21 0.48
Distributions:
Dividends from net investment
income (0.02) (0.01) (0.07) (0.06) (0.08)
Distributions from net realized
capital gains (3.39) (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (3.41) (1.20) (0.33) (0.06) (0.09)
Net asset value, end of period $ 11.67 $ 13.41 $ 14.22 $ 11.21 $ 11.06
Total return++ 11.58% 3.02% 30.70% 1.93% 4.56%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 20,465 $ 18,311 $ 16,770 $ 11,038 $ 11,182
Ratio of operating expenses to
average net assets 1.21%(d) 1.21%+ 1.23% 1.15% 1.05%
Ratio of net investment income to
average net assets 0.14% 0.13%+ 0.46% 0.60% 0.59%
Portfolio turnover rate 75% 25% 80% 56% 81%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.21% 1.21%+ 1.23% 1.16% 1.14%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.02 $ 0.01 $ 0.06 $ 0.07 $ 0.06
Average commission rate paid (c) $ 0.0604 $ 0.0632 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of
period $ 10.00
Net investment income 0.01
Net realized and unrealized gain 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 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 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.
## Per share numbers shave 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
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.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
17
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EMERGING GROWTH FUND
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96#(a) 11/30/95 11/30/94#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.91 $ 14.17 $ 11.35 $ 10.85
Net investment income/(loss) (0.07) (0.01) (0.01) (0.06)
Net realized and unrealized gain on investments 0.19 1.25 3.23 0.70
Net increase in net asset value from operations 0.12 1.24 3.22 0.64
Distributions:
Distributions from net realized capital gains (1.34) (1.50) (0.40) (0.14)
Total dividends and distributions (1.34) (1.50) (0.40) (0.14)
Net asset value, end of period $ 12.69 $ 13.91 $ 14.17 $ 11.35
Total return++ .18% 9.80% 29.65% 5.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 12,126 $ 7,802 $ 5,765 $ 3,234
Ratio of operating expenses to average net
assets 1.23%(c) 1.24%+ 1.23% 1.26%
Ratio of net investment income/(loss) to average
net assets (0.51)% (0.31)%+ (0.17)% (0.54)%
Portfolio turnover rate 93% 39% 139% 129%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursement 1.23%(c) 1.24%+ 1.23% 1.26%
Net investment income/(loss) per share without
waivers and/or expense reimbursement $ (0.07)(c) $ (0.01) $ (0.01) $ (0.05)
Average commission rate paid (b) $ 0.0562 $ 0.0599 N/A N/A
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.87
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 1.02
Net increase in net 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
18
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS DISCIPLINED EQUITY FUND
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.16 $ 17.04 $ 13.06 $ 13.30
Net investment income/(loss) 0.08 0.04 0.09 0.00(b)
Net realized and unrealized gain/(loss) on
investments 2.80 0.35 3.96 (0.23)#
Net increase/(decrease) in net asset value from
operations 2.88 0.39 4.05 (0.23)
Distributions:
Dividends from net investment income (0.09) (0.04) (0.07) (0.01)
Distributions from net realized capital gains (1.51) (0.23) -- --
Return of capital -- -- -- (0.00)(b)
Total dividends and distributions: (1.60) (0.27) (0.07) (0.01)
Net asset value, end of period $ 18.44 $ 17.16 $ 17.04 $ 13.06
Total return++ 16.76% 2.35% 31.05% (1.71)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,837 $ 4,722 $ 3,234 $ 252
Ratio of operating expenses to average net
assets 1.29%(d) 1.12%+ 1.40% 1.23%+
Ratio of net investment income/(loss) to average
net assets 0.45% 0.72%+ 0.75% 0.02%+
Portfolio turnover rate 120% 47% 124% 177%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.29% 1.12%+ 1.40% 1.66%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.08 $ 0.04 $ 0.09 $ (0.07)
Average commission rate paid (c) $ 0.0377 $ 0.0627 N/A N/A
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 04/29/94*
Operating performance:
Net asset value, beginning of period $ 14.94
Net investment income/(loss) (0.04)
Net realized and unrealized gain/(loss) on
investments 1.35
Net increase/(decrease) in net 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.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%
19
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS SMALL COMPANY GROWTH FUND
PERIOD PERIOD
ENDED ENDED
INVESTOR A SHARES* 05/16/97 08/31/96(a)
<S> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 10.64 $ 10.00
Net investment income 0.03 0.05
Net realized and unrealized gain on investments and futures 1.46 0.64
Total income from investment activities 1.49 0.69
Distributions from net investment income (0.03) (0.05)
Distributions from net realized gains (0.05) --
Total distributions (0.08) (0.05)
Net asset value at the end of the period $ 12.05 $ 10.64
Total return (b) 13.98% 6.88%
Ratio of expenses to average net assets 1.23%(c) 1.25%(c)
Ratio of net investment income to average net assets 0.30%(c) 0.66%(c)
Portfolio turnover rate (e) 48% 31%
Net assets at end of period (in 000's) $ 3,697 $ 2,611
Ratio of expenses to average net assets (assuming no waiver or expense
reimbursements) 1.66%(c) 1.65%(c)
Ratio of net investment income/(loss) to average net assets (assuming no waiver or
expense reimbursements) (0.13)%(c) 0.26%(c)
Average Commission Rate (d) -- $ .0340
</TABLE>
* Investor A Shares of Nations Small Company Growth Fund were formerly Class A
Shares of the Pilot Small Capitalization Equity Fund, a predecessor
portfolio.
(a) Share activity commenced December 12, 1995.
(b) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken for Class
A Shares. Total return is not annualized.
(c) Annualized.
(d) The average commission rate represents the total dollar amount of
commissions paid on portfolio transactions, for the time period of May 4,
1996 to August 31, 1996, divided by the total number of portfolio shares
purchased and sold for which commissions were charged. Disclosure is not
required for prior periods.
(e) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued.
20
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL EQUITY FUND
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96(a)# 05/31/95# 05/31/94#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 13.39 $ 11.67 $ 12.00 $ 10.56
Net investment income/(loss) 0.05 0.04 0.11 0.06
Net realized and unrealized
gain/(loss) on investments 0.11 1.78 (0.20) 1.44
Net increase/(decrease) in net
asset value from operations 0.16 1.82 (0.09) 1.50
Distributions:
Dividends from net investment
income (0.09) (0.04) (0.02) (0.04)
Distributions in excess of net
investment income (0.00)(c) (0.04) -- --
Distributions from net realized
capital gains (0.42) (0.02) (0.12) (0.02)
Distributions in excess of net
realized capital gains (0.03) -- (0.10) --
Total dividends and
distributions (0.54) (0.10) (0.24) (0.06)
Net asset value, end of period $ 13.01 $ 13.39 $ 11.67 $ 12.00
Total return++ 1.08% 15.66% (0.69)% 14.00%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 9,443 $ 7,643 $ 4,877 $ 3,219
Ratio of operating expenses to
average net assets 1.41% 1.42%+ 1.28% 1.42%
Ratio of net investment
income/(loss) to average net
assets 0.37% 0.40%+ 0.92% 0.50%
Portfolio turnover rate 36% 26% 92% 39%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements -- 1.43%+ 1.29% 1.43%
Net investment income/(loss) per
share without waivers and/or
expense reimbursements -- $ 0.04 $ 0.11 $ 0.05
Average commission rate paid (b) $ 0.0279 $ 0.0272 -- --
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/93*#
Operating performance:
Net asset value, beginning of
period $ 10.38
Net investment income/(loss) 0.07
Net realized and unrealized
gain/(loss) on investments 0.21
Net increase/(decrease) in net
asset value from operations 0.28
Distributions:
Dividends from net investment
income (0.08)
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 (0.10)
Net asset value, end of period $ 10.56
Total return++ 2.91%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 839
Ratio of operating expenses to
average net assets 1.55%+
Ratio of net investment
income/(loss) to average net
assets 0.78%+
Portfolio turnover rate 41%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.62%+
Net investment income/(loss) per
share without waivers and/or
expense reimbursements $ 0.07
Average commission rate paid (b) --
</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.
(c) Amount represents less than $0.01 per share.
21
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EMERGING MARKETS FUND
YEAR PERIOD
ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96*#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.32 $ 10.00
Net investment income/(loss) (0.01) (0.05)
Net realized and unrealized gain on investments 1.21 0.37
Net increase in net asset value from operations 1.20 0.32
Dividends from net investment income (0.02) --
Distributions in excess of net investment income (0.05) --
Distributions from net realized capital gains (0.06) --
Total dividends and distributions (0.13) --
Net asset value, end of period $ 11.39 $ 10.32
Total return++ 11.74% 3.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 894 $ 477
Ratio of operating expenses to average net assets 1.99% 2.38%+
Ratio of net investment income/(loss) to average net assets 0.12% (0.63)%+
Portfolio turnover rate 31% 17%
Average commission rate paid (a) $ 0.0003 $ 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.
22
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL GROWTH FUND
EIGHT
PERIOD YEAR YEAR YEAR MONTHS
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES* 05/16/97 08/31/96 08/31/95(i) 08/31/94 08/31/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of
the period $ 16.90 $ 16.14 $ 16.29 $ 14.13 $ 11.85
Net investment income/(loss) (0.05) 0.04 0.08(h) 0.07(h) 0.02(h)
Net realized and unrealized
gain/(loss) on investments 2.85 1.69 (0.22)(h) 1.65(h) 2.51(h)
Net realized and unrealized
gain/(loss) on foreign currency
related transactions (c) (0.95) (0.12) 0.39(h) 0.59(h) (0.25)(h)
Total income/(loss) from investment
activities 1.85 1.61 0.25 2.31 2.28
Distributions from net investment
income (0.14) (0.46) (0.11) -- --
Distributions from net realized
gain on investments and foreign
currency related transactions (0.34) (0.39) (0.29) (0.15) --
Net asset value at the end of the
period $ 18.27 $ 16.90 $ 16.14 $ 16.29 $ 14.13
Total return (d) 11.14%(e) 10.40% 1.77% 16.48% 19.24%(e)
Portfolio turnover rate (k) 33.68% 22.31% 35.91% 35.40% 26.65%(g)
Ratio of expenses to average net
assets 1.42%(j)(f) 1.32% 1.42% 1.37% 2.17%(f)
Ratio of net investment
income/(loss) to average net
assets 0.29%(j)(f) 0.48% 0.50% 0.48% 0.25%(f)
Net assets at end of period (in
000's) $ 26,730 $ 26,730 $ 27,625 $ 44,990 $ 55,816
Average Commission Rate (j) $ 0.0107 $ 0.0160 -- -- --
<CAPTION>
YEAR
ENDED
INVESTOR A SHARES* 12/31/92(a)(b)
Operating performance:
Net asset value at the beginning of
the period $ 12.29
Net investment income/(loss) 0.04(h)
Net realized and unrealized
gain/(loss) on investments (0.46)(h)
Net realized and unrealized
gain/(loss) on foreign currency
related transactions (c) --
Total income/(loss) from investment
activities (0.42)
Distributions from net investment
income (0.02)
Distributions from net realized
gain on investments and foreign
currency related transactions --
Net asset value at the end of the
period $ 11.85
Total return (d) (3.42)%
Portfolio turnover rate (k) 58.55%
Ratio of expenses to average net
assets 1.78%
Ratio of net investment
income/(loss) to average net
assets 0.35%
Net assets at end of period (in
000's) $ 56,358
Average Commission Rate (j) --
</TABLE>
* Investor A Shares of Nations International Growth Fund were formerly Class A
Shares of the Pilot International Equity Fund, a predecessor portfolio.
(a) Prior to a tax-free reorganization into Pilot Administration shares
effective July 12, 1993, the Pilot Kleinwort Benson International Equity
Portfolio was a separate portfolio of Kleinwort Benson Investment
Strategies known as Kleinwort Benson International Equity Fund. The
predecessor portfolio was advised by Kleinwort Benson International
Investment Limited and had a December 31 fiscal year end.
(b) Prior to July 12, 1993, the Pilot Administration shares were not subject to
an Administration Plan.
(c) For years preceding the fiscal year ended August 31, 1993, net realized and
unrealized gain/(losses) from foreign currency related transactions were
included in net realized and unrealized gain/(losses) from investments.
Effective January 1, 1993, realized and unrealized gain/(losses) from
foreign currency related transactions are disclosed separately from net
realized and unrealized gain/(losses) from investments.
(d) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken for the
Class A Shares.
(e) Not annualized.
(f) Annualized.
(g) Excludes the transfer of assets effective on August 6, 1993 from a
collective trust for which Boatmen's Trust Company served as trustee.
(h) Calculated based on the average shares outstanding methodology.
(i) The Administration Class Shares were redesignated as the Class A Shares.
(j) Represents the total dollar amount of commissions paid on security
transactions divided by total number of security shares purchased and sold
for which commissions were charged. Disclosure is not required for prior
periods.
(k) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued and is not
annualized.
23
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL GROWTH FUND (CONT.)
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES* 12/31/91 12/31/90 12/31/89 12/31/88
<S> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of the period $ 12.65 $ 15.58 $ 14.66 $ 13.21
Net investment income 0.06 0.12 0.07 (0.01)
Net realized and unrealized capital gain/(loss) on
investments 1.36 (2.40) 3.22 2.73
Net realized and unrealized gain/(loss) on foreign
currency related transactions (c) -- -- -- --
Total income/(loss) from investments 1.42 (2.28) 3.29 2.72
Distributions from net investment income (0.08) (0.14) (0.22) --
Distributions from net realized gain on investments and
foreign currency related transactions (1.70) (0.51) (2.15) (1.27)
Net asset value at the end of the period $ 12.29 $ 12.65 $ 15.58 $ 14.66
Total return (d) 11.81% (14.77)% 22.99% 21.03%
Portfolio turnover rate (k) 51.88% 52.00% 61.54% 54.84%
Ratio of expenses to average net assets 1.79% 1.82% 2.00% 2.31%
Ratio of net investment income/(loss) to average net
assets 0.45% 0.76% 0.39% (0.07)%
Net assets at end of period (in 000's) $ 65,939 $ 72,007 $ 80,224 $ 59,864
Average commission rate -- -- -- --
</TABLE>
* Investor A Shares of Nations International Growth Fund were formerly Class
A Shares of the Pilot International Equity Fund, a predecessor portfolio.
(a) Prior to a tax-free reorganization into Pilot Administration shares
effective July 12, 1993, the Pilot Kleinwort Benson International Equity
Portfolio was a separate portfolio of Kleinwort Benson Investment
Strategies known as Kleinwort Benson International Equity Fund. The
predecessor portfolio was advised by Kleinwort Benson International
Investment Limited and had a December 31 fiscal year end.
(b) Prior to July 12, 1993, the Pilot Administration shares were not subject to
an Administration Plan.
(c) For years preceding the fiscal year ended August 31, 1993, net realized and
unrealized gain/(losses) from foreign currency related transactions were
included in net realized and unrealized gain/(losses) from investments.
Effective January 1, 1993, realized and unrealized gain/(losses) from
foreign currency related transactions are disclosed separately from net
realized and unrealized gain/(losses) from investments.
(d) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken for the
Class A Shares.
(e) Not annualized.
(f) Annualized.
(g) Calculated on a portfolio-wide level and excludes the transfer of assets
effective on August 6, 1993.
(h) Calculated based on the average shares outstanding methodology.
(i) Effective August 21, 1995 the Administration Class Shares were redesignated
as the Class A Shares.
(j) Represents the total dollar amount of commissions paid on security
transactions, for the time periods of May 4, 1996 to August 31, 1996,
divided by total number of security shares purchased and sold for which
commissions were charged. Disclosure is not required for prior periods.
(k) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued and is not
annualized.
24
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS BALANCED ASSETS FUND
YEAR PERIOD YEAR YEAR YEAR
PERIOD ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 11.64 $ 12.66 $ 10.42 $ 10.86 $ 10.24
Net investment income 0.34 0.11 0.34 0.22 0.29
Net realized and unrealized
gain/(loss) on investments 1.05 0.45 2.23 (0.44) 0.62
Net increase/(decrease) in net
asset value from operations 1.39 0.56 2.57 (0.22) 0.91
Distributions:
Dividends from net investment
income (0.36) (0.17) (0.31) (0.22) (0.29)
Distributions from net realized
capital gains (1.54) (1.41) (0.02) -- --
Total dividends and distributions (1.90) (1.58) (0.33) (0.22) (0.29)
Net asset value, end of period $ 11.13 $ 11.64 $ 12.66 $ 10.42 $ 10.86
Total return++ 12.18% 4.86% 25.01% (2.02)% 8.93%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 9,075 $ 6,261 $ 5,276 $ 4,881 $ 5,191
Ratio of operating expenses to
average net assets 1.25%(c) 1.25%+ 1.24% 1.23% 1.15%
Ratio of net investment income to
average net assets 3.06% 2.66%+ 3.00% 2.06% 2.57%
Portfolio turnover rate 264% 83% 174% 156% 50%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.25%(c) 1.25%+ 1.24% 1.24% 1.22%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.34(c) $ 0.11 $ 0.34 $ 0.22 $ 0.28
Average commission rate paid (b) $ 0.0563 $ 0.0598 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of
period $ 10.00
Net investment income 0.01
Net realized and unrealized
gain/(loss) on investments 0.23#
Net increase/(decrease) in net
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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
25
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS GLOBAL GOVERNMENT INCOME FUND
YEAR PERIOD
ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.07 $ 10.00
Net investment income 0.44 0.37
Net realized and unrealized gain/(loss) on investments (0.02) 0.11
Net increase in net asset value from operations 0.42 0.48
Distributions:
Dividends from net investment income (0.45) (0.35)
Distributions in excess of net investment income (0.09) (0.02)
Distributions from net realized capital gains (0.16) (0.04)
Total dividends and distributions (0.70) (0.41)
Net asset value, end of period $ 9.79 $ 10.07
Total return++ 3.99% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 15,104 $ 14,898
Ratio of operating expenses to average net assets 1.51% 1.57%+
Ratio of net investment income to average net assets 4.35% 4.92%+
Portfolio turnover rate 100% 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.
26
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS SHORT-TERM INCOME FUND
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 9.76 $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.56 0.19 0.59 0.48 0.51
Net realized and unrealized
gain/(loss) on investments (0.08) (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net
asset value from operations 0.48 0.11 0.95 (0.03) 0.77
Distributions:
Dividends from net investment
income (0.56) (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 (0.56) (0.19) (0.59) (0.50) (0.51)
Net asset value, end of period $ 9.68 $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 5.04% 1.13% 10.29% (0.33)% 8.03%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 6,169 $ 2,810 $ 2,969 $ 2,490 $ 11,205
Ratio of operating expenses to
average net assets 0.75%(a) 0.75%+ 0.76% 0.71% 0.57%
Ratio of net investment income to
average net assets 5.77% 5.87%+ 6.12% 5.02% 5.07%
Portfolio turnover rate 172% 73% 224% 293% 121%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.05% 1.08%+ 1.06% 1.03% 0.99%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.53 $ 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 income method did not accord with the
results of operations.
(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 AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96(b)# 11/30/95# 11/30/94
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.07 $ 4.14 $ 3.93 $ 4.28
Net investment income 0.22 0.07 0.23 0.22
Net realized and unrealized gain/(loss) on
investments (0.08) (0.07) 0.21 (0.33)
Net increase/(decrease) in net asset value from
operations 0.14 0.00 0.44 (0.11)
Distributions:
Dividends from net investment income (0.22) (0.07) (0.23) (0.22)
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 (0.22) (0.07) (0.23) (0.24)
Net asset value, end of period $ 3.99 $ 4.07 $ 4.14 $ 3.93
Total return++ 3.51% 0.00%### 11.48% (2.41)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 42,468 $ 57,381 $ 64,848 $ 77,128
Ratio of operating expenses to average net assets 0.83%(c)(d) 0.83%+ 0.80% 0.77%
Ratio of net investment income to average net
assets 5.53% 5.12%+ 5.68% 5.58%
Portfolio turnover rate 529% 189% 328% 133%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.03%(d) 1.06%+ 1.00% 0.98%
Net investment income per share without waivers
and/or expense reimbursements $ 0.21(d) $ 0.06 $ 0.22 $ 0.21
</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.
## 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.
(c) The effect of interest expense on the operating expense ratio was less
than 0.01%.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
28
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND (CONT.)
YEAR YEAR PERIOD
ENDED ENDED ENDED
INVESTOR A SHARES 11/30/93 11/30/92 11/30/91*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.16 $ 4.17 $ 4.00##
Net investment income 0.22 0.27 0.10
Net realized and unrealized gain/(loss) on investments 0.14 (0.01) 0.17
Net increase/(decrease) in net asset value from operations 0.36 0.26 0.27
Distributions:
Dividends from net investment income (0.22) (0.27) (0.10)
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains (0.02) -- --
Total dividends and distributions (0.24) (0.27) (0.10)
Net asset value, end of period $ 4.28 $ 4.16 $ 4.17
Total return++ 8.85% 6.61% 6.81%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 173,449 $ 188,624 $ 53,874
Ratio of operating expenses to average net assets 0.70% 0.48% 0.08%+
Ratio of net investment income to average net assets 5.25% 6.34% 7.21%+
Portfolio turnover rate 92% 25% 11%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.94% 0.88% 0.82%+
Net investment income per share without waivers and/or expense
reimbursements $ 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.
## 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.
(c) The effect of interest expense on the operating expense ratio was less
than 0.01%.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
29
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS GOVERNMENT SECURITIES FUND
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96(b)# 05/31/95# 05/31/94
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Net investment income 0.58 0.50 0.61 0.62
Net realized and unrealized gain/(loss) on investments (0.30) (0.19) 0.06 (0.61)
Net increase/(decrease) in net asset value from
operations 0.28 0.31 0.67 0.01
Distributions:
Dividends from net investment income (0.56) (0.48) (0.57) (0.56)
Distributions in excess of net investment income -- (0.02) -- (0.02)
Distributions in excess of net realized capital gains -- -- -- (0.05)
Distributions from capital (0.00)(a) -- (0.04) (0.04)
Total dividends and distributions (0.56) (0.50) (0.61) (0.67)
Net asset value, end of period $ 9.39 $ 9.67 $ 9.86 $ 9.80
Total return++ 2.92% 3.20% 7.29% (0.11)%
Ratios to average net assets/
supplemental data:
Net assets, end of period (in 000's) $ 9,852 $ 11,662 $ 10,928 $ 14,044
Ratio of operating expenses to average net assets 1.05% 1.05%+ 1.01% 0.90%
Ratio of net investment income to average net assets 6.03% 6.11%+ 6.44% 5.91%
Portfolio turnover rate 468% 199% 413% 56%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.19% 1.20%+ 1.19% 1.11%
Net investment income per share without waivers and/or
expense reimbursements $ 0.57 $ 0.49 $ 0.59 $ 0.59
</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.
(a) Amount represents less than $0.01.
(b) Fiscal year ended changed to March 31. Prior to this, the fiscal year ended
was May 31.
30
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS GOVERNMENT SECURITIES FUND (CONT.)
YEAR YEAR PERIOD
ENDED ENDED ENDED
INVESTOR A SHARES 05/31/93# 05/31/92 05/31/91*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.36 $ 10.05 $ 10.01
Net investment income 0.66 0.71 0.09
Net realized and unrealized gain/(loss) on investments 0.16 0.38 0.02
Net increase/(decrease) in net asset value from operations 0.82 1.09 0.11
Distributions:
Dividends from net investment income (0.68) (0.75) (0.07)
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains -- -- --
Distributions in excess of net realized capital gains (0.04) (0.03) --
Distributions from capital -- -- --
Total dividends and distributions (0.72) (0.78) (0.07)
Net asset value, end of period $ 10.46 $ 10.36 $ 10.05
Total return++ 8.18% 11.18%+++ 1.07%+++
Ratios to average net assets/
supplemental data:
Net assets, end of period (in 000's) $ 15,354 $ 3,326 $ 661
Ratio of operating expenses to average net assets 1.00% 1.31% 1.35%+
Ratio of net investment income to average net assets 6.52% 6.90% 7.22%+
Portfolio turnover rate 103% 130% 5%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.15% 1.97% 1.94%+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.55 $ 0.07 $ 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.
(a) Amount represents less than $0.01.
(b) Fiscal year ended changed to March 31. Prior to this, the fiscal year ended
was May 31.
31
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS STRATEGIC FIXED INCOME FUND
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 9.93 $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.56 0.18 0.57 0.51 0.54
Net realized and unrealized
gain/(loss) on investments (0.20) (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net
asset value from operations 0.36 (0.11) 1.47 (0.38) 1.16
Distributions:
Dividends from net investment
income (0.56) (0.18) (0.57) (0.49) (0.54)
Distributions in excess of net
investment income -- -- -- (0.02) --
Distributions from net realized
capital gains (0.11) -- -- (0.34) (0.01)
Distributions from capital $ (0.00)(b) -- -- -- --
Total dividends and distributions (0.67) (0.18) (0.57) (0.85) (0.55)
Net asset value, end of period $ 9.62 $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ 3.70% (1.11)% 16.22% (3.76)% 11.88%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 6,345 $ 6,440 $ 6,662 $ 967 $ 1,138
Ratio of operating expenses to
average net assets 0.91%(c) 0.92%+ 0.91% 0.86% 0.76%
Ratio of net investment income to
average net assets 5.78% 5.29%+ 5.85% 5.25% 5.25%
Portfolio turnover rate 368% 133% 228% 307% 161%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.01%(c) 1.03%+ 1.01% 0.94% 0.92%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.55(c) $ 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 --
Distributions from capital --
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.
# 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
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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
32
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS DIVERSIFIED INCOME FUND
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96(b) 11/30/95 11/30/94# 11/30/93#
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 10.42 $ 10.82 $ 9.67 $ 10.88 $ 9.96
Net investment income 0.66 0.22 0.71 0.72 0.76
Net realized and unrealized
gain/(loss) on investments (0.18) (0.40) 1.15 (1.06) 0.92
Net increase/(decrease) in net
asset value from operations 0.48 (0.18) 1.86 (0.34) 1.68
Distributions:
Dividends from net investment
income (0.66) (0.22) (0.71) (0.72) (0.76)
Distributions in excess of net
investment income -- -- -- (0.00)(a) --
Distributions from net realized
capital gains (0.13) -- -- (0.15) --
Total dividends and distributions (0.79) (0.22) (0.71) (0.87) (0.76)
Net asset value, end of period $ 10.11 $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ 4.71% (1.67)% 19.82% (3.26)% 17.32%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 11,662 $ 13,332 $ 13,150 $ 10,819 $ 13,291
Ratio of operating expenses to
average net assets 1.00%(c) 1.02%+ 1.05% 0.96% 0.70%
Ratio of net investment income to
average net assets 6.48% 6.24%+ 6.78% 7.09% 6.87%
Portfolio turnover rate 278% 69% 96% 144% 86%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.10%(c) 1.12%+ 1.18% 1.17% 1.10%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.66(c) $ 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 income 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
33
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS U.S. GOVERNMENT BOND FUND
YEAR YEAR YEAR
ENDED ENDED ENDED
INVESTOR A SHARES* 05/16/97 08/31/96 08/31/95(a)
<S> <C> <C> <C>
Operating performance:
Net asset value, at the beginning of the period $ 10.54 $ 11.19 $ 10.48
Net investment income 0.39 0.59 0.37
Net realized and unrealized gain/(loss) on investments 0.17 (0.20) 0.71
Total income from investment activities 0.56 0.39 1.08
Distributions from net investment income (0.39) (0.59) (0.37)
Distributions from net realized gains (0.51) (0.45) --
Net asset value at the end of the period $ 10.20 $ 10.54 $ 11.19
Total return (b) 5.44% 3.44% 10.41%
Ratio of expenses to average net assets 0.87%(c) 0.85% 0.82%(c)
Ratio of net investment income to average net assets 5.35%(c) 5.44% 5.76%(c)
Portfolio turnover rate (d) 58% 87% 132%
Net assets at end of period (in 000's) $734 $632 $87
Ratio of expenses to average net assets (assuming no waiver or
expense reimbursements) 1.07 (c) 1.07 % 1.12%(c)
Ratio of net investment income to average net assets (assuming no
waiver or expense reimbursements) 5.15 (c) 5.22 % 5.46%(c)
</TABLE>
* Investor A Shares of Nations U.S. Government Bond Fund were formerly Class A
Shares of the Pilot U.S. Government Securities Fund, a predecessor
portfolio.
(a) Class A Shares activity commenced February 7, 1995.
(b) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken for Class
A Shares. Total return is not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued.
34
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.98 $ 10.03 $ 9.69 $ 9.96
Net investment income 0.42 0.14 0.42 0.36
Net realized and unrealized gain/(loss) on
investments (0.03) (0.05) 0.34 (0.27)
Net increase in net asset value from operations 0.39 0.09 0.76 0.09
Distributions:
Dividends from net investment income (0.42) (0.14) (0.42) (0.36)
Distributions from net realized capital gains -- -- -- (0.00)#
Total dividends and distributions (0.42) (0.14) (0.42) (0.36)
Net asset value, end of period $ 9.95 $ 9.98 $ 10.03 $ 9.69
Total return++ 3.96% 0.90% 7.95% 0.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,417 $ 4,599 $ 3,741 $ 217
Ratio of operating expenses to average net
assets 0.60%(a) 0.60%+(a) 0.65%(a) 0.52%(a)
Ratio of net investment income to average net
assets 4.16% 4.17%+ 4.18% 3.65%
Portfolio turnover rate 80% 16% 82% 57%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.04% 1.06%+ 1.13% 0.99%
Net investment income per share without waivers
and/or expense reimbursements $ 0.37 $ 0.12 $ 0.37 $ 0.33
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.98
Net investment income 0.03
Net realized and unrealized gain/(loss) on
investments (0.02)
Net increase in net asset value from operations 0.01
Distributions:
Dividends from net investment income (0.03)
Distributions from net realized capital gains --
Total dividends and distributions (0.03)
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) $ 731
Ratio of operating expenses to average net
assets 0.24%+
Ratio of net investment income to average net
assets 3.01%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.19%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.02
</TABLE>
* Nations Short-Term Municipal Income Fund's Investor A Shares commenced
operations on November 2, 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.
35
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.03 $ 10.17 $ 9.24 $ 10.11
Net investment income 0.46 0.15 0.47 0.42
Net realized and unrealized gain/(loss) on
investments (0.02) (0.14) 0.93 (0.86)
Net increase/(decrease) in net asset value from
operations 0.44 0.01 1.40 (0.44)
Distributions:
Dividends from net investment income (0.46) (0.15) (0.47) (0.42)
Distributions in excess of net investment
income -- -- -- (0.00)#
Distributions from net realized capital gains -- -- -- (0.01)
Total dividends and distributions (0.46) (0.15) (0.47) (0.43)
Net asset value, end of period $ 10.01 $ 10.03 $ 10.17 $ 9.24
Total return++ 4.42% 0.13% 15.38% (4.48)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,067 $ 1,500 $ 1,249 $ 172
Ratio of operating expenses to average net
assets 0.70%(a) 0.70%+(a) 0.65%(a) 0.53%(a)
Ratio of net investment income to average net
assets 4.54% 4.55%+ 4.71% 4.41%
Portfolio turnover rate 21% 4% 31% 51%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.01% 1.03%+ 1.04% 1.06%
Net investment income per share without waivers
and/or expense reimbursements $ 0.42 $ 0.14 $ 0.44 $ 0.38
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.10
Net investment income 0.12
Net realized and unrealized gain/(loss) on
investments 0.01
Net increase/(decrease) in net asset value from
operations 0.13
Distributions:
Dividends from net investment income (0.12)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.12)
Net asset value, end of period $ 10.11
Total return++ 1.28%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 68
Ratio of operating expenses to average net
assets 0.39%+
Ratio of net investment income to average net
assets 3.92%+
Portfolio turnover rate 23%
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 $ 0.10
</TABLE>
* Nations Intermediate Municipal Bond Fund's Investor A Shares commenced
operations on August 17, 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.
36
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.84 $ 11.08 $ 9.64 $ 11.33
Net investment income 0.57 0.19 0.57 0.55
Net realized and unrealized gain/(loss) on investments 0.05 (0.24) 1.44 (1.44)
Net increase/(decrease) in net asset value from operations 0.62 (0.05) 2.01 (0.89)
Distributions:
Dividends from net investment income (0.57) (0.19) (0.57) (0.55)
Distributions in excess of net investment income -- -- -- (0.00)#
Distributions from net realized capital gains -- -- -- (0.25)
Total dividends and distributions (0.57) (0.19) (0.57) (0.80)
Net asset value, end of period $ 10.89 $ 10.84 $ 11.08 $ 9.64
Total return++ 5.82% (0.47)% 21.31% (8.34)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 15,075 $ 26,085 $ 27,963 $ 23,754
Ratio of operating expenses to average net assets 0.80% 0.80%+ 0.80% 0.79%
Ratio of operating expenses to average net assets including
interest expense (a) (a) (a) 0.80%
Ratio of net investment income to average net assets 5.21% 5.15%+ 5.43% 5.24%
Portfolio turnover rate 25% 4% 49% 63%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.11% 1.11%+ 1.08% 1.08%
Net investment income per share without waivers and/or
expense reimbursements $ 0.54 $ 0.18 $ 0.54 $ 0.52
</TABLE>
* Nations Municipal Income Fund's Investor A Shares commenced operations on
February 1, 1991.
+ 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.
37
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS MUNICIPAL INCOME FUND (CONT.)
YEAR YEAR PERIOD
ENDED ENDED ENDED
INVESTOR A SHARES 11/30/93 11/30/92 11/30/91*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.65 $ 10.25 $ 10.00
Net investment income 0.57 0.58 0.52
Net realized and unrealized gain/(loss) on investments 0.72 0.41 0.25
Net increase/(decrease) in net asset value from operations 1.29 0.99 0.77
Distributions:
Dividends from net investment income (0.57) (0.58) (0.52)
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains (0.04) (0.01) --
Total dividends and distributions (0.61) (0.59) (0.52)
Net asset value, end of period $ 11.33 $ 10.65 $ 10.25
Total return++ 12.37% 9.88%+++ 7.87%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 28,415 $ 21,056 $ 7,234
Ratio of operating expenses to average net assets 0.60% 0.52% 0.20%+
Ratio of operating expenses to average net assets including interest
expense -- -- --
Ratio of net investment income to average net assets 5.09% 5.42% 6.07%+
Portfolio turnover rate 48% 19% 54%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.99% 0.99% 0.88%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.53 $ 0.53 $ 0.45
</TABLE>
* Nations Municipal Income Fund's Investor 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.
38
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.46 $ 10.63 $ 9.61 $ 10.50
Net investment income 0.47 0.16 0.46 0.43
Net realized and unrealized gain/(loss) on
investments (0.06) (0.17) 1.02 (0.88)
Net increase/(decrease) in net asset value from
operations 0.41 (0.01) 1.48 (0.45)
Distributions:
Dividends from net investment income (0.47) (0.16) (0.46) (0.43)
Distributions in excess of net investment
income -- -- -- (0.00)#
Distributions from net realized capital gains -- -- -- (0.01)
Total dividends and distributions (0.47) (0.16) (0.46) (0.44)
Net asset value, end of period $ 10.40 $ 10.46 $ 10.63 $ 9.61
Total return++ 4.01% (0.13)% 15.68% (4.43)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,142 $ 2,029 $ 2,292 $ 2,114
Ratio of operating expenses to average net
assets 0.70% 0.70%+ 0.75% 0.73%
Ratio of operating expenses to average net
assets including interest expense (a) (a) (a) (a)
Ratio of net investment income to average net
assets 4.52% 4.46%+ 4.50% 4.26%
Portfolio turnover rate 16% 18% 27% 34%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.01% 1.06%+ 1.01% 0.94%
Net investment income per share without waivers
and/or expense reimbursements $ 0.44 $ 0.14 $ 0.44 $ 0.41
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.99
Net investment income 0.42
Net realized and unrealized gain/(loss) on
investments 0.51
Net increase/(decrease) in net asset value from
operations 0.93
Distributions:
Dividends from net investment income (0.42)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.42)
Net asset value, end of period $ 10.50
Total return++ 9.44%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,261
Ratio of operating expenses to average net
assets 0.59%+
Ratio of operating expenses to average net
assets including interest expense --
Ratio of net investment income to average net
assets 4.13%+
Portfolio turnover rate 15%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.95%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.39
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund Investor A Shares commenced
operations on December 14, 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.
39
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS FLORIDA MUNICIPAL BOND FUND
YEAR PERIOD YEAR PERIOD
PERIOD ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.47 $ 9.76 $ 8.40 $ 9.98
Net investment income 0.46 0.15 0.49 0.47
Net realized and unrealized gain/(loss) on investments 0.01 (0.29) 1.36 (1.58)
Net increase/(decrease) in net asset value from operations 0.47 (0.14) 1.85 (1.11)
Dividends from net investment income (0.46) (0.15) (0.49) (0.47)
Total dividends and distributions (0.46) (0.15) (0.49) (0.47)
Net asset value, end of period $ 9.48 $ 9.47 $ 9.76 $ 8.40
Total return++ 5.09% (1.40)% 22.45% (11.35)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,781 $ 1,836 $ 1,787 $ 1,024
Ratio of operating expenses to average net assets 0.80% 0.80%+ 0.59% 0.39%+
Ratio of operating expenses to average net assets including
interest expenses (a) (a) (a) (a)
Ratio of net investment income to average net assets 4.87% 4.83%+ 5.24% 5.37%+
Portfolio turnover rate 23% 7% 13% 46%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.13% 1.16%+ 1.15% 1.09%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.43 $ 0.14 $ 0.44 $ 0.42
</TABLE>
* Nations Florida Municipal Bond Fund Investor A Shares commenced operations
on December 10, 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.
40
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93
<CAPTION>
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 10.63 $ 10.81 $ 9.82 $ 10.82 $ 10.28
Net investment income 0.48 0.16 0.48 0.47 0.48
Net realized and unrealized
gain/(loss) on investments (0.05) (0.18) 0.99 (0.98) 0.57
Net increase/(decrease) in net
asset value from operations 0.43 (0.02) 1.47 (0.51) 1.05
Distributions:
Dividends from net investment
income (0.48) (0.16) (0.48) (0.47) (0.48)
Distributions in excess of net
investment income -- -- -- (0.00)# --
Distributions from net realized
capital gains -- -- -- (0.02) (0.03)
Total dividends and distributions (0.48) (0.16) (0.48) (0.49) (0.51)
Net asset value, end of period $ 10.58 $ 10.63 $ 10.81 $ 9.82 $ 10.82
Total return++ 4.12% (0.19)% 15.20% (4.87)% 10.37%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 8,810 $ 8,625 $ 9,175 $ 10,401 $ 16,752
Ratio of operating expenses to
average net assets 0.70% 0.70%+ 0.75% 0.72% 0.61%
Ratio of operating expenses to
average net assets including
interest expense (a) (a) (a) 0.73% --
Ratio of net investment income to
average net assets 4.52% 4.47%+ 4.56% 4.56% 4.42%
Portfolio turnover rate 9% 3% 17% 22% 6%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.00% 1.03%+ 1.00% 0.93% 0.92%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.45 $ 0.15 $ 0.45 $ 0.45 $ 0.45
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of
period $ 9.98
Net investment income 0.30
Net realized and unrealized
gain/(loss) on investments 0.30
Net increase/(decrease) in net
asset value from operations 0.60
Distributions:
Dividends from net investment
income (0.30)
Distributions in excess of net
investment income --
Distributions from net realized
capital gains --
Total dividends and distributions (0.30)
Net asset value, end of period $ 10.28
Total return++ 6.12%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 3,809
Ratio of operating expenses to
average net assets 0.34%+
Ratio of operating expenses to
average net assets including
interest expense --
Ratio of net investment income to
average net assets 5.01%+
Portfolio turnover rate 12%
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 $ 0.27
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Investor A Shares
commenced operations on May 4, 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.
41
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS GEORGIA MUNICIPAL BOND FUND
YEAR PERIOD YEAR
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.48 $ 9.72 $ 8.38
Net investment income 0.45 0.14 0.49
Net realized and unrealized gain/(loss) on investments 0.02 (0.24) 1.34
Net increase/(decrease) in net asset value from operations 0.47 (0.10) 1.83
Dividends from net investment income (0.45) (0.14) (0.49)
Total dividends and distributions (0.45) (0.14) (0.49)
Net asset value, end of period $ 9.50 $ 9.48 $ 9.72
Total return++ 5.05% (1.08)% 22.25%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 208 $ 7 $ 7
Ratio of operating expenses to average net assets 0.80%(a) 0.80%+(a) 0.60%(a)
Ratio of net investment income to average net assets 4.76% 4.76%+ 5.22%
Portfolio turnover rate 19% 7% 26%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.25% 1.34%+ 1.29%
Net investment income per share without waivers and/or
expense reimbursements $ 0.41 $ 0.12 $ 0.42
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.99
Net investment income 0.47
Net realized and unrealized gain/(loss) on investments (1.61)
Net increase/(decrease) in net asset value from operations (1.14)
Dividends from net investment income (0.47)
Total dividends and distributions (0.47)
Net asset value, end of period $ 8.38
Total return++ (11.71)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6
Ratio of operating expenses to average net assets 0.39%+(a)
Ratio of net investment income to average net assets 5.42%+
Portfolio turnover rate 35%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.22%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.40
</TABLE>
* Nations Georgia Municipal Bond Fund Investor A Shares commenced operations
on December 30, 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 ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
42
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.80 $ 10.95 $ 10.00 $ 11.09
Net investment income 0.48 0.16 0.48 0.48
Net realized and unrealized gain/(loss) on investments (0.10) (0.15) 0.98 (0.99)
Net increase/(decrease) in net asset value from operations 0.38 0.01 1.46 (0.51)
Distributions:
Dividends from net investment income (0.48) (0.16) (0.48) (0.48)
Distributions from net realized capital gains -- -- (0.03) (0.10)
Distributions in excess of net realized capital gains -- -- -- (0.00)#
Total dividends and distributions (0.48) (0.16) (0.51) (0.58)
Net asset value, end of period $ 10.70 $ 10.80 $ 10.95 $ 10.00
Total return++ 3.62% 0.09% 14.94% (4.82)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 14,988 $ 19,456 $ 21,208 $ 22,145
Ratio of operating expenses to average net assets 0.70%(a) 0.70%+(a) 0.75%(a) 0.71%(a)
Ratio of net investment income to average net assets 4.50% 4.42%+ 4.56% 4.55%
Portfolio turnover rate 10% 4% 11% 22%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.98% 1.01%+ 1.00% 0.91%
Net investment income per share without waivers and/or
expense reimbursements $ 0.45 $ 0.15 $ 0.45 $ 0.46
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Investor 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.
43
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND (CONT.)
YEAR YEAR YEAR
ENDED ENDED ENDED
INVESTOR A SHARES 11/30/93 11/30/92 11/30/91
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.72 $ 10.44 $ 10.21
Net investment income 0.51 0.54 0.60
Net realized and unrealized gain/(loss) on investments 0.44 0.31 0.24
Net increase/(decrease) in net asset value from operations 0.95 0.85 0.84
Distributions:
Dividends from net investment income (0.51) (0.54) (0.60)
Distributions from net realized capital gains (0.07) (0.03) (0.01)
Distributions in excess of net realized capital gains -- -- --
Total dividends and distributions (0.58) (0.57) (0.61)
Net asset value, end of period $ 11.09 $ 10.72 $ 10.44
Total return++ 8.96% 8.32%+++ 8.46%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 22,144 $ 20,092 $ 9,934
Ratio of operating expenses to average net assets 0.64% 0.48% 0.20%
Ratio of net investment income to average net assets 4.58% 4.98% 5.76%
Portfolio turnover rate 26% 38% 26%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.88% 0.87% 0.71%
Net investment income per share without waivers and/or expense
reimbursements $ 0.48 $ 0.50 $ 0.55
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/90*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.16
Net realized and unrealized gain/(loss) on investments 0.21
Net increase/(decrease) in net asset value from operations 0.37
Distributions:
Dividends from net investment income (0.16)
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total dividends and distributions (0.16)
Net asset value, end of period $ 10.21
Total return++ 3.72%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,228
Ratio of operating expenses to average net assets 0.21%+
Ratio of net investment income to average net assets 6.12%+
Portfolio turnover rate 49%
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 $ 0.13
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Investor 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.
44
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.39 $ 9.63 $ 8.37 $ 9.77
Net investment income 0.44 0.14 0.46 0.49
Net realized and unrealized gain/(loss) on
investments 0.02 (0.24) 1.26 (1.40)
Net increase/(decrease) in net asset value from
operations 0.46 (0.10) 1.72 (0.91)
Dividends from net investment income (0.44) (0.14) (0.46) (0.49)
Total dividends and distributions (0.44) (0.14) (0.46) (0.49)
Net asset value, end of period $ 9.41 $ 9.39 $ 9.63 $ 8.37
Total return++ 4.99% (1.01)% 20.99% (9.59)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,409 $ 1,086 $ 1,031 $ 9
Ratio of operating expenses to average net
assets 0.80% 0.80%+ 0.60% 0.39%(a)
Ratio of net investment income to average net
assets 4.68% 4.52%+ 4.94% 5.30%
Portfolio turnover rate 18% 7% 11% 39%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.32% 1.43%+ 1.46% 1.48%
Net investment income per share without waivers
and/or expense reimbursements $ 0.39 $ 0.12 $ 0.38 $ 0.41
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.80
Net investment income 0.03
Net realized and unrealized gain/(loss) on
investments (0.03)
Net increase/(decrease) in net asset value from
operations 0.00
Dividends from net investment income (0.03)
Total dividends and distributions (0.03)
Net asset value, end of period $ 9.77
Total return++ 0.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6
Ratio of operating expenses to average net
assets 0.13%+
Ratio of net investment income to average net
assets 3.97%+
Portfolio turnover rate 1%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.76%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.02
</TABLE>
* Nations Maryland Municipal Bond Fund Investor A Shares commenced operations
on November 4, 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.
45
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.36 $ 10.51 $ 9.53 $ 10.46
Net investment income 0.45 0.15 0.43 0.42
Net realized and unrealized gain/(loss) on
investments (0.02) (0.15) 0.99 (0.88)
Net increase/(decrease) in net asset value from
operations 0.43 0.00 1.42 (0.46)
Distributions:
Dividends from net investment income (0.45) (0.15) (0.43) (0.42)
Distributions in excess of net investment
income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) (0.05)
Total dividends and distributions (0.45) (0.15) (0.44) (0.47)
Net asset value, end of period $ 10.34 $ 10.36 $ 10.51 $ 9.53
Total return++ 4.25% (0.01)% 15.18% (4.51)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,723 $ 7,672 $ 8,525 $ 8,896
Ratio of operating expenses to average net
assets 0.70%(a) 0.70%+ 0.77%(a) 0.73%(a)
Ratio of net investment income to average net
assets 4.37% 4.27%+ 4.27% 4.20%
Portfolio turnover rate 26% 3% 57% 37%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.02% 1.07%+ 1.04% 1.00%
Net investment income per share without waivers
and/or expense reimbursements $ 0.42 $ 0.14 $ 0.41 $ 0.40
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.01
Net investment income 0.42
Net realized and unrealized gain/(loss) on
investments 0.45
Net increase/(decrease) in net asset value from
operations 0.87
Distributions:
Dividends from net investment income (0.42)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.42)
Net asset value, end of period $ 10.46
Total return++ 8.76%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,749
Ratio of operating expenses to average net
assets 0.57%+
Ratio of net investment income to average net
assets 4.08%+
Portfolio turnover rate 29%
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 $ 0.38
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Investor A Shares
commenced operations on December 14, 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.
46
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.49 $ 9.73 $ 8.36 $ 9.85
Net investment income 0.45 0.15 0.49 0.50
Net realized and unrealized gain/(loss) on
investments (0.02) (0.24) 1.37 (1.49)
Net increase/(decrease) in net asset value from
operations 0.43 (0.09) 1.86 (0.99)
Dividends from net investment income (0.45) (0.15) (0.49) (0.50)
Total dividends and distributions (0.45) (0.15) (0.49) (0.50)
Net asset value, end of period $ 9.47 $ 9.49 $ 9.73 $ 8.36
Total return++ 4.62% (0.94)% 22.63% (10.41)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 594 $ 448 $ 347 $ 1,161
Ratio of operating expenses to average net
assets 0.80%(a) 0.80%+ 0.58%(a) 0.39%(a)
Ratio of net investment income to average net
assets 4.75% 4.66%+ 5.23% 5.35%
Portfolio turnover rate 28% 22% 40% 29%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.14% 1.19%+ 1.16% 1.10%
Net investment income per share without waivers
and/or expense reimbursements $ 0.42 $ 0.14 $ 0.44 $ 0.43
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.97
Net investment income 0.04
Net realized and unrealized gain/(loss) on
investments (0.12)
Net increase/(decrease) in net asset value from
operations (0.08)
Dividends from net investment income (0.04)
Total dividends and distributions (0.04)
Net asset value, end of period $ 9.85
Total return++ (0.80)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,085
Ratio of operating expenses to average net
assets 0.09%+
Ratio of net investment income to average net
assets 3.97%+
Portfolio turnover rate 10%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.21%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.03
</TABLE>
* Nations North Carolina Municipal Bond Fund Investor A Shares commenced
operations on November 1, 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.
47
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 10.52 $ 10.69 $ 9.76 $ 10.61 $ 10.18
Net investment income 0.49 0.16 0.49 0.48 0.48
Net realized and unrealized
gain/(loss) on investments (0.02) (0.17) 0.93 (0.84) 0.43
Net increase/(decrease) in net
asset value from operations 0.47 (0.01) 1.42 (0.36) 0.91
Distributions:
Dividends from net investment
income (0.49) (0.16) (0.49) (0.48) (0.48)
Distributions in excess of net
investment income -- -- -- (0.00)# --
Distributions from net realized
capital gains -- -- -- (0.01) --
Total dividends and distributions (0.49) (0.16) (0.49) (0.49) (0.48)
Net asset value, end of period $ 10.50 $ 10.52 $ 10.69 $ 9.76 $ 10.61
Total return++ 4.51% (0.07)% 14.79% (3.54)% 9.16%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 10,465 $ 14,288 $ 14,452 $ 16,378 $ 20,024
Ratio of operating expenses to
average net assets 0.70%(a) 0.70%+(a) 0.75%(a) 0.72%(a) 0.60%
Ratio of net investment income to
average net assets 4.60% 4.61%+ 4.72% 4.64% 4.53%
Portfolio turnover rate 13% 6% 11% 30% 11%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 0.99% 1.02%+ 0.95% 0.93% 0.90%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.46 $ 0.15 $ 0.47 $ 0.46 $ 0.45
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of
period $ 9.98
Net investment income 0.30
Net realized and unrealized
gain/(loss) on investments 0.20
Net increase/(decrease) in net
asset value from operations 0.50
Distributions:
Dividends from net investment
income (0.30)
Distributions in excess of net
investment income --
Distributions from net realized
capital gains --
Total dividends and distributions (0.30)
Net asset value, end of period $ 10.18
Total return++ 5.03%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 7,414
Ratio of operating expenses to
average net assets 0.33% +
Ratio of net investment income to
average net assets 4.83%+
Portfolio turnover rate 7%
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 $ 0.27
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Investor A Shares
commenced operations on May 5, 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 on the operating expense ratio was less than 0.01%.
(b) Fiscal year changed to March 31. Prior to this, the fiscal year end was
November 30.
48
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.77 $ 9.99 $ 8.65 $ 9.86
Net investment income 0.47 0.16 0.50 0.50
Net realized and unrealized gain/(loss) on
investments 0.02 (0.22) 1.34 (1.21)
Net increase/(decrease) in net asset value from
operations 0.49 (0.06) 1.84 (0.71)
Dividends from net investment income (0.47) (0.16) (0.50) (0.50)
Total dividends and distributions (0.47) (0.16) (0.50) (0.50)
Net asset value, end of period $ 9.79 $ 9.77 $ 9.99 $ 8.65
Total return++ 5.12% (0.64)% 21.74% (7.45)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 811 $ 1,219 $ 1,238 $ 140
Ratio of operating expenses to average net
assets 0.80% 0.80%+ 0.60% 0.39%
Ratio of operating expenses to average net
assets including interest expense (a) (a) (a) (a)
Ratio of net investment income to average net
assets 4.79% 4.76%+ 5.24% 5.30%
Portfolio turnover rate 30% 20% 13% 14%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.20% 1.33%+ 1.28% 1.30%
Net investment income per share without waivers
and/or expense reimbursements $ 0.43 $ 0.14 $ 0.44 $ 0.42
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.87
Net investment income 0.03
Net realized and unrealized gain/(loss) on
investments (0.01)
Net increase/(decrease) in net asset value from
operations 0.02
Dividends from net investment income (0.03)
Total dividends and distributions (0.03)
Net asset value, end of period $ 9.86
Total return++ 0.21%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 14
Ratio of operating expenses to average net
assets 0.10%+
Ratio of operating expenses to average net
assets including interest expense --
Ratio of net investment income to average net
assets 4.16%+
Portfolio turnover rate 8%
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 South Carolina Municipal Bond Fund Investor A Shares commenced
operations on November 8, 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.
49
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.09 $ 10.23 $ 9.30 $ 10.18
Net investment income 0.44 0.15 0.44 0.43
Net realized and unrealized gain/(loss) on
investments (0.01) (0.14) 0.93 (0.87)
Net increase/(decrease) in net asset value from
operations 0.43 0.01 1.37 (0.44)
Distributions:
Dividends from net investment income (0.44) (0.15) (0.44) (0.43)
Distributions in excess of net investment
income -- -- -- (0.00)#
Distributions from net realized capital gains -- -- -- (0.01)
Total dividends and distributions (0.44) (0.15) (0.44) (0.44)
Net asset value, end of period $ 10.08 $ 10.09 $ 10.23 $ 9.30
Total return++ 4.33% 0.06% 15.00% (4.41)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,840 $ 7,439 $ 7,573 $ 7,831
Ratio of operating expenses to average net
assets 0.70% 0.70%+ 0.77% 0.70%
Ratio of operating expenses to average net
assets including interest expense (a) -- (a) 0.71%
Ratio of net investment income to average net
assets 4.35% 4.31%+ 4.45% 4.38%
Portfolio turnover rate 28% 3% 34% 41%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.13% 1.22%+ 1.12% 1.07%
Net investment income per share without waivers
and/or expense reimbursements $ 0.40 $ 0.13 $ 0.41 $ 0.40
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.29
Net realized and unrealized gain/(loss) on
investments 0.18
Net increase/(decrease) in net asset value from
operations 0.47
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++ 4.68%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 15,573
Ratio of operating expenses to average net
assets 0.42%+
Ratio of operating expenses to average net
assets including interest expense --
Ratio of net investment income to average net
assets 4.16%+
Portfolio turnover rate 16%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.09%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.24
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund Investor A Shares
commenced operations on April 2, 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.
50
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.68 $ 9.87 $ 8.58 $ 9.80
Net investment income 0.46 0.15 0.50 0.50
Net realized and unrealized gain/(loss) on
investments 0.02 (0.19) 1.29 (1.22)
Net increase/(decrease) in net asset value from
operations 0.48 (0.04) 1.79 (0.72)
Dividends from net investment income (0.46) (0.15) (0.50) (0.50)
Total dividends and distributions (0.46) (0.15) (0.50) (0.50)
Net asset value, end of period $ 9.70 $ 9.68 $ 9.87 $ 8.58
Total return++ 5.02% (0.37)% 21.28% (7.58)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,018 $ 973 $ 203 $ 43
Ratio of operating expenses to average net
assets 0.80% 0.80%+ 0.60% 0.39%
Ratio of operating expenses to average net
assets including interest expense (a) 0.81%+ (a) (a)
Ratio of net investment income to average net
assets 4.71% 4.72%+ 5.29% 5.38%
Portfolio turnover rate 31% 2% 45% 38%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.44% 1.67%+ 1.47% 1.38%
Net investment income per share without waivers
and/or expense reimbursements $ 0.40 $ 0.12 $ 0.42 $ 0.42
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.88
Net investment income 0.04
Net realized and unrealized gain/(loss) on
investments (0.08)
Net increase/(decrease) in net asset value from
operations (0.04)
Dividends from net investment income (0.04)
Total dividends and distributions (0.04)
Net asset value, end of period $ 9.80
Total return++ (0.43)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 34
Ratio of operating expenses to average net
assets 0.17%+
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 3%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.86%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.03
</TABLE>
* Nations Tennessee Municipal Bond Fund Investor A Shares commenced operations
on November 2, 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.
51
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.21 $ 10.36 $ 9.53 $ 10.35
Net investment income 0.45 0.15 0.44 0.42
Net realized and unrealized gain/(loss) on
investments (0.03) (0.15) 0.83 (0.79)
Net increase/(decrease) in net asset value from
operations 0.42 0.00 1.27 (0.37)
Distributions:
Dividends from net investment income (0.45) (0.15) (0.44) (0.42)
Distributions in excess of net investment
income -- -- -- (0.00)#
Distributions from net realized capital gains -- -- -- (0.03)
Total dividends and distributions (0.45) (0.15) (0.44) (0.45)
Net asset value, end of period $ 10.18 $ 10.21 $ 10.36 $ 9.53
Total return++ 4.17% (0.02)% 13.60% (3.66)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 909 $ 801 $ 806 $ 718
Ratio of operating expenses to average net
assets 0.70% 0.70%+ 0.77%(a) 0.73%(a)
Ratio of operating expenses to average net
assets including interest expense -- -- (a) (a)
Ratio of net investment income to average net
assets 4.39% 4.32%+ 4.42% 4.22%
Portfolio turnover rate 34% 11% 64% 61%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.04% 1.09%+ 1.03% 0.96%
Net investment income per share without waivers
and/or expense reimbursements $ 0.41 $ 0.14 $ 0.42 $ 0.40
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.15
Net investment income 0.37
Net realized and unrealized gain/(loss) on
investments 0.20
Net increase/(decrease) in net asset value from
operations 0.57
Distributions:
Dividends from net investment income (0.37)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.37)
Net asset value, end of period $ 10.35
Total return++ 5.64%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 968
Ratio of operating expenses to average net
assets 0.59%+
Ratio of operating expenses to average net
assets including interest expense --
Ratio of net investment income to average net
assets 4.28%+
Portfolio turnover rate 63%
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 $ 0.34
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund Investor A Shares commenced
operations on February 4, 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.
52
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.49 $ 9.70 $ 8.39
Net investment income 0.46 0.15 0.49
Net realized and unrealized gain/(loss) on investments (0.01) (0.21) 1.31
Net increase/(decrease) in net asset value from operations 0.45 (0.06) 1.80
Dividends from net investment income (0.46) (0.15) (0.49)
Total dividends and distributions (0.46) (0.15) (0.49)
Net asset value, end of period $ 9.48 $ 9.49 $ 9.70
Total return++ 4.78% (0.62)% 21.85%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 371 $ 317 $ 351
Ratio of operating expenses to average net assets 0.80%(a) 0.80%+ 0.59%(a)
Ratio of net investment income to average net assets 4.79% 4.72%+ 5.25%
Portfolio turnover rate 52% 6% 50%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.23% 1.31%+ 1.25%
Net investment income per share without waivers and/or
expense reimbursements $ 0.42 $ 0.13 $ 0.43
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.92
Net investment income 0.47
Net realized and unrealized gain/(loss) on investments (1.53)
Net increase/(decrease) in net asset value from operations (1.06)
Dividends from net investment income (0.47)
Total dividends and distributions (0.47)
Net asset value, end of period $ 8.39
Total return++ (10.98)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 55
Ratio of operating expenses to average net assets 0.40%+(a)
Ratio of net investment income to average net assets 5.34%+
Portfolio turnover rate 107%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.24%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.39
</TABLE>
* Nations Texas Municipal Bond Fund Investor A Shares commenced operations on
December 17, 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.
53
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.69 $ 10.83 $ 9.94 $ 10.99
Net investment income 0.49 0.16 0.49 0.48
Net realized and unrealized gain/(loss) on investments (0.10) (0.14) 0.89 (0.96)
Net increase/(decrease) in net asset value from operations 0.39 0.02 1.38 (0.48)
Distributions:
Dividends from net investment income (0.49) (0.16) (0.49) (0.48)
Distributions from net realized capital gains -- -- (0.00)# (0.09)
Distributions in excess of net realized capital gains -- -- -- (0.00)#
Total dividends and distributions (0.49) (0.16) (0.49) (0.57)
Net asset value, end of period $ 10.59 $ 10.69 $ 10.83 $ 9.94
Total return++ 3.71% 0.20% 14.16% (4.52)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 55,791 $ 68,003 $ 73,253 $ 79,412
Ratio of operating expenses to average net assets 0.70%(a) 0.70%+(a) 0.76%(a) 0.79%(a)
Ratio of net investment income to average net assets 4.59% 4.52%+ 4.67% 4.58%
Portfolio turnover rate 20% 2% 22% 14%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.94% 0.96%+ 0.94% 0.91%
Net investment income per share without waivers and/or
expense reimbursements $ 0.47 $ 0.15 $ 0.47 $ 0.47
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Investor A Shares
commenced operations on December 5, 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.
54
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND (CONT.)
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 11/30/93 11/30/92 11/30/91 11/30/90*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.59 $ 10.34 $ 10.14 $ 10.08
Net investment income 0.51 0.54 0.58 0.61
Net realized and unrealized gain/(loss) on investments 0.42 0.29 0.21 0.11
Net increase/(decrease) in net asset value from operations 0.93 0.83 0.79 0.72
Distributions:
Dividends from net investment income (0.51) (0.54) (0.58) (0.66)
Distributions from net realized capital gains (0.02) (0.04) (0.01) --
Distributions in excess of net realized capital gains -- -- -- --
Total dividends and distributions (0.53) (0.58) (0.59) (0.66)
Net asset value, end of period $ 10.99 $ 10.59 $ 10.34 $ 10.14
Total return++ 8.91% 8.18%+++ 8.04%+++ 7.41%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 103,689 $ 76,650 $ 44,540 $ 24,303
Ratio of operating expenses to average net assets 0.72% 0.65% 0.45% 0.26%+
Ratio of net investment income to average net assets 4.65% 5.04% 5.67% 6.09%+
Portfolio turnover rate 26% 13% 24% 19%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.84% 0.97% 0.73% 0.80%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.49 $ 0.50 $ 0.55 $ 0.55
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Investor A Shares
commenced operations on December 5, 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.
55
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.38 $ 9.62 $ 8.29 $ 9.77
Net investment income 0.46 0.16 0.49 0.49
Net realized and unrealized gain/(loss) on
investments 0.02 (0.24) 1.33 (1.48)
Net increase/(decrease) in net asset value from
operations 0.48 (0.08) 1.82 (0.99)
Dividends from net investment income (0.46) (0.16) (0.49) (0.49)
Total dividends and distributions (0.46) (0.16) (0.49) (0.49)
Net asset value, end of period $ 9.40 $ 9.38 $ 9.62 $ 8.29
Total return++ 5.23% (0.91)% 22.39% (10.44)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 726 $ 661 $ 650 $ 168
Ratio of operating expenses to average net
assets 0.80% 0.80%+ 0.59% 0.39%
Ratio of operating expenses to average net
assets including interest expense (a) 0.81%+ (a) (a)
Ratio of net investment income to average net
assets 4.90% 4.86%+ 5.31% 5.34%
Portfolio turnover rate 37% 8% 16% 61%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.18% 1.27%+ 1.24% 1.17%
Net investment income per share without waivers
and/or expense reimbursements $ 0.42 $ 0.14 $ 0.44 $ 0.43
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.84
Net investment income 0.03
Net realized and unrealized gain/(loss) on
investments (0.07)
Net increase/(decrease) in net asset value from
operations (0.04)
Dividends from net investment income (0.03)
Total dividends and distributions (0.03)
Net asset value, end of period $ 9.77
Total return++ (0.42)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 25
Ratio of operating expenses to average net
assets 0.10%+
Ratio of operating expenses to average net
assets including interest expense --
Ratio of net investment income to average net
assets 3.88%+
Portfolio turnover rate 0%
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 $ 0.02
</TABLE>
* Nations Virginia Municipal Bond Fund Investor A Shares commenced operations
on November 8, 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.
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 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.
56
<PAGE>
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 SMALL COMPANY GROWTH FUND: Nations Small Company Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities.
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 regions, including 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 market 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 INTERNATIONAL GROWTH FUND: Nations International Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of companies domiciled in countries outside the United
States and listed on major stock exchanges primarily in Europe and the Pacific
Basin.
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 GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to seek total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests 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 high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-term
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 investing in investment grade
fixed income securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
NATIONS U.S. GOVERNMENT BOND FUND: Nations U.S. Government Bond Fund's
investment objective is to seek total return and preservation of capital by
investing in U.S. Government securities and repurchase agreements collateralized
by such securities.
TAX-EXEMPT FUNDS:
NATIONS SHORT-TERM MUNICIPAL INCOME FUND: The investment objective of Nations
57
<PAGE>
Short-Term Municipal Income Fund is to seek high current income exempt from
Federal income tax consistent with minimal fluctuation of principal. The Fund
invests in investment grade, short-term municipal securities.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: Nations Intermediate Municipal Bond
Fund's investment objective is to seek high current income exempt from Federal
income tax consistent with moderate fluctuation of principal. The Fund invests
in investment grade, intermediate-term municipal securities.
NATIONS MUNICIPAL INCOME FUND: The investment objective of Nations Municipal
Income Fund is to seek high current income exempt from Federal income tax with
the potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term municipal
securities.
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND: Nations Florida Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income and the Florida state intangibles taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS FLORIDA MUNICIPAL BOND FUND: Nations Florida Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
and the Florida state intangibles taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Georgia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Georgia state income taxes consistent with moderate fluctuation
of principal. The Fund invests in investment grade, intermediate-term municipal
securities.
NATIONS GEORGIA MUNICIPAL BOND FUND: Nations Georgia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Georgia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND: Nations Maryland Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Maryland state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
NATIONS MARYLAND MUNICIPAL BOND FUND: Nations Maryland Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Maryland state income taxes with the potential for principal fluctuation
associated with investments in
long-term municipal securities. The Fund invests in investment grade, long-term
municipal securities.
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations North Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and North Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND: Nations North Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and North Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations South Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and South Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
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NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND: Nations South Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and South Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND: Nations Tennessee
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of principal. The Fund
invests in investment grade, intermediate-term municipal securities.
NATIONS TENNESSEE MUNICIPAL BOND FUND: Nations Tennessee Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax and the Tennessee Hall Income Tax on unearned income with the potential for
principal fluctuation associated with investments in long-term municipal
securities. The Fund invests in investment grade, long-term municipal
securities.
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND: Nations Texas Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income tax consistent with moderate fluctuation of principal. The
Fund invests in investment grade, intermediate-term municipal securities.
NATIONS TEXAS MUNICIPAL BOND FUND: Nations Texas Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax with the potential for principal fluctuation associated with investments in
long-term municipal securities. The Fund invests in investment grade, long-term
municipal securities.
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Virginia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Virginia state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
NATIONS VIRGINIA MUNICIPAL BOND FUND: Nations Virginia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Virginia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term 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 are 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 are sometimes collectively
referred to as the "State Municipal Bond Funds".
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.
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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 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 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 and repurchase
agreements. 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 sec-
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tor 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 provided by the stocks in
the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index")1 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 inter-
(1) "Standard & Poor's 500" is a registered service mark of S&P.
est 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 and repurchase
agreements. 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 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 and repurchase
agreements. 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 equity securities,
consisting of common stocks, preferred stocks and convertible securities, such
as warrants, rights 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 and repurchase agreements. 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 greater 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 primar-
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ily in securities of U.S. issuers, it 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 the Fund, the Adviser utilizes quantitative analysis and
optimization tools. This approach seeks to identify companies with improving
profit potential through analysis of 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. The quantitative analysis also includes ranking the attractiveness
of equity securities according to a multi-factor valuation model. Both value and
growth factors are considered in the ranking process. Value factors such as book
value, earnings yield and cash flow measure a stock's intrinsic worth versus its
market price, while growth characteristics such as price momentum, earnings
growth and earnings acceleration measure a stock relative to others in the same
industry. The objective is to maintain a broadly diversified portfolio which
ranks in the top quartile on earnings momentum and in the top third on
valuation. This approach generally produces a dividend yield less than the
market average. Although this Fund seeks to invest in attractively priced
securities with increasing earnings, its investment objective focuses on
long-term capital appreciation; income is not an objective of this 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, money
market instruments and repurchase agreements.
NATIONS SMALL COMPANY GROWTH FUND: In pursuing its investment objective, under
normal circumstances, the Fund will invest at least 65% of its total assets in
equity securities, consisting of common stocks, preferred stocks and convertible
securities, such as warrants, rights and convertible debt. In addition, the Fund
will invest at least 65% of its total assets in companies with a market
capitalization of $1 billion or less.
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In making investment decisions for the Fund, the Adviser, on a quarterly basis,
classifies approximately 6,000 companies by market value and eliminates the
largest 20%. The remaining companies constitute the Fund's small-capitalization
universe and generally represent only one-tenth of the aggregate U.S. equity
market capitalization. Due to the large number of small stocks to choose from,
the Adviser's selection process uses advanced quantitative techniques to
identify, buy and sell candidates in a timely and objective manner. The strategy
is to own those investments offering both attractive fundamental valuation and
relatively good prospects for earnings improvement. Typically, two types of
companies are candidates for purchase: (i) mature companies which may have
fallen from a larger market value due to business difficulties, but which now
exhibit improving prospects; and (ii) smaller or younger companies which are
experiencing strong trends in earnings growth, but remain reasonably valued and
therefore offer premium growth at a discount in comparison to other companies.
The Adviser's internally designed investment approach uses a sophisticated
valuation process which measures changes in current earnings estimates and
longer-term growth trends, compares recent earnings results with market
expectations, and evaluates a company's earnings power relative to its stock
price. Companies become purchase candidates based upon a composite ranking of
these factors, and the top 20% are further evaluated on additional criteria.
Candidates for investment must also possess a sound financial structure and
demonstrate consistent factor rankings before being added to the Fund's
portfolio.
The Fund's weighted median capitalization generally is not expected to exceed
125% of the weighted median capitalization of the Russell 2000 Small Stock Index
(the "Russell 2000") as measured on a quarterly basis, although this may vary
from time to time. Furthermore, a stock may be sold if the composite rank falls
into the bottom 20% of the universe, financial quality weakens significantly, or
if individual factors demonstrate patterns of deterioration.
The Fund may invest up to 35% of its total assets in securities of issuers with
a market capitalization greater than $1 billion and in debt securities. However,
the Fund will not invest more than 10% of its total assets in debt securities,
unless the Fund assumes a temporary defensive position as discussed below. Debt
securities, if any, purchased by the Fund will be rated AA or above by S&P or Aa
or above by Moody's or, if unrated, determined by the Adviser to be of
comparable quality. For temporary defensive purposes, the Fund may invest up to
100% of its assets in debt securities. Debt securities in which the Fund may
invest include short-term and intermediate-term obligations of corporations, the
U.S. and foreign governments and international organizations (such as the World
Bank), and money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements. The Fund currently intends to limit any investment in foreign
securities to 5% of total assets.
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.
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The Fund also may invest in American Depository Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), 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 defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar denominated instruments.
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 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 market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the 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.
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, 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
International Growth 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.
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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.
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
International Growth 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.
NATIONS INTERNATIONAL GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in foreign equity securities listed on major exchanges, consisting of common
stocks, preferred stocks, convertible securities, such as warrants, rights and
convertible debt. The Fund may purchase the stock of small-, mid-and
large-capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Directors, the
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former Soviet Union and the Middle East. Debt securities, if any, purchased by
the Fund will be rated in the top two categories by a nationally recognized
statistical rating organization ("NRSRO") or, if unrated, determined by the
Adviser to be of comparable quality. For temporary defensive purposes, the Fund
may invest up to 100% of its assets in debt and equity securities of U.S.
issuers. Debt securities in which the Fund may invest include short-term and
intermediate-term obligations of corporations, foreign governments and
international organizations such as the World Bank and money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. finanical markets or in U.S. dollar denominated instruments.
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 and also may invest in repurchase agreements,
restricted, private placement and other illiquid securities. Each Equity Fund
may invest in real estate investment trust securities and may invest in
securities issued by other investment companies, consistent with the Fund's
investment objective and policies. Nations International Equity Fund, Nations
International Growth Fund, Nations Pacific Growth Fund and Nations Emerging
Markets Fund may invest in forward foreign exchange contracts.
For more information concerning these and other investments in which the Funds
may invest and their investment practices, see "Appendix A."
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 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 and asset-
backed securities. Most obligations acquired by the Fund will be issued by
companies or governmental entities located within the United States. Debt
obligations acquired by the Fund will be rated investment grade at the time of
purchase by S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc.
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(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 NRSRO's. 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 and repurchase
agreements. 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.
BOND FUNDS:
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 Pacific
Growth Fund, Nations Global Government Income Fund, Nations International Growth
Fund and Nations Emerging Markets 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
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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.
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
dollar-weighted maturity of the Fund will not exceed five years and the 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. The Fund also
may invest in 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, 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 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 dollar-weighted maturity of the Fund's portfolio will be between three
and five years and the duration will not exceed five years. U.S. Government
Obligations have historically involved little
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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-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.
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, prevailing market or economic circumstances warrant.
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 dollar-weighted maturity of the Fund's portfolio will be between three
and 10 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-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.
The Fund also may invest in "high quality" money market instruments, 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, prevailing market or economic 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 fixed income securities. It is expected
that the average dollar-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-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. The Fund also may invest in dividend-paying preferred and common stock.
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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.
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, 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
dollar-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; U.S. Government Obligations; dollar-denominated and
non-dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments; 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.
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,
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.
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NATIONS U.S. GOVERNMENT BOND FUND: The Fund will invest at least 65% of its
total assets in U.S. Government securities and repurchase agreements
collateralized by such securities. While the maturity of individual securities
will not be restricted, except during temporary defensive periods or unusual
market conditions, the average weighted maturity of the Fund will be between
five and thirty years. The Fund may invest in a variety of U.S. Government
Obligations. The Fund may also invest in interests in the foregoing securities,
including collateralized mortgage obligations issued or guaranteed by a U.S.
Government agency or instrumentality. U.S. Government Obligations have
historically had a very low risk of loss of principal if held to maturity. The
Fund, however, can give no assurance that the U.S. Government would provide
financial support to its agencies or instrumentalities if it were not legally
required to do so.
The Fund may also invest up to 35% of its total assets in debt securities of
U.S. and foreign corporate and foreign government issuers, ADRs and EDRs, zero
coupon bonds and cash equivalents. The Fund will purchase only those
non-government investments which are rated investment grade or better by at
least one NRSRO or, if unrated, are determined by the Adviser to be of
comparable quality. If a portfolio security held by the Fund ceases to be rated
investment grade by at least one NRSRO or if the Adviser determines that an
unrated portfolio security held by the Fund is no longer of comparable quality
to an investment grade security, the security will be sold in an orderly manner
as quickly as possible. Additionally, the Fund may also invest in futures
contracts, interest rate swaps and options.
The value of the Fund's portfolio (and consequently its shares) is expected to
fluctuate inversely in relation to changes in the direction of interest rates.
NATIONS SHORT-TERM MUNICIPAL INCOME FUND, NATIONS INTERMEDIATE MUNICIPAL BOND
FUND AND NATIONS MUNICIPAL INCOME FUND: In pursuing their objectives, the Funds
will invest at least 80% of their total net assets 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 ("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 dollar-weighted maturity and
duration of each of the Funds' portfolios are expected to be as follows: Nations
Municipal Income Fund -- average dollar-weighted maturity greater than 10 years
and duration between 7.5 and 9.5 years; Nations Intermediate Municipal Bond
Fund -- average dollar-weighted maturity between three and 10 years and duration
between five and six years; Nations Short-Term Municipal Income Fund -- average
dollar-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 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
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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 net 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 net assets of the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds will be
invested in Municipal Securities. In addition, at least 80% of each Fund's total
net assets will be invested in debt instruments, issued by or on behalf of the
pertinent state and its political subdivisions, agencies, instrumentalities and
authorities.
Under normal market conditions, the average dollar-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 dollar-weighted maturity between three and 10 years and
duration between five and six years; State Municipal Bond Funds -- average
dollar-weighted maturity greater than 10 years and duration between 7.5 and 9.5
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 net 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 by 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 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
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not exceed 20% of its total net assets at the time of purchase.
GENERAL: Each of the Balanced Fund and 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 U.S. and foreign exchange-traded financial futures and options
thereon approved by the CFTC for market exposure risk management. Each Fund also
may lend its portfolio securities to qualified institutional investors and may
invest in repurchase agreements, 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. Nations
Balanced Assets Fund, Nations U.S. Government Bond Fund, 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 forward
foreign exchange contracts.
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 and partnerships.
Certain 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."
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, except for Nations
International Growth Fund, see "Financial Highlights." While it is not possible
to predict exactly annual portfolio turnover rates, it is expected that under
normal market conditions, the annual portfolio turnover rate for Nations
International Growth Fund will not exceed 100%.
RISK CONSIDERATIONS: 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.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risks. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods. The U.S.
stock market tends to be cyclical, with periods
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when stock prices generally rise and periods when prices generally decline. As
of the date of this Prospectus, the stock market, as measured by the S&P 500
Index and other commonly used indices, was trading at or close to record levels.
There can be no guarantee that these levels will continue.
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 a 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."
Certain of the Funds may invest in securities of smaller and newer issuers.
Investments in such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also present greater
risks than investments in more established companies with longer operating
histories and greater financial capacity.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN NATIONS INTERNATIONAL
EQUITY FUND, NATIONS PACIFIC GROWTH FUND, NATIONS GLOBAL GOVERNMENT INCOME FUND,
NATIONS INTERNATIONAL GROWTH FUND AND NATIONS EMERGING MARKETS FUND: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, each Fund presents unique risks of which investors
should be aware.
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.
The above risk considerations are also relevant to an investment in Nations
International Growth Fund.
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
75
<PAGE>
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 International
Growth Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Income Fund.
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 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, 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.
3. Nations Value Fund, Nations Equity Income Fund, Nations International Equity
Fund, Nations International Growth Fund, Nations Emerging Markets Fund, Nations
Pacific Growth Fund, Nations Capital Growth Fund, Nations Emerging Growth Fund,
Nations Disciplined Equity Fund, Nations Small Company Growth Fund, Nations U.S.
Government Bond 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
76
<PAGE>
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.
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 taxes 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 Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund and Nations
Municipal Income Fund will invest at least 80% of their respective total net
assets in Municipal Securities the interest on which is exempt from Federal
income tax. 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.
Each of Nations Small Company Growth Fund and Nations U.S. Government Bond Fund
may not borrow money except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase agreements
and mortgage rolls; provided that the Fund will maintain asset coverage of 300%
for all borrowings.
Nations International Growth Fund may not borrow money except as a temporary
measure and then only in amounts not exceeding 5% of the value of the Fund's
total assets or from banks or in connection with reverse repurchase agreements
provided that immediately after such borrowing, all borrowings of the Fund do
not exceed one-third of the Fund's total assets and no purchases of portfolio
instruments will be made while such Fund has borrowings outstanding in an amount
exceeding 5% of its total assets.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without shareholder approval. Shareholders of Nations
International Growth Fund, Nations Small Company Fund and Nations U.S.
Government Bond Fund, however, must receive at least 30 days' prior written
notice in the event an investment objective is changed. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their 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 SAI. 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. 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 may also advertise the tax-equivalent
yield of a class of shares. TOTAL RETURN,
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<PAGE>
YIELD AND TAX EQUIVIALENT 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 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 assuming the reinvestment of all
dividend and capital gain 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 gain
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 particular class's tax-free yield. This
is done by increasing such class's yield (calculated as above) by the amount
necessary to reflect the payment of Federal income tax at a stated tax rate.
Set forth below is certain performance data for the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite,
reflecting the performance of private accounts, including U.K. authorized unit
trusts, managed by Gartmore plc, as defined below. The performance data for
these accounts is deemed relevant because the Pacific Ex-Japan Composite, the
Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite have
investment objectives, policies and restrictions that are substantially similar
to those of Nations Pacific Growth Fund, Nations Emerging Markets Fund and
Nations Global Government Income Fund, respectively. There is substantial
continuity between the portfolio managers of Gartmore plc who were responsible
for managing those accounts and the portfolio managers of Gartmore who are
responsible for managing Nations Pacific Growth Fund, Nations Emerging Markets
Fund and Nations Global Government Income Fund, respectively. THIS PERFORMANCE
DATA REPRESENTS PAST PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF THE FUTURE
PERFORMANCE OF GARTMORE OR THE FUNDS.
PACIFIC EX-JAPAN COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
One Year Two Years Three Years Four Years
<S> <C> <C> <C> <C>
Pacific Ex-Japan
Composite 3.95% 8.44% 7.79% 17.11%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Indexl -2.44% 8.58% 7.08% 15.62%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
Since
Inception
Five Years Six Years Seven Years (1/1/88)
<S> <C> <C> <C> <C>
Pacific Ex-Japan
Composite 18.84% 18.08% 14.79% 20.42%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Indexl 16.69% 16.61% 15.77% 19.02%
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS*
Morgan Stanley
Capital
International
Pacific Combined Far East
Ex-Japan (Ex-Japan)
Composite Free Index(1)
<S> <C> <C>
1988 11.9% 30.0%
1989 58.40% 32.1%
1990 0.0% -6.5%
1991 22.1% 31.0%
1992 22.9% 21.8%
1993 110.0% 103.4%
1994 -13.9% -17.5%
1995 4.0% 8.8%
1996 13.5 11.1
</TABLE>
* The average annual total returns and annual total returns are net of fees.
The fees for these accounts were 1% per annum until September 30, 1988, and
1.5% per annum thereafter. The accounts are not subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable,
may have adversely affected the performance results of the accounts.
(1) The Morgan Stanley Capital International Combined Far East (Ex-Japan) Free
Index is a capitalization-weighted index that tracks 7 countries and
represents only those securities that are available for investment by
international investors; many issues are still restricted to domestic
investors in certain Pacific Basin countries.
EMERGING MARKETS COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
Four Years
Since
Inception
One Year Two Years Three Years 1/1/93
<S> <C> <C> <C> <C>
Emerging Markets
Composite 16.2% 11.1% -1.8% 10.2%
IFC Investables
Index(1) 11.4% 13.4% 3.1% 13.39%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
Emerging
Markets IFC Investables
Composite Index(1)
<S> <C> <C>
1993 76.5% 79.6%
1994 -19.0% -12.0%
1995 -11.3% -8.5%
1996 13.0% 9.4%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (1/1/93) and are net of fees. The fees for these
accounts were 1.5% per annum. The accounts are not subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable,
may have adversely affected the performance results of the accounts.
(1) The IFC Investables Index includes over 1,100 stocks representing 27 stock
markets in developing countries, and reflects the accessibility of markets
and individual stocks for foreign ownership.
GLOBAL GOVERNMENT BOND
EX-U.K. COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
One Year Two Years Three Years
<S> <C> <C> <C>
Global
Government
Bond
Ex-U.K.
Composite** -1.2% 4.4% 6.1%
J.P. Morgan
Global
Government
Bonds Index(1) 1.0% 3.9% 6.5%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
Since
Inception
Four Years Five Years 10/1/90
<S> <C> <C> <C>
Global Government
Bond Ex-U.K.
Composite** 6.2% 8.4% 10.31%
J.P. Morgan
Global
Government Bonds
Index(1) 6.5% 7.9% 8.97%
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS*
Global J.P. Morgan
Government Global
Bond Ex-U.K. Government
Composite Bonds Index(1)
<S> <C> <C>
1991 20.8% 16.0%
1992 4.8% 5.2%
1993 15.0% 11.6%
1994 -0.9% 1.5%
1995 22.8% 19.6%
1996 0.6% 3.5%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (10/1/90) and are net of fees. The fees on these
accounts varied by contractual agreement and have been assumed to be 1.5%
per annum. The accounts are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results of the accounts.
** The accounts of the Global Government Bond Ex-U.K. Composite do not invest
in securities of U.K. issuers, which are permissible investments for Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J.P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
(1) The J.P. Morgan Global Government Bonds Index is a capitalization-weighted
index that tracks government bonds issued in 13 countries located in the
United States, Europe and the Far East.
Set forth below is the average annual total return and annual total return for
Nations International Equity Fund for the periods ending March 31, 1997:
NATIONS INTERNATIONAL
EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997
<TABLE>
<CAPTION>
Since
Inception
One Year Three Years Five Years on 12/2/91
<S> <C> <C> <C> <C>
Nations
International
Equity Fund 1.32% 6.23% 8.24% 7.10%
Morgan Stanley
Capital
International
EAFE Index(1) 1.46% 6.53% 10.57% 6.01%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Morgan Stanley
Nations Capital
International International EAFE
Equity Fund Indexl
<S> <C> <C>
1992 -8.6% -12.2%
1993 27.21% 32.6%
1994 2.6% 7.8%
1995 8.5% 11.2%
1996 8.5% 6.1%
</TABLE>
(1) The Morgan Stanley Capital International EAFE Index represents an unmanaged
index used to portray the pattern of common stock price movement in Europe,
Australia and the Far East.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the 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 Investor A Shares, the Funds offer Primary A Shares, Primary B
Shares, Investor B Shares (formerly Investor N Shares) and Investor C 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. 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 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 your Agent (as defined below) or
by calling Nations Funds at the toll-free number indicated on the cover of this
Prospectus.
80
<PAGE>
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 Trustees and
Boards of Directors, respectively. The SAI contains the names of and general
background information concerning each Trustees 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 Funds 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 or Boatmen's serves as investment sub-adviser. TradeStreet is a wholly
owned subsidiary of NationsBank. TradeStreet provides investment management
services to individuals, corporations and institutions.
Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as investment sub-adviser to Nations
International Equity Fund, Nations International Growth 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.
Boatmen's Capital Management, Inc. serves as investment sub-adviser to Nations
U.S. Government Bond Fund. Its principal offices are located at 100 North
Broadway, St. Louis, Missouri 63178-4737. Boatmen's is an indirect subsidiary of
NationsBank Corporation, a registered bank holding company.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in 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.
81
<PAGE>
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: .50% of the average daily net assets
of each of the Nations Short-Term Municipal Income Fund, Nations Intermediate
Municipal Bond Fund and the State Intermediate Municipal Bond Funds; .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; .60% of the average daily net assets of Nations U.S.
Government Bond Fund; .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; 1.00% of the average
daily net assets of Nations Small Company Growth Fund; .65% of the first $100
million of Nations Government Securities Fund's average daily net assets, plus
.55% of the Fund's average daily net assets in excess of $100 million and up to
$250 million, plus .50% of the Fund's average daily net assets in excess of $250
million; .75% of the first $100 million of Nations Equity Income Fund's average
daily net assets, plus .70% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus .60% of the Fund's average daily net
assets in excess of $250 million; .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; .90% of the average daily net assets of Nations
Pacific Growth Fund; .70% of the average daily net assets of Nations Global
Government Income Fund; and .90% of the average daily net assets of Nations
International Growth Fund.
For the services provided pursuant to sub-advisory agreements, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rates of: .20% of Nations Equity Income Fund's average daily net assets; .25% of
Nations Value Fund's, Nations Balanced Assets Fund's, Nations Capital Growth
Fund's, Nations Emerging Growth Fund's, Nations Small Company Growth Fund's, and
Nations Disciplined Equity Fund's average daily net assets; .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 .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 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 .70% of Nations International Equity Fund's average daily net
assets; .40% of Nations International Growth Fund's average daily net assets up
to and including $325,000,000 in assets and .25% on assets in excess of
$325,000,000; .85% of Nations Emerging Markets Fund's average daily net assets;
.70% of Nations Pacific Growth Fund's average daily net assets and .54% of
Nations Global Government Income Fund's average daily net assets. For services
provided and expenses assumed, Gartmore is entitled to receive from NBAI sub-
advisory fees, computed daily and paid monthly, at the annual rate of .40%. As
of the date of this Prospectus, the Board of Directors has approved, and
recommended to shareholders that they approve, an increase in fees to be paid by
NBAI to Gartmore to .70% of Nations International
82
<PAGE>
Growth Fund's average daily net assets. This increase will be implemented as
soon as practicable following receipt of shareholder approval.
NBAI will pay Boatmen's sub-advisory fees at the rate of .15% of the average net
assets of Nations U.S. Government Bond Fund.
From time to time, NBAI (and/or TradeStreet, Gartmore or Boatmen's) 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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Value Fund -- .75%, Nations Capital Growth Fund -- .75%, Nations
Emerging Growth Fund -- .75%, Nations Disciplined Equity Fund -- .75%, Nations
Balanced Assets Fund -- .75%, Nations Short-Intermediate Government
Fund -- .40%, Nations Short-Term Income Fund -- .30%, Nations Diversified Income
Fund -- .50%, Nations Strategic Fixed Income Fund -- .50%, Nations Municipal
Income Fund -- .29%, Nations Short-Term Municipal Income Fund -- .06%, Nations
Intermediate Municipal Bond Fund -- .19%, Nations Florida Intermediate Municipal
Bond Fund -- .19%, Nations Georgia Intermediate Municipal Bond Fund -- .20%,
Nations Maryland Intermediate Municipal Bond Fund -- .22%, Nations North
Carolina Intermediate Municipal Bond Fund -- .18%, Nations South Carolina
Intermediate Municipal Bond Fund -- .21%, Nations Tennessee Intermediate
Municipal Bond Fund -- .07%, Nations Texas Intermediate Municipal Bond
Fund -- .16%, Nations Virginia Intermediate Municipal Bond Fund -- .26%, Nations
Florida Municipal Bond Fund -- .27%, Nations Georgia Municipal Bond
Fund -- .15%, Nations Maryland Municipal Bond Fund -- .08%, Nations North
Carolina Municipal Bond Fund -- .26%, Nations South Carolina Municipal Bond
Fund -- .20%, Nations Tennessee Municipal Bond Fund -- .03%, Nations Texas
Municipal Bond Fund -- .17%, and Nations Virginia Municipal Bond Fund -- .22%.
For the fiscal period ended April 1, 1996, to March 31, 1997, Nations Fund, Inc.
paid NBAI under the Investment Advisory Agreement advisory fees at the indicated
rates of the following Funds' average daily net assets: Nations Equity Income
Fund -- .67%, Nations International Equity Fund -- .90%, and Nations Government
Securities Fund -- .50%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Emerging Markets Fund -- 1.10%, Nations Pacific Growth Fund -- .90%, and
Nations Global Government Income Fund -- .70%.
For the fiscal period from September 1, 1996 to May 16, 1997, after waivers, the
Pilot Funds paid Boatmen's Trust Company, under a previous investment advisory
agreement, advisory fees at the indicated rates of the following Funds' average
daily net assets: Nations Small Company Growth Fund (formerly the Pilot Small
Capitalization Equity Fund) -- .75%, Nations International Growth Fund (formerly
the Pilot International Equity Fund) -- .48%, and Nations U.S. Government Bond
Fund (formerly the Pilot U.S. Government Securities Fund) -- .40%. During the
same period, after waivers, the Pilot Funds paid Kleinwort Benson Investment
Management Americas Inc., under a previous sub-advisory agreement, sub-advisory
fees at the rate of .32% of Nations International Growth Fund's average daily
net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations Value
Fund -- .25%, Nations Capital Growth Fund -- .20%, Nations Emerging Growth
Fund -- .25%, Nations Disciplined Equity Fund -- .25%, Nations Balanced Assets
Fund -- .25%, Nations Short-Intermediate Government Fund -- .15%, Nations
Short-Term Income Fund -- .15%, Nations Diversified Income Fund -- .15%, Nations
Strategic Fixed Income Fund -- .15%, Nations Municipal
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Income Fund -- .07%, Nations Short-Term Municipal Income Fund -- .07%, Nations
Intermediate Municipal Bond Fund -- .07%, Nations Florida Intermediate Municipal
Bond Fund -- .07%, Nations Georgia Intermediate Municipal Bond Fund -- .07%,
Nations Maryland Intermediate Municipal Bond Fund -- .07%, Nations North
Carolina Intermediate Municipal Bond Fund -- .07%, Nations South Carolina
Intermediate Municipal Bond Fund -- .07%, Nations Tennessee Intermediate
Municipal Bond Fund -- .07%, Nations Texas Intermediate Municipal Bond
Fund -- .07%, Nations Virginia Intermediate Municipal Bond Fund -- .07%, Nations
Florida Municipal Bond Fund -- .07%, Nations Georgia Municipal Bond
Fund -- .07%, Nations Maryland Municipal Bond Fund -- .07%, Nations North
Carolina Municipal Bond Fund -- .07%, Nations South Carolina Municipal Bond
Fund -- .07%, Nations Tennessee Municipal Bond Fund -- .07%, Nations Texas
Municipal Bond Fund -- .07%, Nations Virginia Municipal Bond Fund -- .07%,
Nations Equity Income Fund -- .20% and Nations Government Securities
Fund -- .15%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid Gartmore under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Emerging Markets Fund -- .85%, Nations Pacific Growth Fund -- .70%, Nations
Global Government Income Fund -- .54% and Nations International Equity
Fund -- .70%.
Sharon M. Herrmann 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 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 is Principal Portfolio Manager of Nations International Equity
Fund and has been the Portfolio Manager since February, 1995. He joined Gartmore
as a Global Fund Manager in 1993 and currently holds the position of Head of the
International and Global Portfolio Team. Previously, Mr. Watson was a director
and global fund manager with James Capel Fund Managers, London, as well as
Client Services Manager for international clients. From 1980 to 1987 he
associated with Capel-Cure Myers in their Portfolio Management Division. He
began his career in 1976 when he joined the investment division at Samuel
Montagu. Mr. Watson is a member of the Securities Institute.
Philip Ehrmann is Principal Portfolio Manager of Nations Emerging Markets Fund
and is the Head of the Gartmore Emerging Markets Team. He has been the Portfolio
Manager for the Fund since 1995. Prior to joining Nations Gartmore in 1995, Mr.
Ehrmann was the Director of Emerging Markets for Invesco in London. He began his
career in 1981 as an institutional stockbroker with Rowe & Pitman Inc. and also
spent a brief period with Prudential Bache Securities as an
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institutional salesman before joining Invesco in 1984. Mr. Ehrmann graduated
from the London School of Economics with a degree in Economics, Industry and
Trade.
Seok Teoh is Principal Portfolio Manager of Nations Pacific Growth Fund and has
been the Portfolio Manager since the Fund's inception. She has been associated
with Gartmore since 1990 as the London based manager on its Far East Team.
Previously, Ms. Teoh managed Far East equities for Rothschild Asset Management
in Tokyo and in Singapore. She was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh,
who is a native of Singapore, is fluent in Mandarin and Cantonese and received
an Economics degree from the University of Durham.
Philip J. Sanders 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.
Scott A. Billeadeau is a Senior Portfolio Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Emerging Growth Fund and
Nations Small Company Growth Fund. Mr. Billeadeau has been Portfolio Manager of
the Funds since June, 1997. Previously he was Senior Analyst and Senior
Portfolio Manager for BankAmerica's Pacific Horizon Aggressive Growth Fund at
Security Pacific Corp. since 1991. Mr. Billeadeau has worked in the investment
community since 1986. His past experience also includes quantitative analysis
for American Express Financial Advisors, Inc. Mr. Billeadeau received an AB in
Economics from Princeton University. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research, as well as the Seattle Society of Securities Analysts.
Jeffery C. Moser 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 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
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Investment Analysts and the World Affairs Council of Washington, D.C.
Mark Rimmer is Principal Portfolio Manager of the Nations Global Government
Income Fund and has been the Portfolio Manager since the Fund's inception. He
has been associated with Gartmore since 1990 as an International Fixed Income
Fund Manager. Previously, Mr. Rimmer managed multi-currency funds for
institutional clients at Gulf International Bank in Bahrain, and prior to that
he was a senior trader for Sumitomo Finance International, London. He graduated
from Cambridge University with a degree in Economics.
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 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.
Christopher G. Gunster is a Portfolio Manager, Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Government Securities Fund. Mr.
Gunster has been the lead Portfolio Manager since July 1997. Prior to assuming
his position with TradeStreet, he was Assistant Vice President and Associate
Portfolio Manager for the Investment Management Group at NationsBank since 1993.
Mr. Gunster has worked in the investment community since 1987. His past
experience includes investment marketing for The Boston Company and options
trading from Shatkin Investments, a regional broker/dealer. Mr. Gunster received
a B.A. in Chemistry from Kenyon College and an M.B.A. in Finance and Babson
Graduate 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. Mr. Swaim has been Portfolio Manager for the 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.
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 Director, Municipal Fixed Income Management for
TradeStreet and is 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
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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 Intermediate Municipal Bond 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.
Dawn Daggy-Mangerson is a Portfolio Manager, Municipal Fixed Income Management
for TradeStreet and is Portfolio Manager of the Nations Short-Term Municipal
Income Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations Maryland
Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund and
Nations Virginia Municipal Bond Fund. Ms. Daggy-Mangerson has been Portfolio
Manager of the Funds since April 1997. Prior to assuming her position with
TradeStreet, she was a Portfolio Manager for Boatmen's Trust Company since 1995.
Ms. Daggy-Mangerson has worked in the investment community since 1988. Her past
experience also includes portfolio management and trading for Stein Roe Farnham,
a large investment advisory firm. Ms. Daggy-Mangerson received a B.A. in
Commerce and Finance from DePaul University.
Brad Pope is a Product Manager, Fixed Income Management for TradeStreet and
Portfolio Manager for Nations Short-Term Income Fund. He is a senior member of
the Fixed Income Team. As such, his responsibilities include setting duration
policy for the Nations Funds fixed income funds. Mr. Pope has been the Portfolio
Manager for Nations Short-Term Income Fund since August 1996. Prior to assuming
this position, he was a manager in the structured products area. He joined the
Investment Management Group at NationsBank, TradeStreet's predecessor
organization, in 1988. Mr. Pope has over nine years of investment experience,
including working on the trading floor of the Chicago Board of Trade. Mr. Pope
received a B.B.A. in Finance from the University of Texas at Austin.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund, Nations
Managed Index Fund and Nations Managed SmallCap Index Fund. He has been
Portfolio Manager for these Funds since their inception. Prior to assuming his
position with TradeStreet in 1996, 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 Chicago Quantitative Alliance,
the Association for Investment
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Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Brian O'Neill is the Principal Senior Investment Manager of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Fund since July, 1997. Mr. O'Neill joined Gartmore as a Senior Investment
Manager on the Global Portfolio Team in 1981 with responsibility for a variety
of specialized global funds, including resource funds. Mr. O'Neill began his
career with Royal Insurance in 1970 as an investment analyst specializing in
United Kingdom research. He then expanded his field of expertise to include
management of global equities, and in 1978 he moved to Antony Gibbs & Sons where
he was appointed as a fund manager, specializing in global equities. Mr. O'Neill
graduated from Glasgow University in 1969 with a MA Honours degree in Political
Economy.
The Fixed Income Committee of Boatmen's is responsible for the day-to-day
management of the investment portfolio of Nations U.S. Government Bond Fund.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such 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
the Funds pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
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 a
Co-Administration Agreement. Under the Co-Administration Agreement, 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 .10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .10%,
Nations Capital Growth Fund -- .10%, Nations Emerging Growth Fund -- .10%,
Nations Disciplined Equity Fund -- .10%, Nations Balanced Assets Fund -- .10%,
Nations Short-Intermediate Government Fund -- .10%, Nations Short-Term Income
Fund -- .10%, Nations Diversified Income Fund -- .10%, Nations Strategic Fixed
Income Fund -- .09%, Nations Municipal Income Fund -- .09%, Nations Short-Term
Municipal Income Fund -- .09%, Nations Intermediate Municipal Bond
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Fund -- .09%, Nations Florida Intermediate Municipal Bond Fund -- .09%, Nations
Georgia Intermediate Municipal Bond Fund -- .09%, Nations Maryland Intermediate
Municipal Bond Fund -- .09%, Nations North Carolina Intermediate Municipal Bond
Fund -- .09%, Nations South Carolina Intermediate Municipal Bond Fund -- .09%,
Nations Tennessee Intermediate Municipal Bond Fund -- .09%, Nations Texas
Intermediate Municipal Bond Fund -- .09%, Nations Virginia Intermediate
Municipal Bond Fund -- .09%, Nations Florida Municipal Bond Fund -- .09%,
Nations Georgia Municipal Bond Fund -- .09%, Nations Maryland Municipal Bond
Fund -- .09%, Nations North Carolina Municipal Bond Fund -- .09%, Nations South
Carolina Municipal Bond Fund -- .09%, Nations Tennessee Municipal Bond
Fund -- .09%, Nations Texas Municipal Bond Fund -- .09% and Nations Virginia
Municipal Bond Fund -- .09%.
For the fiscal period ended April 1, 1996, to March 31, 1997, Nations Fund, Inc.
paid its adminstrators combined fees at the indicated rates of the following
Funds' average daily net assets: Nations Prime Fund -- .09%, Nations Treasury
Fund -- .09%, Nations Equity Income Fund -- .10%, Nations International Equity
Fund -- .10% and Nations Government Securities Fund -- .10%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Emerging Markets
Fund -- .10%, Nations Pacific Growth Fund -- .10% and Nations Global Government
Income Fund -- .10%.
NationsBank serves as sub-administrator for Nations Funds 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. Nations Funds
has entered into distribution agreements with Stephens which provided 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. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of each Fund, except the international portfolios. 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 to the Nations Funds Family, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees at the rate of (i) $300,000
per annum, to be paid monthly in payments of $25,000 for custodian services for
up to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
BONY, Avenue des Arts, 35 1040 Brussels, Belgium, serves as Custodian for the
assets of the Nations International Equity Fund, Nations International Growth
Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
Global Government Income Fund.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, N.A., whereby BONY will serve as sub-custodian ("Sub-Custodian") for the
assets of all Funds except the international portfolios, for which BONY is
already serving as Custodian. BONY is located at 90 Washington Street, New York,
New York 10286. In return for providing sub-custodial services, BONY receives,
in addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor A Shares.
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The Transfer Agent is located at One Exchange Place, Boston, Massachusetts
02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of a 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, Stephens and First Data; interest; trustees' fees and
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, Stephens or First Data under
their respective agreements with Nations Funds; and any extraordinary expenses.
Investor A Shares may bear certain class specific expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust, 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
bear to the assets of Nations Fund Trust, Nations Fund, Inc. or Nations
Portfolios or in such other manner as the Board of Trustees or relevant Board of
Directors deems appropriate.
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family
currently has more than 52 distinct investment portfolios and total assets in
excess of $27 billion.
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 B Shares (formerly Investor N Shares) and Investor C Shares. This
Prospectus relates only to the Investor A Shares of Nations Value Fund, Nations
Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity
Fund, Nations Balanced Assets Fund, Nations Short-Intermediate Government Fund,
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund, Nations Municipal Income Fund, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations
Georgia Intermediate Municipal Bond Fund, Nations Georgia Municipal Bond Fund,
Nations Maryland Intermediate Municipal Bond Fund, Nations Maryland Municipal
Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations
North Carolina Municipal Bond Fund, Nations South Carolina Intermediate
Municipal Bond Fund, Nations South Carolina Municipal Bond Fund, Nations
Tennessee Intermediate Municipal Bond Fund, Nations Tennessee Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Texas Municipal
Bond Fund, Nations Virginia Intermediate Municipal Bond Fund 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 Agent
(as defined below) or Nations Funds 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
distri-
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butions 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 of shares. See the SAI for examples of instances where
the Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1997, 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 the 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 420,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor A Shares of the following funds of Nations Fund, Inc.: Nations Small
Company Growth Fund, Nations U.S. Government Bond Fund, Nations International
Growth 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 Funds 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, 1997, 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 con-
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cerning 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
Institution (as defined below) or Nations Funds 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, 1997, 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.
PENDING LEGAL PROCEEDINGS: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and Stephens
Inc. (Case No. 94-995-Civ.-T-23E). As relevant to Nations Government Securities
Fund and Nations Short-Intermediate Government Fund, plaintiffs allege that,
among other things, defendants violated the Securities Exchange Act of 1934 and
various state securities fraud statutes by employing a scheme to defraud
plaintiffs into purchasing shares of the funds and making
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untrue statements of material fact and omitting to state material facts in
connection with sales of shares of the funds. Plaintiffs further allege that,
among other things, defendants concealed the risks associated with such funds by
blurring the distinctions between banks and non-bank subsidiaries and by
obscuring the differences between traditional, federally insured bank products
and uninsured, non-depository products.
About Your Investment
How To Buy Shares
Investor A Shares are available to the following categories of Investors:
(Bullet) Investors who purchase through accounts established with certain
fee-based investment advisers or financial planners, including Nations
Funds Personal Investment Planner accounts, wrap fee accounts and
other managed agency/asset allocation accounts.
(Bullet) Directors, officers and employees of NationsBank Corporation, its
affiliates and subsidiaries.
(Bullet) Individuals investing a distribution received from a NationsBank trust
account and certain other rollovers or distributions received from
NationsBank fiduciary accounts.
(Bullet) Current Investor A Shareholders (other than Investor A Shareholders
who own such shares exclusively through a cash sweep option) who
purchased Investor A Shares prior to August 1, 1997.
(Bullet) Employee benefit plans making an initial investment of $1 million or
more in the Nations Funds Family.
(Bullet) Investors (other than those described above) investing $1 million or
more in the Nations Funds Family through an Agent (as defined below)
(a "Substantial Investor"). In determining whether an investor
qualifies as a Substantial Investor, all current holdings of Funds in
the Nations Funds Family other than the Nations Funds money market or
index funds, Nations Short-Term Income Fund and Nations Short-Term
Municipal Income Fund, will be considered.
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 Funds ("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."
Purchases of Investor A Shares through a Nations Funds Personal Investment
Planner account, which is a managed agency/asset allocation account established
with NBAI (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;
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(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"), Savings Incentives Method Plans for Employees
("SIMPLE IRAs"), salary reduction-Individual Retirement Account ("SAR-IRAs") or
similar types of accounts. However, the assets of such plans must reach an asset
value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs 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 Funds 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 Funds 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: Certain 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 Funds
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Nations Funds at 1-800-321-7854 for an account
number and use the following wire instructions:
Nations Funds
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 Nations Funds at 1-800-321-7854.
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 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
Funds' 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 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 ("Customers"), and delivering required funds, on a
timely basis. Stephens is
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responsible for transmitting orders it receives to Nations Funds.
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 the last day of the applicable month. Subject
to certain exceptions for employees of NationsBank and its affiliates and pre-
existing SIP accounts, the systematic investment amount may be in any amount
from $50 to $100,000. For more information concerning the SIP, contact your
Agent or Nations Funds.
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 Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
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 Nations Funds
at 1-800-321-7854 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 remitted in
federal funds wired to the redeeming Agent or investor 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 Funds. There is no redemption charge.
Nations Funds 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 Funds also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily market-
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able 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 Funds have previously been
made. Nations Funds 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 Funds Personal Investment Planner are 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) payments made to pay medical expenses which
exceed 7.5% of income and distributions to pay for insurance by an individual
who has separated from employment and who has received unemployment compensation
under a federal or state program for at least 12 weeks, (iv) effected pursuant
to Nations Funds' 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, (v) in connection with the
combination of Nations Funds with any other registered investment company by
merger, acquisition of assets or by any other transaction, and (vi) 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.
REINSTATEMENT PRIVILEGE: 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.
REDEMPTION FEE: A redemption fee of 1% of the current net asset value will be
assesed on
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certain Investor A Shares purchased after July 31, 1997 and redeemed within 18
months of the date of purchase by a Substantial Investor. In addition, a 1%
redemption fee will be assesed on Investor A Shares purchased after such date by
an employee benefit plan that (i) made its initial investment after such date
and (ii) redeemed such shares within 18 months of purchase in connection with a
complete liquidation of such plan's holdings in the Nations Funds Family. This
fee is retained by the Fund or Funds for the benefit of the remaining
shareholders and is intended to encourage long-term investment in the Funds and
to avoid transaction and other expenses associated with short-term investments.
The Funds reserve the right to modify the terms of or terminate this fee at any
time.
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 Funds 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 Funds at any time.
How To Exchange Shares
The exchange feature enables a shareholder of a fund of Nations Funds to acquire
shares of the same class that are offered by another fund (other than an index
fund) of Nations Funds 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 a Fund, exchange requests
should be communicated to the Fund by calling Nations Funds at 1-800-321-7854 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 Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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. The ability to deduct capital
losses on an exchange may be limited in situations where
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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 Funds and Stephens reserve 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.
Investor A Shares of Nations Short-Term Municipal Income Fund acquired directly
or indirectly through an exchange from Investor B Shares of another non-money
market fund may be re-exchanged only for Investor B Shares of another non-money
market fund, Investor C Shares of a Nations Funds money market fund or Investor
A Shares of Nations Short-Term 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 B 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 Funds money market fund. The CDSC that is
ultimately charged upon redemption is based upon the total period of time the
shareholder holds Investor B Shares of any fund that charges a CDSC.
If Investor A Shares are exchanged for shares of the same class of another fund,
any redemption fee applicable to the original shares purchased will be assessed
upon the redemption of the acquired shares. The holding period of such shares
(for purposes of determining whether a redemption fee is applicable) will be
computed from the time of the initial purchase of the Investor A Shares of a
Fund, except that the holding period will not accrue while the shares owned are
Investor A Shares of Nations Short-Term Municipal Income Fund, Nations Short-
Term Income Fund or a Nations Funds money market fund. If a redemption fee
ultimately is charged, it will be retained by the initial Fund purchased.
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 Funds to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or the last 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 Nations
Funds.
Shareholder Servicing And Distribution
Plan
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.
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Nations Short-Term Municipal Income Fund, however, may not pay for shareholder
services under the Investor A Plan. Aggregate payments under the Investor A Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by each Fund, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. Nations Short-Term
Municipal Income Fund, however, may not pay for shareholder services under the
Investor A Plan. 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 Funds 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.
GENERAL: 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 Funds 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.
In addition, the Trustees and Directors have approved a Shareholder Servicing
Plan (the "Servicing Plan") with respect to the Investor A Shares of the Nations
Short-Term Municipal Income Fund. Pursuant to its Servicing Plan, the Nations
Short-Term Municipal Income Fund may pay Servicing Agents that have entered into
a Servicing Agreement with Nations Funds for certain shareholder support
services that are provided by the Servicing Agents. Payments under the Fund's
Servicing Plan may not exceed 0.25% of the average daily net asset value of the
Fund's Investor A Shares. The shareholder services provided by Servicing Agents
include, but are not limited to, those listed above with respect to the Investor
A Plan.
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Nations Funds 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 Funds 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 Funds. The Sales Support Agreements and Servicing
Agreements require Agents to disclose to their Customers any compensation
payable to the Agent by Stephens or Nations Funds 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, Martin Luther King, Jr. 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 also
declared and paid monthly by Nations Capital Growth Fund, Nations Disciplined
Equity Fund, Nations Equity Income Fund, Nations Value Fund and Nations Small
Company Growth Fund. Dividends from net investment income are declared and paid
annually by Nations International Growth Fund. All other Equity Funds and
Nations Balanced Assets Fund distribute any net investment income each calendar
quarter and any net realized capital gains (including net short-term capital
gains) at least annually. The Bond Funds declare dividends daily and pay them
monthly. 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. Accordingly, dividends and distributions on newly
purchased shares represent, in substance, a return of capital. However, such
dividends and distributions would nevertheless be taxable. Certain Selling or
Servicing Agents may provide for the reinvestment of dividends in the form of
additional Investor A Shares of the same class of the same Fund. Dividends and
distribu-
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tions 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.
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 a Fund may be entitled to the dividends-received
deduction on all or a portion of such Fund's dividends to the extent that the
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 a Fund's 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 as long-term capital gains, regardless of how long the shareholders
have held the 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 be subject to state and local taxes, as discussed more
fully below and in the SAIs.
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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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 tax on dividends, distributions and proceeds from the disposition of
Fund shares paid to certain foreign shareholders.
Portions of the Nations International Equity Fund, Nations International Growth
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, if more
than 50% of the value of the total assets of each Fund consist of securities it
may elect to "pass through" to its shareholders these foreign taxes, if any.
Upon such an election, 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.
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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, these
Funds are permitted to pass through to their shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Funds
intend to satisfy. Distributions from taxable income will be taxable as ordinary
income to shareholders whether such income is received in cash or reinvested in
additional shares. The policy of the Funds is to pay to their shareholders an
amount equal to at least 90% of their exempt-interest income and their
investment company taxable income. 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 SAI under
"Additional Information Concerning Taxes.") Distributions from the Funds will
not qualify for the dividends-received deduction for corporate shareholders.
Distributions of net investment income by Nations Municipal Income Fund, Nations
Short-Term Municipal Income Fund and Nations Intermediate Municipal Bond Fund
may be taxable to investors 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.
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 of such Funds will not be subject to Florida's
intangibles tax, subject to certain requirements which the Funds intend to
satisfy. See the SAI for further details about state tax treatment relevant to
shareholders of the 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 which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax 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 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
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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 the Government National Mortgage
Association, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. Such Certificates are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage loans issued by
lenders such as mortgage bankers, commercial banks and savings and loan
associations. Such mortgage loans may have fixed or adjustable rates of
interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as
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"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. For additional information concerning
mortgage-backed securities, see the related SAI.
The mortgage-backed securities in which the Funds invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the Funds
also may be subject to credit risk. Credit risk is the risk that the issuers of
securities in which a Fund invests may default in the payment of principal
and/or interest. Any such defaults or adverse changes in an issuer's financial
condition or credit rating may adversely affect the value of the Funds'
portfolio investments and, hence, the value of your investment in the
corresponding Fund.
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 pur-
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pose entity organized solely for the purpose of owning such assets and issuing
such debt. Such securities also may include instruments issued by certain
trusts, partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund (except Nations International
Growth Fund) will limit its investments in bank obligations so they do not
exceed 25% of each Fund's total assets at the time of purchase. Nations Small
Company Growth Fund and Nations U.S. Government Bond Fund will limit their
investments in interest-bearing savings deposits of commercial and savings banks
to 5% of total assets.
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
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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. Pursuant to line of credit arrangements, certain of the
Funds may borrow 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: 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 for-
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ward 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 income (including interest, distributions and disposition
proceeds), 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.
Certain Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
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
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less favorable position. Additional risks inherent in the use of futures,
options, forward contracts and swaps include: imperfect correlation between the
price of futures, options and forward contracts and movements in the prices of
the securities or currencies being hedged; the possible absence of a liquid
secondary market for any particular instrument at any time; and the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences. A Fund may not purchase put and call options which are traded on a
national stock exchange in an amount exceeding 5% of its net assets. Further
information on the use of futures, options and other derivative instruments, and
the associated risks, is contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not 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. In addition, interests in privately arranged
loans acquired by the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds 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 under the 1933 Act, or which
were issued under Section 4(a) of 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
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 or
other buyers cease purchasing such restricted securities pursuant to Rule 144A
or otherwise, 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: 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
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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 the Fund to value its portfolio securities, and the
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 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
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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 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.
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.
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 securities with put or demand features 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 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
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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.
Georgia's state government is enjoying very robust fiscal health as evidenced by
the ratings given to General Obligations Bonds issued on April 1, 1997, which
were rated by Moody's as "Aaa", "AA+ with a positive outlook" by Standard &
Poors, and "AAA" by Fitch. The Federal Reserve Bank of Atlanta predicts that
1997 will be a very good year for Georgia in terms of economic growth. However,
a comparison to economic performance for the state in 1996 will be somewhat
distorted because of the estimated $3 billion boost to the state economy from
the 1996 Summer Olympic Games. The Olympic Games served to value-add to the
basic strength of the Georgia economy, which is expected to continue to flourish
in the near term by the expansion of existing business and by the continued
in-migration of new business from around the United States and from around the
world.
Maryland is one of the wealthiest states in the U.S. and has been rated "Aa" by
Moody's, and "AA" by 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 sixth 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 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 negative
side 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 and 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, "AAA" rating by S&P and a "AAA"
rating by Fitch, for the state. Combine this with a conservative plan of
finance, and South Carolina
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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).
The mix of job growth in Texas provides a strong base for sustainable growth
because the new jobs are largely in industries with bright prospects for future
growth, such as knowledge-based services and manufacturing.
The state of Virginia has earned its "Aa2" rating by Moody's and "AA" 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 experienced strong
growth in the labor force and benefits from a low unemployment rate. 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 the 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.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
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
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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 Funds.
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. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
SHORT-TERM TRUST OBLIGATIONS: Certain of the Funds 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.
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Treasury instruments. U.S. Treasury Obligations differ only in their interest
rates, maturities and time of issuance. 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, some 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, 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. 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.
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-
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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 four ratings used by Moody's for corporate
and municipal bonds, each of which denotes that the securities are investment
grade.
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.
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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.
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 pay-
117
<PAGE>
ment. 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
118
<PAGE>
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 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.
119
<PAGE>
<PAGE>
Prospectus
INVESTOR A SHARES
AUGUST 1, 1997
This Prospectus describes the investment portfolio
listed in the column to the right, (each a "Fund"
and collectively, the "Funds") of Nations Fund
Trust, Nations Fund, Inc. and Nations Fund
Portfolios, Inc. ("Nations Portfolios"), each an
open-end management investment company in the
Nations Funds Family ("Nations Funds" or "Nations
Funds Family"). This Prospectus describes one class
of shares of the Funds -- Investor A Shares.
NATIONS PRIME FUND (THE "MONEY MARKET FUND") SEEKS
TO MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE MONEY MARKET FUND ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND
THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET
FUND 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 prospective
purchasers of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust,
Nations Fund, Inc. and Nations 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 Funds at its address or
telephone number shown below. The SAIs for Nations
Fund Trust, Nations Fund, Inc. and Nations
Portfolios, each dated August 1, 1997, are
incorporated by reference in their entirety into
this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAIs,
material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to certain of the Funds, and
Gartmore Global Partners ("Gartmore") is investment
sub-adviser to certain other Funds. As used herein
the term "Adviser" shall mean NBAI, TradeStreet,
and/or Gartmore as the context may require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
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 FUND
Nations Prime Fund
EQUITY FUNDS
Nations Value Fund
Nations Equity Income Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Small Company Growth Fund
Nations Disciplined Equity Fund
Nations International Equity Fund
Nations International Growth Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
INDEX FUNDS
Nations Managed Index Fund
Nations Managed SmallCap Index Fund
Nations Managed Value Index Fund
Nations Managed SmallCap Value Index Fund
BOND FUNDS
Nations Global Government Income Fund
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 Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NF-97218-897
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 6
Financial Highlights 10
Objectives 31
How Objectives Are Pursued 32
How Performance Is Shown 52
How The Funds Are Managed 56
Organization And History 64
About Your Investment
How To Buy Shares 67
How To Redeem Shares 69
How To Exchange Shares 72
Shareholder Servicing And Distribution Plans 73
How The Funds Value Their Shares 75
How Dividends And Distributions Are Made;
Tax Information 76
Appendix A -- Portfolio Securities 78
Appendix B -- Description Of Ratings 90
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 FUNDS OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUNDS 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 FUND:
(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) 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 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 Small Company Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities.
(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 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 regions, including developing countries.
(Bullet) Nations International Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of companies domiciled in countries outside the
United States and listed on major stock exchanges primarily in
Europe and the Pacific Basin.
(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 market 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).
3
<PAGE>
(Bullet) INDEX FUNDS:
(Bullet) Nations Managed Index Fund's investment objective is to seek,
over the long-term, to provide a total return which (gross of
fees and expenses) exceeds the total return of the Standard &
Poor's 500 Composite Stock Price Index.
(Bullet) Nations Managed SmallCap Index Fund's objective is to seek,
over the long-term, to provide a total return which (gross of
fees and expenses) exceeds the total return of the Standard &
Poor's SmallCap 600 Index.
(Bullet) Nations Managed Value Index Fund's investment objective is to
seek, over the long-term, to provide a total return that
(gross of fees and expenses) exceeds the total return of the
S&P 500/BARRA Value Index.
(Bullet) Nations Managed SmallCap Value Index Fund's investment
objective is to seek, over the long-term, to provide a total
return that (gross of fees and expenses) exceeds the total
return of the S&P SmallCap 600/BARRA Value Index.
(Bullet) BOND FUNDS:
(Bullet) Nations Global Government Income Fund's investment objective
is to seek total return by investing primarily in high quality
debt securities issued by governments, banks and supranational
entities located throughout the world.
(Bullet) Nations Short-Term Income Fund's investment objective is to
seek high current income consistent with minimal fluctuation
of principal. The Fund invests in investment grade debt
securities.
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek high current income consistent with
modest fluctuation of principal. The Fund invests 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 high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in
intermediate-term 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 in investment grade fixed
income securities.
(Bullet) Nations Diversified Income Fund's investment objective is to
seek total return with an emphasis on current income by
investing 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 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc., and Gartmore Global Partners provide sub-
advisory services to the Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are
also declared and paid monthly by Nations Capital Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Income Fund, Nations Managed
Index Fund, Nations Value Fund and Nations Small Company Growth Fund.
Dividends from net investment income are declared and paid annually by
Nations International Growth Fund. All other Equity Funds and Index
Funds declare and pay dividends from net investment income each
calendar quarter. The Money Market Fund 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
4
<PAGE>
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. The U.S. stock market tends to be cyclical, with
periods when stock prices generally rise and periods when prices
generally decline. As of the date of this Prospectus, the stock market,
as measured by the S&P 500 Index (as defined below) and other commonly
used indices, was trading at or close to record levels. There can be no
guarantee that these levels will continue. Certain of the Funds may
invest in securities of smaller and newer issuers. Investments in such
companies may present greater opportunities for capital appreciation
because of high potential earnings growth, but also present greater
risks than investments in more established companies with longer
operating histories and greater financial capacity. 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
(as defined below), 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 International Growth 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 International Growth 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
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."
5
<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 Prime Nations Value Nations Equity
SHAREHOLDER TRANSACTION EXPENSES Fund Fund Income Fund
<S> <C> <C> <C>
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
Redemption Fees Payable to the Fund2 None None None
<CAPTION>
Nations Capital
SHAREHOLDER TRANSACTION EXPENSES Growth 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
Redemption Fees Payable to the Fund2 None
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
net assets)
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .16% .75% .67%
Rule 12b-1 Fees (including shareholder servicing fees) .10% .25% .25%
Other Expenses .39% .19% .22%
Total Operating Expenses (After Fee Waivers) .65% 1.19% 1.14%
<CAPTION>
Management Fees (After Fee Waivers) .75%
Rule 12b-1 Fees (including shareholder servicing fees) .25%
Other Expenses .21%
Total Operating Expenses (After Fee Waivers) 1.21%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Nations Small
Nations Emerging Company Growth
SHAREHOLDER TRANSACTION EXPENSES Growth Fund Fund
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) None None
Maximum Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 None None
Redemption Fees Payable to the Fund2 1.00% 1.00%
<CAPTION>
Nations
Disciplined
SHAREHOLDER TRANSACTION EXPENSES Equity 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
Redemption Fees Payable to the Fund2 1.00%
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
net assets)
<TABLE>
<S> <C> <C>
Management Fees (After Fee Waivers) .75% .75%
Rule 12b-1 Fees (including shareholder servicing fees) .25% .25%
Other Expenses .23% .20%
Total Operating Expenses (After Fee Waivers) 1.23% 1.20%
<CAPTION>
Management Fees (After Fee Waivers) .75%
<S> <C>
Rule 12b-1 Fees (including shareholder servicing fees) .25%
Other Expenses .25%
Total Operating Expenses (After Fee Waivers) 1.25%
</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 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months. See
"How To Redeem Shares -- Redemption Fee."
6
<PAGE>
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations
International International Nations Emerging
SHAREHOLDER TRANSACTION EXPENSES Equity Fund Growth Fund Markets Fund
<S> <C> <C> <C>
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
Redemption Fees Payable to the Fund2 1.00% 1.00% 1.00%
<CAPTION>
Nations Pacific
SHAREHOLDER TRANSACTION EXPENSES Growth 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
Redemption Fees Payable to the Fund2 1.00%
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
net assets)
<TABLE>
<S> <C> <C> <C>
Management Fees .90% .90% 1.10%
Rule 12b-1 Fees (including shareholder servicing fees) .25% .25% .25%
Other Expenses .26% .22% .64%
Total Operating Expenses 1.41% 1.37% 1.99%
<CAPTION>
Management Fees .90%
<S> <C>
Rule 12b-1 Fees (including shareholder servicing fees) .25%
Other Expenses .52%
Total Operating Expenses 1.67%
</TABLE>
1 Certain Investor A Shares purchased in the amount of $1,000,000 or more are
subject to a Deferred Sales Charge if redeemed within one year of purchase.
See "How To Redeem Shares -- Contingent Deferred Sales Charge."
2 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months. See
"How To Redeem Shares -- Redemption Fee."
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations
Managed Nations Managed
Nations Managed SmallCap Index Managed Value SmallCap Value
SHAREHOLDER TRANSACTION EXPENSES Index Fund Fund Index Fund Index 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
Redemption Fees Payable to the Fund2 1.00% 1.00% 1.00% 1.00%
<CAPTION>
Nations Global
Government
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
Redemption Fees Payable to the Fund2 1.00%
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .30% .30% .30% .30%
Rule 12b-1 Fees (including shareholder
servicing fees) .25% .25% .25% .25%
Other Expenses .20% .20% .20% .20%
Total Operating Expenses (After Fee Waivers) .75% .75% .75% .75%
<CAPTION>
Management Fees (After Fee Waivers) .70%
Rule 12b-1 Fees (including shareholder
servicing fees) .25%
Other Expenses .56%
Total Operating Expenses (After Fee Waivers) 1.51%
</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 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months. See
"How To Redeem Shares -- Redemption Fee."
7
<PAGE>
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
Redemption Fees Payable to the Fund2 None 1.00% 1.00% 1.00%
<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
Redemption Fees Payable to the Fund2 1.00%
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
net assets)
<TABLE>
<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 .25% .22% .30% .20%
Total Operating Expenses (After Fee Waivers) .75% .82% 1.05% .90%
Management Fees (After Fee Waivers) .50%
Rule 12b-1 Fees (including shareholder
servicing fees) (After Fee Waivers) .25%
Other Expenses .25%
Total Operating Expenses (After Fee Waivers) 1.00%
</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 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months. See
"How To Redeem Shares -- Redemption Fee."
3 Shareholder servicing fees for Nations Short-Term Income Fund are paid
pursuant to a separate Shareholder Servicing Plan. See "Shareholder Servicing
And Distribution Plans."
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations Value Nations Equity Nations Capital
Nations Prime Fund Fund Income Fund Growth Fund
<S> <C> <C> <C> <C>
1 Year $ 7 $ 12 $ 12 $ 12
3 Years $ 21 $ 38 $ 36 $ 38
5 Years $ 36 $ 65 $ 63 $ 66
10 Years $ 81 $ 144 $ 139 $ 147
<CAPTION>
Nations Emerging
Growth Fund
1 Year $ 13
3 Years $ 39
5 Years $ 68
10 Years $ 149
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Small Disciplined International International
Company Growth Fund Equity Fund Equity Fund Growth Fund
<S> <C> <C> <C> <C>
1 Year $ 12 $ 13 $ 14 $ 14
3 Years $ 38 $ 40 $ 45 $ 43
5 Years $ 66 $ 69 $ 77 $ 75
10 Years $ 145 $ 151 $ 169 $ 165
<CAPTION>
Nations
Emerging
Markets Fund
1 Year $ 20
3 Years $ 62
5 Years $ 107
10 Years $ 232
</TABLE>
<TABLE>
<CAPTION>
Nations Pacific Nations Managed Nations Managed Nations Managed
Growth Fund Index Fund SmallCap Index Fund Value Index Fund
<S> <C> <C> <C> <C>
1 Year $ 17 $ 8 $ 8 $ 8
3 Years $ 53 $ 24 $ 24 $ 24
5 Years $ 91 $ 42 $ 42 N/A
10 Years $ 198 $ 93 $ 93 N/A
<CAPTION>
Nations Managed
SmallCap Value
Index Fund
1 Year $ 8
3 Years $ 24
5 Years N/A
10 Years N/A
</TABLE>
<TABLE>
<CAPTION>
Nations Global Nations Short- Nations Short-
Government Term Income Intermediate Nations Government
Income Fund Fund Government Fund Securities Fund
<S> <C> <C> <C> <C>
1 Year $ 15 $ 8 $ 8 $ 11
3 Years $ 48 $ 24 $ 26 $ 33
5 Years $ 82 $ 42 $ 46 $ 58
10 Years $ 180 $ 93 $ 101 $ 128
<CAPTION>
Nations Strategic Nations Diversified
Fixed Income Fund Income Fund
1 Year $ 9 $ 10
3 Years $ 29 $ 32
5 Years $ 50 $ 55
10 Years $ 111 $ 122
</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. 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/or
reimbursements will continue. In particular, to the extent other expenses are
less than expected, waivers and/or reimbursements of management fees, if any,
may decrease. Shareholders will be notified of any decrease that materially
increases Total Operating Expenses. 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."
9
<PAGE>
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for
Investor A Shares of the indicated Fund would have been as follows: Nations
Prime Fund -- .20% and .69%, respectively; Nations Small Company Growth
Fund -- 1.00% and 1.45%, respectively; Nations Managed Index Fund -- .50% and
.95%, respectively; Nations Managed SmallCap Index Fund -- .50%, and .95%,
respectively ; Nations Managed Value Index -- .50% and .95%, respectively; and
Nations Managed SmallCap Value Index Fund -- .50% and .95%, respectively. Absent
fee waivers, "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 1.07%, respectively;
Nations Strategic Fixed Income Fund -- .60%, .25% and 1.05%, respectively.
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for
Investor A Shares of the indicated Fund would have been: Nations Government
Securities Fund -- .64% and 1.19%, respectively; and Nations Diversified Income
Fund -- .60% and 1.10%, 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 financial information on the following pages has been derived from the
audited financial statements of Nations Fund Trust, Nations Fund, Inc., and
Nations Fund Portfolios, Inc. Price Waterhouse LLP is the independent accountant
to Nations Fund Trust, Nations Fund, Inc., and Nations Fund Portfolios, Inc. The
reports of Price Waterhouse LLP for the most recent fiscal years of Nations Fund
Trust, Nations Fund, Inc., and Nations Fund Portfolios, 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. Financial Highlights for Nations Managed
Value Index Fund and Nations Managed SmallCap Value Index Fund are not provided
below because neither Fund had yet commenced operations during the period
indicated below.
Information for Investor A Shares of Nations International Growth Fund and
Nations Small Company Growth Fund has been derived from the audited financial
statements dated May 16, 1997 for the Class A Shares of The Pilot Funds' Pilot
International Equity Fund and Pilot Small Capitalization Equity Fund, the
predecessor funds to Nations International Growth Fund and Nations Small Company
Growth Fund, respectively. This information has been audited by Arthur Andersen
LLP and is provided to help you understand the historical performance of the
Funds and their predecessors. The reports of Arthur Andersen LLP accompany the
financial statements dated May 16, 1997 and are incorporated by reference in the
SAI, which is available upon request.
10
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THIS PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92
<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 0.0485 0.0438 0.0475 0.0283 0.0293 0.0470
Dividends from net investment
income (0.0485) (0.0438) (0.0475) (0.0283) (0.0293) (0.0470)
Total dividends and
distributions (0.0485) (0.0438) (0.0475) (0.0283) (0.0293) (0.0470)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.96% 4.48% 4.85% 2.86% 2.97% 4.81%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $1,157,724 $1,099,490 $ 698,358 $ 511,833 $ 306,376 $ 281,101
Ratio of operating expenses to
average net assets 0.65% 0.65%+ 0.75% 0.65% 0.65% 0.65%
Ratio of net investment income
to average net assets 4.86% 5.27%+ 4.78% 2.85% 2.90% 4.67%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 0.70% 0.72%+ 0.83% 0.72% 0.71% 0.77%
Net investment income per
share without waivers and/or
expense reimbursements $ 0.0481 $ 0.0433 $ 0.0467 $ 0.0276 $ 0.0287 $ 0.0458
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 5/31/91*
Operating performance:
Net asset value, beginning of
period $ 1.00
Net investment income 0.0617
Dividends from net investment
income (0.0617)
Total dividends and
distributions (0.0617)
Net asset value, end of period $ 1.00
Total return++ 7.31%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 144,202
Ratio of operating expenses to
average net assets 0.65%+
Ratio of net investment income
to average net assets 6.69%+
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 $ 0.0603
</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.
11
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C> <C> <C>
Operating
performance:
Net asset value,
beginning of
period $ 16.60 $ 16.21 $ 12.98 $ 13.72 $ 12.45 $ 11.16
Net investment
income 0.21 0.05 0.23 0.20 0.22 0.26
Net realized and
unrealized
gain/(loss) on
investments 2.70 1.06 3.92 (0.20) 1.35 1.59
Net
increase/(decrease)
in net asset value
from operations 2.91 1.11 4.15 0.00 1.57 1.85
Distributions:
Dividends from net
investment income (0.22) (0.10) (0.25) (0.20) (0.21) (0.27)
Distributions from
net realized
capital gains (1.42) (0.62) (0.67) (0.54) (0.09) (0.29)
Total dividends and
distributions (1.64) (0.72) (0.92) (0.74) (0.30) (0.56)
Net asset value, end
of period $ 17.87 $ 16.60 $ 16.21 $ 12.98 $ 13.72 $ 12.45
Total return++ 17.80% 7.07% 34.22% (0.17)% 12.80% 16.96%+++
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 70,305 $ 54,341 $ 48,440 $ 35,445 $ 32,607 $ 24,536
Ratio of operating
expenses to
average net assets 1.22%(c) 1.21%+ 1.19% 1.18% 1.21% 1.06%
Ratio of net
investment income
to average net
assets 1.26% 1.05%+ 1.65% 1.60% 1.73% 2.15%
Portfolio turnover
rate 47% 12% 63% 75% 64% 60%
Ratio of operating
expenses to
average net assets
without waivers
and/or expense
reimbursements 1.22%(c) 1.21%+ 1.19% 1.18% 1.22% 1.15%
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.21%(c) $ 0.05 $ 0.23 $ 0.21 $ 0.22 $ 0.25
Average commission
rate paid (b) $ 0.0649 $ 0.0648 N/A N/A N/A N/A
<CAPTION>
YEAR PERIOD
ENDED ENDED
INVESTOR A SHARES 11/30/91 11/30/90*
Operating
performance:
Net asset value,
beginning of
period $ 9.71 $ 10.04
Net investment
income 0.34 0.35
Net realized and
unrealized
gain/(loss) on
investments 1.47 (0.36)
Net
increase/(decrease)
in net asset value
from operations 1.81 (0.01)
Distributions:
Dividends from net
investment income (0.36) (0.32)
Distributions from
net realized
capital gains -- --
Total dividends and
distributions (0.36) (0.32)
Net asset value, end
of period $ 11.16 $ 9.71
Total return++ 18.79%+++ (0.16)%+++
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 13,514 $ 7,020
Ratio of operating
expenses to
average net assets 0.53% 0.21%+
Ratio of net
investment income
to average net
assets 3.33% 4.19%+
Portfolio turnover
rate 51% 24%
Ratio of operating
expenses to
average net assets
without waivers
and/or expense
reimbursements 0.99% 1.11%+
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.30 $ 0.26
Average commission
rate paid (b) N/A 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
12
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96 (a) 05/31/95 05/31/94 05/31/93 05/31/92
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 13.11 $ 11.78 $ 11.41 $ 12.02 $ 11.40 $ 10.19
Net investment income 0.36 0.27 0.40 0.37 0.34 0.29
Net realized and unrealized
gain on investments 1.58 1.77 1.10 0.21 1.05 1.27
Net increase in net asset
value from operations 1.94 2.04 1.50 0.58 1.39 1.56
Distributions:
Dividends from net investment
income (0.38) (0.34) (0.40) (0.38) (0.32) (0.28)
Distributions from net
realized capital gains (2.41) (0.37) (0.73) (0.81) (0.45) (0.07)
Total dividends and
distributions (2.79) (0.71) (1.13) (1.19) (0.77) (0.35)
Net asset value, end of period $ 12.26 $ 13.11 $ 11.78 $ 11.41 $ 12.02 $ 11.40
Total return++ 15.30% 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) $ 47,891 $ 42,606 $ 35,538 $ 33,691 $ 32,760 $ 3,418
Ratio of operating expenses to
average net assets 1.16%(c) 1.15%+ 1.17% 1.19% 1.17% 1.35%
Ratio of net investment income
to average net assets 2.84% 2.59%+ 3.50% 3.16% 3.12% 2.90%
Portfolio turnover rate 102% 59% 158% 116% 55% 84%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.16%(c) 1.15%+ 1.18% 1.20% 1.29% 2.46%
Net investment income/(loss)
per share without waivers
and/or expense
reimbursements $ 0.36(c) $ 0.27 $ 0.40 $ 0.37 $ 0.33 $ 0.18
Average commission rate paid
(b) $ 0.0609 $ 0.0287 N/A N/A N/A N/A
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/91*
Operating performance:
Net asset value, beginning of
period $ 10.04
Net investment income 0.05
Net realized and unrealized
gain on investments 0.10
Net increase in net 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/(loss)
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 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
13
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97## 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 13.41 $ 14.22 $ 11.21 $ 11.06 $ 10.67
Net investment income/(loss) 0.02 0.01 0.06 0.07 0.07
Net realized and unrealized gain
on investments 1.65 0.38 3.28 0.14 0.41
Net increase in net asset value
from operations 1.67 0.39 3.34 0.21 0.48
Distributions:
Dividends from net investment
income (0.02) (0.01) (0.07) (0.06) (0.08)
Distributions from net realized
capital gains (3.39) (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (3.41) (1.20) (0.33) (0.06) (0.09)
Net asset value, end of period $ 11.67 $ 13.41 $ 14.22 $ 11.21 $ 11.06
Total return++ 11.58% 3.02% 30.70% 1.93% 4.56%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 20,465 $ 18,311 $ 16,770 $ 11,038 $ 11,182
Ratio of operating expenses to
average net assets 1.21%(d) 1.21%+ 1.23% 1.15% 1.05%
Ratio of net investment
income/(loss) to average net
assets 0.14% 0.13%+ 0.46% 0.60% 0.59%
Portfolio turnover rate 75% 25% 80% 56% 81%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.21% 1.21%+ 1.23% 1.16% 1.14%
Net investment income/(loss) per
share without waivers and/or
expense reimbursements $ 0.02 $ 0.01 $ 0.06 $ 0.07 $ 0.06
Average commission rate paid (c) $ 0.0604 $ 0.0632 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of
period $ 10.00
Net investment income/(loss) 0.01
Net realized and unrealized gain
on investments 0.66#
Net increase in net 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.
## 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
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.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
14
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96#(a) 11/30/95 11/30/94#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.91 $ 14.17 $ 11.35 $ 10.85
Net investment income/(loss) (0.07) (0.01) (0.01) (0.06)
Net realized and unrealized gain on investments 0.19 1.25 3.23 0.70
Net increase in net asset value from operations 0.12 1.24 3.22 0.64
Distributions:
Distributions from net realized capital gains (1.34) (1.50) (0.40) (0.14)
Total dividends and distributions (1.34) (1.50) (0.40) (0.14)
Net asset value, end of period $ 12.69 $ 13.91 $ 14.17 $ 11.35
Total return++ 0.18% 9.80% 29.65% 5.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 12,126 $ 7,802 $ 5,765 $ 3,234
Ratio of operating expenses to average net
assets 1.23%(c) 1.24%+ 1.23% 1.26%
Ratio of net investment income/(loss) to
average net assets (0.51)% (0.31)%+ (0.17)% (0.54)%
Portfolio turnover rate 93% 39% 139% 129%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursement 1.23%(c) 1.24%+ 1.23% 1.26%
Net investment income/(loss) per share without
waivers and/or expense reimbursement $ (0.07)(c) $ (0.01) $ (0.01) $ (0.05)
Average commission rate paid (b) $ 0.0562 $ 0.0599 N/A N/A
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.87
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 1.02
Net increase in net 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
15
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS SMALL COMPANY GROWTH FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR A SHARES* 05/16/97 08/31/96(a)
<S> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 10.64 $ 10.00
Net investment income 0.03 0.05
Net realized and unrealized gain on investments and futures 1.46 0.64
Total income from investment activities 1.49 0.69
Distributions from net investment income (0.03) (0.05)
Distributions from Net Realized Gains (0.05) --
Total Distributions (0.08) (0.05)
Net asset value at the end of the period $ 12.05 $ 10.64
Total return (b) 13.98% 6.88%
Ratio of expenses to average net assets 1.23%(c) 1.25%(c)
Ratio of net investment income to average net assets 0.30%(c) 0.66%(c)
Portfolio turnover rate (e) 48% 31%
Net assets at end of period (in 000's) $ 3,697 $ 2,611
Ratio of expenses to average net assets (assuming no waiver or expense
reimbursements) 1.66%(c) 1.65%(c)
Ratio of net investment income to average net assets (assuming no waiver or expense
reimbursements) 0.13%(c) 0.26%(c)
Average Commission Rate (d) $ .0323 $ .0340
</TABLE>
* Investor A Shares of Nations Small Company Growth Fund were formerly Class A
Shares of the Pilot Small Capitalization Equity Fund, a predecessor
portfolio.
(a) Share activity commenced December 12, 1995.
(b) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken for Class
A Shares. Total return is not annualized.
(c) Annualized.
(d) The average commission rate represents the total dollar amount of
commissions paid on portfolio transactions divided by the total number of
portfolio shares purchased and sold for which commissions were charged.
Disclosure is not required for prior periods.
(e) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued.
16
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.16 $ 17.04 $ 13.06 $ 13.30
Net investment income/(loss) 0.08 0.04 0.09 0.00(b)
Net realized and unrealized gain/(loss) on
investments 2.80 0.35 3.96 (0.23)#
Net increase/(decrease) in net asset value from
operations 2.88 0.39 4.05 (0.23)
Distributions:
Dividends from net investment income (0.09) (0.04) (0.07) (0.01)
Distributions from net realized capital gains (1.51) (0.23) -- --
Return of capital -- -- -- (0.00)(b)
Total dividends and distributions: (1.60) (0.27) (0.07) (0.01)
Net asset value, end of period $ 18.44 $ 17.16 $ 17.04 $ 13.06
Total return++ 16.76% 2.35% 31.05% (1.71)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,837 $ 4,722 $ 3,234 $ 252
Ratio of operating expenses to average net
assets 1.29%(d) 1.12%+ 1.40% 1.23%+
Ratio of net investment income/(loss) to
average net assets 0.45% 0.72%+ 0.75% 0.02%+
Portfolio turnover rate 120% 47% 124% 177%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.29% 1.12%+ 1.40% 1.66%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.08 $ 0.04 $ 0.09 $ (0.07)
Average commission rate paid (c) $ 0.0377 $ 0.0627 N/A N/A
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 04/29/94*
Operating performance:
Net asset value, beginning of period $ 14.94
Net investment income/(loss) (0.04)
Net realized and unrealized gain/(loss) on
investments 1.35
Net increase/(decrease) in net 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.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
17
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96(a)# 05/31/95# 05/31/94# 05/31/93*#
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.39 $ 11.67 $ 12.00 $ 10.56 $ 10.38
Net investment income/(loss) 0.05 0.04 0.11 0.06 0.07
Net realized and unrealized gain/(loss)
on investments 0.11 1.78 (0.20) 1.44 0.21
Net increase/(decrease) in net asset
value from operations 0.16 1.82 (0.09) 1.50 0.28
Distributions:
Dividends from net investment income (0.09) (0.04) (0.02) (0.04) (0.08)
Distributions in excess of net
investment income (0.00)(c) (0.04) -- -- --
Distributions from net realized capital
gains (0.42) (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized
capital gains (0.03) -- (0.10) -- --
Total dividends and distributions (0.54) (0.10) (0.24) (0.06) (0.10)
Net asset value, end of period $ 13.01 $ 13.39 $ 11.67 $ 12.00 $ 10.56
Total return++ 1.08% 15.66% (0.69)% 14.00% 2.91%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 9,443 $ 7,643 $ 4,877 $ 3,219 $ 839
Ratio of operating expenses to average
net assets 1.41% 1.42%+ 1.28% 1.42% 1.55%+
Ratio of net investment income/(loss)
to average net assets 0.37% 0.40%+ 0.92% 0.50% 0.78%+
Portfolio turnover rate 36% 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) $ 0.0279 $ 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.
(c) Amount represents less than $0.01 per share.
18
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL GROWTH FUND
<TABLE>
<CAPTION>
EIGHT
PERIOD YEAR YEAR YEAR MONTHS
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES* 05/16/97 08/31/96 08/31/95(i) 08/31/94 08/31/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of
the period $ 16.90 $ 16.14 $ 16.29 $ 14.13 $ 11.85
Net investment income/(loss) (0.05) 0.04 0.08(h) 0.07(h) 0.02(h)
Net realized and unrealized capital
gain/(loss) on investments 2.85 1.69 (0.22)(h) 1.65(h) 2.51(h)
Net realized and unrealized
gain/(loss) on foreign currency
related transactions (c) (0.95) (0.12) 0.39(h) 0.59(h) (0.25)(h)
Total income/(loss) from investment
activities 1.85 1.61 0.25 2.31 2.28
Distributions from net investment
income (0.14) (0.46) (0.11) -- --
Distributions from net realized
gain on investments and foreign
currency related transactions (0.34) (0.39) (0.29) (0.15) --
Net asset value at the end of the
period $ 18.27 $ 16.90 $ 16.14 $ 16.29 $ 14.13
Total return (d) 11.14%(e) 10.40% 1.77% 16.48% 19.24%(e)
Portfolio turnover rate (k) 33.68% 22.31% 35.91% 35.40% 26.65%(g)
Ratio of expenses to average net
assets 1.42%(f) 1.32% 1.42% 1.37% 2.17%(f)
Ratio of net investment
income/(loss) to average net
assets 0.29%(f) 0.48% 0.50% 0.48% 0.25%(f)
Net assets at end of period (in
000's) $ 26,730 $ 26,730 $ 27,625 $ 44,990 $ 55,816
Average Commission Rate (j) $ 0.0107 $ 0.0160 -- -- --
<CAPTION>
YEAR
ENDED
INVESTOR A SHARES* 12/31/92(a)(b)
Operating performance:
Net asset value at the beginning of
the period $ 12.29
Net investment income/(loss) 0.04(h)
Net realized and unrealized capital
gain/(loss) on investments (0.46)(h)
Net realized and unrealized
gain/(loss) on foreign currency
related transactions (c) --
Total income/(loss) from investment
activities (0.42)
Distributions from net investment
income (0.02)
Distributions from net realized
gain on investments and foreign
currency related transactions --
Net asset value at the end of the
period $ 11.85
Total return (d) (3.42)%
Portfolio turnover rate (k) 58.55%
Ratio of expenses to average net
assets 1.78%
Ratio of net investment
income/(loss) to average net
assets 0.35%
Net assets at end of period (in
000's) $ 56,358
Average Commission Rate (j) --
</TABLE>
* Investor A Shares of Nations International Growth Fund were formerly Class A
Shares of the Pilot International Equity Fund, a predecessor portfolio.
(a) Prior to a tax-free reorganization into Pilot Administration shares
effective July 12, 1993, the Pilot Kleinwort Benson International Equity
Portfolio was a separate portfolio of Kleinwort Benson Investment
Strategies known as Kleinwort Benson International Equity Fund. The
predecessor portfolio was advised by Kleinwort Benson International
Investment Limited and had a December 31 fiscal year end.
(b) Prior to July 12, 1993, the Pilot Administration shares were not subject to
an Administration Plan.
(c) For years preceding the fiscal year ended August 31, 1993, net realized and
unrealized gain/(losses) from foreign currency related transactions were
included in net realized and unrealized gain/(losses) from investments.
Effective January 1, 1993, realized and unrealized gain/(losses) from
foreign currency related transactions are disclosed separately from net
realized and unrealized gain/(losses) from investments.
(d) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken for the
Class A Shares.
(e) Not annualized.
(f) Annualized.
(g) Excludes the transfer of assets effective on August 6, 1993 from a
collective trust for which Boatmen's Trust Company served as trustee.
(h) Calculated based on the average shares outstanding methodology.
(i) Effective August 21, 1995 the Administration Class Shares were redesignated
as the Class A Shares.
(j) Represents the total dollar amount of commissions paid on security
transactions divided by total number of security shares purchased and sold
for which commissions were charged. Disclosure is not required for prior
periods.
(k) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued and is not
annualized.
19
<PAGE>
NATIONS INTERNATIONAL GROWTH FUND (CONTINUED)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES* 12/31/91 12/31/90 12/31/89 12/31/88
<S> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of the period $ 12.65 $ 15.58 $ 14.66 $ 13.21
Net investment income 0.06 0.12 0.07 (0.01)
Net realized and unrealized capital gain/(loss) on
investments 1.36 (2.40) 3.22 2.73
Net realized and unrealized gain/(loss) on foreign
currency related transactions (c) -- -- -- --
Total income/(loss) from investments 1.42 (2.28) 3.29 2.72
Distributions from net investment income (0.08) (0.14) (0.22) --
Distributions from net realized gain on investments and
foreign currency related transactions (1.70) (0.51) (2.15) (1.27)
Net asset value at the end of the period $ 12.29 $ 12.65 $ 15.58 $ 14.66
Total return (d) 11.81% (14.77)% 22.99% 21.03%
Portfolio turnover rate (k) 51.88% 52.00% 61.54% 54.84%
Ratio of expenses to average net assets 1.79% 1.82% 2.00% 2.31%
Ratio of net investment income/(loss) to average net
assets 0.45% 0.76% 0.39% (0.07)%
Net assets at end of period (in 000's) $ 65,939 $ 72,007 $ 80,224 $ 59,864
Average Commission Rate (j) -- -- -- --
</TABLE>
* Investor A Shares of Nations International Growth Fund were formerly Class A
Shares of the Pilot International Equity Fund, a predecessor portfolio.
(a) Prior to a tax-free reorganization into Pilot Administration shares
effective July 12, 1993, the Pilot Kleinwort Benson International Equity
Portfolio was a separate portfolio of Kleinwort Benson Investment
Strategies known as Kleinwort Benson International Equity Fund. The
predecessor portfolio was advised by Kleinwort Benson International
Investment Limited and had a December 31 fiscal year end.
(b) Prior to July 12, 1993, the Pilot Administration shares were not subject to
an Administration Plan.
(c) For years preceding the fiscal year ended August 31, 1993, net realized and
unrealized gain/(losses) from foreign currency related transactions were
included in net realized and unrealized gain/(losses) from investments.
Effective January 1, 1993, realized and unrealized gain/(losses) from
foreign currency related transactions are disclosed separately from net
realized and unrealized gain/(losses) from investments.
(d) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken for the
Class A Shares.
(e) Not annualized.
(f) Annualized.
(g) Excludes the transfer of assets effective on August 6, 1993 from a
collective trust for which Boatmen's Trust Company served as trustee.
(h) Calculated based on the average shares outstanding methodology.
(i) Effective August 21, 1995 the Administration Class Shares were redesignated
as the Class A Shares.
(j) Represents the total dollar amount of commissions paid on security
transactions, for the time periods of May 4, 1996 to August 31, 1996,
divided by total number of security shares purchased and sold for which
commissions were charged. Disclosure is not required for prior periods.
(k) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued and is not
annualized.
20
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96*#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.32 $ 10.00
Net investment income/(loss) (0.01) (0.05)
Net realized and unrealized gain on investments 1.21 0.37
Net increase in net asset value from operations 1.20 0.32
Dividends from net investment income (0.02) --
Distributions in excess of net investment income (0.05) --
Distributions from net realized capital gains (0.06) --
Total dividends and distributions (0.13) --
Net asset value, end of period $ 11.39 $ 10.32
Total return++ 11.74% 3.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 894 $ 477
Ratio of operating expenses to average net assets 1.99% 2.38%+
Ratio of net investment income/(loss) to average net assets 0.12% (0.63)%+
Portfolio turnover rate 31% 17%
Averge commission rate paid (a) $ 0.0003 $ 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.
21
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96*#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.23 $ 10.00
Net investment income/(loss) 0.00(a) (0.04)
Net realized and unrealized gain on investments 0.19 0.29
Net increase/(decrease) in net asset value from operations 0.19 0.25
Dividends from net investment income (0.03) --
Distributions in excess of net investment income (0.02) (0.02)
Distributions from net realized capital gains -- --
Distributions in excess of net realized capital gain -- --
Total dividends and distributions (0.05) (0.02)
Net asset value, end of period $ 10.37 $ 10.23
Total return++ 1.86% 2.52%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,480 $ 1,375
Ratio of operating expenses to average net assets 1.67% 2.01%+
Ratio of net investment income/(loss) to average net assets 0.14% (0.52)%+
Portfolio turnover rate 78% 23%
Average commission rate paid (b) $ 0.0126 $ 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 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) Amount represents less than $0.01 per share.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
22
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS MANAGED INDEX FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 03/31/97*
<S> <C>
Net asset value, beginning of period $ 10.00
Net investment income 0.12
Net realized and unrealized gain on investments 1.89
Net increase in net asset value from operations 2.01
Dividends from net investment income (0.12)
Total dividends and distributions (0.12)
Net asset value, end of period $ 11.89
Total return++ 20.12%
Ratio to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,038
Ratio of operating expenses to average net assets 0.75%+(b)
Ratio of net investment income to average net assets 1.67%+
Portfolio turnover rate 17%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.30%+(b)
Net investment income per share without waivers and/or expense reimbursements $ 0.09(b)
Average commission rate paid (a) $ 0.0259
</TABLE>
* Nations Managed Index Fund's Investor A Shares commenced on July 31, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
23
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS MANAGED SMALLCAP INDEX FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 03/31/97*
<S> <C>
Net asset value, beginning of period $ 10.00
Net investment income 0.02
Net realized and unrealized gain/(loss) on investments (0.17)
Net increase/(decrease) in net asset value from operations (0.15)
Dividends from net investment income (0.02)
Distributions in excess of net investment income (0.00)(b)
Total dividends and distributions (0.02)
Net asset value, end of period $ 9.83
Total return++ (1.51)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 86
Ratio of operating expenses to average net assets 1.00%+
Ratio of net investment income to average net assets 0.55%+
Portfolio turnover rate 18%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.71%+
Net investment income per share without waivers and/or expense reimbursements $ 0.00(b)
Average commission rate paid (a) $ 0.0279
</TABLE>
* Nations Managed SmallCap Index Fund's Investor A Shares commenced operations
on October 15, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
(b) Amount represents less than $0.01 per share.
24
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96*#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.07 $ 10.00
Net investment income 0.44 0.37
Net realized and unrealized gain/(loss) on investments (0.02) 0.11
Net increase in net asset value from operations 0.42 0.48
Distributions:
Dividends from net investment income (0.45) (0.35)
Distributions in excess of net investment income (0.09) (0.02)
Distributions from net realized capital gains (0.16) (0.04)
Total dividends and distributions (0.70) (0.41)
Net asset value, end of period $ 9.79 $ 10.07
Total return++ 3.99% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 15,104 $ 14,898
Ratio of operating expenses to average net assets 1.51% 1.57%+
Ratio of net investment income to average net assets 4.35% 4.92%+
Portfolio turnover rate 100% 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.
25
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.76 $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.56 0.19 0.59 0.48 0.51
Net realized and unrealized
gain/(loss) on investments (0.08) (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset
value from operations 0.48 0.11 0.95 (0.03) 0.77
Distributions:
Dividends from net investment income (0.56) (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 (0.56) (0.19) (0.59) (0.50) (0.51)
Net asset value, end of period $ 9.68 $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 5.04% 1.13% 10.29% (0.33)% 8.03%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 6,169 $ 2,810 $ 2,969 $ 2,490 $ 11,205
Ratio of operating expenses to
average net assets 0.75%(a) 0.75%+ 0.76% 0.71% 0.57%
Ratio of net investment income to
average net assets 5.77% 5.87%+ 6.12% 5.02% 5.07%
Portfolio turnover rate 172% 73% 224% 293% 121%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.05% 1.08%+ 1.06% 1.03% 0.99%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.53 $ 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 income method did not accord with the
results of operations.
(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.
26
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96(b)# 11/30/95# 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17
Net investment income 0.22 0.07 0.23 0.22 0.22 0.27
Net realized and
unrealized
gain/(loss) on
investments (0.08) (0.07) 0.21 (0.33) 0.14 (0.01)
Net increase/(decrease)
in net asset value
from operations 0.14 0.00 0.44 (0.11) 0.36 0.26
Distributions:
Dividends from net
investment income (0.22) (0.07) (0.23) (0.22) (0.22) (0.27)
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 (0.22) (0.07) (0.23) (0.24) (0.24) (0.27)
Net asset value, end of
period $ 3.99 $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16
Total return++ 3.51% 0.00%### 11.48% (2.41)% 8.85% 6.61%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 42,468 $ 57,381 $ 64,848 $ 77,128 $ 173,449 $ 188,624
Ratio of operating
expenses to average
net assets 0.83%(c)(d) 0.83%+ 0.80% 0.77% 0.70% 0.48%
Ratio of net investment
income to average net P
assets 5.53% 5.12%+ 5.68% 5.58% 5.25% 6.34%
Portfolio turnover rate 529% 189% 328% 133% 92% 25%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 1.03%(d) 1.06%+ 1.00% 0.98% 0.94% 0.88%
Net investment income
per share without
waivers and/or
expense
reimbursements $ 0.21(d) $ 0.06 $ 0.22 $ 0.21 $ 0.21 $ 0.25
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/91*
<S> <C>
Operating performance:
Net asset value,
beginning of period $ 4.00##
Net investment income 0.10
Net realized and
unrealized
gain/(loss) on
investments 0.17
Net increase/(decrease)
in net 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) $ 53,874
Ratio of operating
expenses to average
net assets 0.08%+
Ratio of net investment
income to average net
assets 7.21%+
Portfolio turnover rate 11%
Ratio of operating
expenses to average
net assets 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 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.
(c) The effect of interest expense on the operating expense ratio was less
than 0.01%.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
27
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96(b)# 05/31/95# 05/31/94 05/31/93# 05/31/92
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 9.67 $ 9.86 $ 9.80 $ 10.46 $ 10.36 $ 10.05
Net investment income 0.58 0.50 0.61 0.62 0.66 0.71
Net realized and unrealized
gain/(loss) on investments (0.30) (0.19) 0.06 (0.61) 0.16 0.38
Net increase in net asset
value from operations 0.28 0.31 0.67 0.01 0.82 1.09
Distributions:
Dividends from net investment
income (0.56) (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 (0.00)(a) -- (0.04) (0.04) -- --
Total dividends and
distributions (0.56) (0.50) (0.61) (0.67) (0.72) (0.78)
Net asset value, end of period $ 9.39 $ 9.67 $ 9.86 $ 9.80 $ 10.46 $ 10.36
Total return++ 2.92% 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) $ 9,852 $ 11,662 $ 10,928 $ 14,044 $ 15,354 $ 3,326
Ratio of operating expenses to
average net assets 1.05% 1.05%+ 1.01% 0.90% 1.00% 1.31%
Ratio of net investment income
to average net assets 6.03% 6.11%+ 6.44% 5.91% 6.52% 6.90%
Portfolio turnover rate 468% 199% 413% 56% 103% 130%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.19% 1.20%+ 1.19% 1.11% 1.15% 1.97%
Net investment income per
share without waivers and/or
expense reimbursements $ 0.57 $ 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 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.
(a) Amount represents less than $0.01.
(b) Fiscal year ended changed to March 31. Prior to this, the fiscal year ended
was May 31.
28
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 9.93 $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.56 0.18 0.57 0.51 0.54
Net realized and unrealized
gain/(loss) on investments (0.20) (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net
asset value from operations 0.36 (0.11) 1.47 (0.38) 1.16
Distributions:
Dividends from net investment
income (0.56) (0.18) (0.57) (0.49) (0.54)
Distributions in excess of net
investment income -- -- -- (0.02) --
Distributions from net realized
capital gains (0.11) -- -- (0.34) (0.01)
Distributions from capital (0.00)(b) -- -- -- --
Total dividends and distributions (0.67) (0.18) (0.57) (0.85) (0.55)
Net asset value, end of period $ 9.62 $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ 3.70% (1.11)% 16.22% (3.76)% 11.88%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 6,345 $ 6,440 $ 6,662 $ 967 $ 1,138
Ratio of operating expenses to
average net assets 0.91%(c) 0.92%+ 0.91% 0.86% 0.76%
Ratio of net investment income to
average net assets 5.78% 5.29%+ 5.85% 5.25% 5.25%
Portfolio turnover rate 368% 133% 228% 307% 161%
Ratio of operating expenses to
average net assets without
waivers
and/or expense reimbursements 1.01%(c) 1.03%+ 1.01% 0.94% 0.92%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.55(c) $ 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 --
Distributions from capital --
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.
# 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
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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
29
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96(b) 11/30/95 11/30/94# 11/30/93#
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 10.42 $ 10.82 $ 9.67 $ 10.88 $ 9.96
Net investment income 0.66 0.22 0.71 0.72 0.76
Net realized and unrealized
gain/(loss) on investments (0.18) (0.40) 1.15 (1.06) 0.92
Net increase/(decrease) in net
asset value from operations 0.48 (0.18) 1.86 (0.34) 1.68
Distributions:
Dividends from net investment
income (0.66) (0.22) (0.71) (0.72) (0.76)
Distributions in excess of net
investment income -- -- -- (0.00)(a) --
Distributions from net realized
capital gains (0.13) -- -- (0.15) --
Total dividends and distributions (0.79) (0.22) (0.71) (0.87) (0.76)
Net asset value, end of period $ 10.11 $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ 4.71% (1.67)% 19.82% (3.26)% 17.32%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 11,662 $ 13,332 $ 13,150 $ 10,819 $ 13,291
Ratio of operating expenses to
average net assets 1.00%(c) 1.02%+ 1.05% 0.96% 0.70%
Ratio of net investment income to
average net assets 6.48% 6.24%+ 6.78% 7.09% 6.87%
Portfolio turnover rate 278% 69% 96% 144% 86%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.10%(c) 1.12%+ 1.18% 1.17% 1.10%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.66(c) $ 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 income 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
30
<PAGE>
Objectives
MONEY MARKET FUND:
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.
EQUITY FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek current
income and growth of capital by investing primarily in companies with above
average dividend yields.
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 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 SMALL COMPANY GROWTH FUND: Nations Small Company Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities.
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 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 regions, including developing countries.
NATIONS INTERNATIONAL GROWTH FUND: Nations International Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of companies domiciled in countries outside the United
States and listed on major stock exchanges primarily in Europe and the Pacific
Basin.
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 market 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).
INDEX FUNDS:
NATIONS MANAGED INDEX FUND: Nations Managed Index Fund's investment objective is
to seek, over the long-term, to provide a total return which (gross of fees and
expenses) exceeds the total return of the Standard & Poor's 500 Composite Stock
Price Index.
NATIONS MANAGED SMALLCAP INDEX FUND: Nations Managed SmallCap Index Fund's
investment objective is to seek, over the long-term, to provide a total return
which (gross of fees and expenses) exceeds the total return of the Standard &
Poor's SmallCap 600 Index.
NATIONS MANAGED VALUE INDEX FUND: Nations Managed Value Index Fund's investment
objective is to seek, over the long-term, to provide a total return that (gross
of fees and expenses) exceeds the total return of the S&P 500/BARRA Value Index.
31
<PAGE>
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: Nations Managed SmallCap Value Index
Fund's investment objective is to seek, over the long-term, to provide a total
return that (gross of fees and expenses) exceeds the total return of the S&P
SmallCap 600/BARRA Value Index.
BOND FUNDS:
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to seek total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests 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 high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-term
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 investing in investment grade
fixed income securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
Although the Adviser of the Funds 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.
How Objectives Are Pursued
MONEY MARKET FUND:
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 (together, with U.S. Treasury Obligations, "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 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. In addition, the Fund may
lend its portfolio securities to qualified institutional investors. Although the
Fund is permitted to invest a portion of its assets in second tier securities
(as defined below) in accordance with Rule 2a-7 under the Investment Company Act
of 1940, as amended (the "1940 Act"), the Fund invests only in first tier
securities (as defined
32
<PAGE>
below). For more information concerning these instruments, see "Appendix A."
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Money Market
Fund to value its 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
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days, 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 nationally recognized statistical rating
organizations ("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, 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.
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
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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 Standard & Poor's Corporation ("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 also may invest in various money market instruments and repurchase
agreements. 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 provided by the stocks in the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index")1 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 character-
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation.
34
<PAGE>
istics, 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 and repurchase
agreements. 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 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 and repurchase
agreements. 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 equity securities,
consisting of common stocks, preferred stocks and convertible securities, such
as warrants, rights 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
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<PAGE>
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 and repurchase agreements. 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 greater 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, it may invest up to
20% of its total assets in foreign securities.
NATIONS SMALL COMPANY GROWTH FUND: In pursuing its investment objective, under
normal circumstances, the Fund will invest at least 65% of its total assets in
equity securities, consisting of common stocks, preferred stocks and convertible
securities, such as warrants, rights and convertible debt. In addition, the Fund
will invest at least 65% of its total assets in companies with a market
capitalization of $1 billion or less.
In making investment decisions for the Fund, the Adviser, on a quarterly basis,
classifies approximately 6,000 companies by market value and eliminates the
largest 20%. The remaining companies constitute the Fund's small-capitalization
universe and generally represent only one-tenth of the aggregate U.S. equity
market capitalization. Due to the large number of small stocks to choose from,
the Adviser's selection process uses advanced quantitative techniques to
identify, buy and sell candidates in a timely and objective manner. The strategy
is to own those investments offering both attractive fundamental valuation and
relatively good prospects for earnings improvement. Typically, two types of
companies are candidates for purchase: (i) mature companies which may have
fallen from a larger market value due to business difficulties, but which now
exhibit improving prospects; and (ii) smaller or younger companies which are
experiencing strong trends in earnings growth, but remain reasonably valued and
therefore offer premium growth at a discount in comparison to other companies.
The Adviser's internally designed investment approach uses a sophisticated
valuation process which measures changes in current earnings estimates and
longer-term growth trends, compares recent earnings results with market
expectations, and evaluates a company's earnings power relative to its stock
price. Companies become purchase candidates based upon a composite ranking of
these factors, and the top 20% are further evaluated on additional criteria.
Candidates for investment must also possess a sound financial structure and
demonstrate consistent factor rankings before being added to the Fund's
portfolio.
The Fund's weighted median capitalization generally is not expected to exceed
125% of the weighted median capitalization of the Russell 2000 Small Stock Index
(the "Russell 2000") as measured on a quarterly basis, although this may vary
from time to time. Furthermore, a stock may be sold if the composite rank falls
into the bottom 20% of the universe, financial quality
36
<PAGE>
weakens significantly, or if individual factors demonstrate patterns of
deterioration.
The Fund may invest up to 35% of its total assets in securities of issuers with
a market capitalization greater than $1 billion and in debt securities. However,
the Fund will not invest more than 10% of its total assets in debt securities,
unless the Fund assumes a temporary defensive position as discussed below. Debt
securities, if any, purchased by the Fund will be rated AA or above by S&P or Aa
or above by Moody's or, if unrated, determined by the Adviser to be of
comparable quality. For temporary defensive purposes, the Fund may invest up to
100% of its assets in debt securities. Debt securities in which the Fund may
invest include short-term and intermediate-term obligations of corporations, the
U.S. and foreign governments and international organizations (such as the World
Bank), and money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending and repurchase agreements. The Fund currently intends to
limit any investment in foreign securities to 5% of total assets.
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 the Fund, the Adviser utilizes quantitative analysis and
optimization tools. This approach seeks to identify companies with improving
profit potential through analysis of 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. The quantitative analysis also includes ranking the attractiveness
of equity securities according to a multi-factor valuation model. Both value and
growth factors are considered in the ranking process. Value factors such as book
value, earnings yield and cash flow measure a stock's intrinsic worth versus its
market price, while growth characteristics such as price momentum, earnings
growth and earnings acceleration measure a stock relative to others in the same
industry. The objective is to maintain a broadly diversified portfolio which
ranks in the top quartile on earnings momentum and in the top third on
valuation. This approach generally produces a dividend yield less than the
market average. Although this Fund seeks to invest in attractively priced
securities with increasing earnings, its investment objective focuses on
long-term capital appreciation; income is not an objective of this 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.
securi-
37
<PAGE>
ties 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, money
market instruments and repurchase agreements.
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"), Global
Depositary Receipts ("GDRs"), 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 defensive purposes, the Fund may temporarily
invest substantially all of its assets in U.S. financial markets or in U.S.
dollar-denominated instruments.
NATIONS INTERNATIONAL GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in foreign equity securities listed on major exchanges, consisting of common
stocks, preferred stocks, convertible securities, such as warrants, rights and
convertible debt. The Fund may purchase the stock of small-, mid-and large-
capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Directors, the former Soviet Union and the
Middle East. Debt securities, if any, purchased by the Fund will be rated in the
top two categories by an NRSRO or, if unrated, determined by the Adviser to be
of comparable quality. For temporary defensive purposes, the Fund may invest up
to 100% of its assets in debt and equity securities of U.S. issuers. Debt
securities in which the Fund may invest include short-term and intermediate-term
obligations of corporations, foreign governments and international organizations
(such as the International Bank for Reconstruction and Development (the "World
Bank")), including money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements. The Fund also 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.
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.
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<PAGE>
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 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 market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the 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, 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
International Growth 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.
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
39
<PAGE>
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
International Growth 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.
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 and may invest in repurchase agreements,
restricted, private placement and other illiquid securities. In addition, each
Equity Fund also may invest in real estate investment trust securities and may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies. Nations International Equity Fund,
Nations International Growth Fund, Nations Pacific Growth Fund and Nations
Emerging Markets Fund may invest in forward foreign exchange contracts. For more
information concerning these and other investments in which the Funds may invest
and their investment practices, see "Appendix A."
INDEX FUNDS:
NATIONS MANAGED INDEX FUND: In seeking to achieve its investment objective, the
Fund will invest in selected equity securities that are included in the S&P 500
Index. The S&P 500 Index is a market capitalization weighted index
40
<PAGE>
consisting of 500 common stocks chosen for market size, liquidity and industry
group representation.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P 500 Index while minimizing
the downside risk of underperforming the S&P 500 Index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index. The
Adviser ranks the attractiveness of each security according to a multi-factor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration view a stock relative to others in the same industry. A second
quantitative model which measures the earnings momentum of each security is
added to the screening process to serve as a validity check in the portfolio
construction process. Each stock is assigned a ranking from 1 to 10 (best to
worst). The Adviser then either underweights or eliminates the less attractive
securities and modestly emphasizes the most attractive stocks resulting in a
portfolio of 300 to 400 holdings that capture the investment characteristics of
the S&P 500 Index.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical and, in any event at least 80% of its total
assets, in common stocks which are included in the S&P 500 Index. The Fund is
expected, however, to maintain a 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 Obligations and
repurchase agreements.
NATIONS MANAGED SMALLCAP INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the Standard & Poor's SmallCap 600 Index (the "S&P 600 Index")2. The S&P 600
Index is a market capitalization weighted index consisting of 600 domestic
stocks which capture the economic and industry characteristics of small stock
performance. Most of these stocks are listed on either the New York, American or
NASDAQ stock exchanges.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P 600 Index while minimizing
the downside risk of underperforming the S&P 600 Index over time.
From the initial S&P 600 Index stock universe the Adviser ranks the
attractiveness of each security according to a multi-factor valuation model.
Both value and momentum factors are considered in the ranking process. Value
factors such as book value, earnings yield and cash flow measure a stock's
intrinsic worth versus its market price, while momentum characteristics such as
price momentum, earnings growth and earnings acceleration measure a stock
relative to others in the same industry. A second quantitative model which
measures the earnings momentum of each security is added to the screening
process to serve as a validity check in the portfolio construction process. Each
stock is assigned a ranking from 1 to 10 (best to worst). The Adviser then
either underweights or eliminates the less attractive securities and modestly
emphasizes the most attractive stocks resulting in a portfolio of approximately
400-500 holdings that capture the investment characteristics of the S&P 600
Index.
Under normal conditions, substantially all of the Fund's assets, and, in any
event at least 80% of its total assets, will be invested in common
(2) "Standard & Poor's SmallCap 600"
is a registered service mark of
S&P.
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stocks which are included in the S&P 600 Index. The Fund is expected, however,
to maintain a 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 Obligations and repurchase agreements.
NATIONS MANAGED VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P 500/BARRA Value Index ("S&P/BARRA Value Index"). The S&P/BARRA Value
Index is a subset of the S&P 500 Index. The S&P 500 Index is a market
capitalization weighted index consisting of 500 common stocks chosen for market
size, liquidity and industry group representation. The S&P/BARRA Value Index is
a market capitalization weighted index consisting of approximately 340 common
stocks selected from the S&P 500 Index on the basis of a higher than average
price-to-book ratio. Because of their higher than average price-to-book ratios,
stocks in the S&P/BARRA Value Index, on average, typically exhibit higher yields
than stocks in the S&P 500 Index. Historically, stocks in the S&P/BARRA Value
Index, on average, have exhibited less short-term volatility than stocks in the
S&P 500 Index.
S&P constructs in the S&P/BARRA Value Index semi-annually by ranking all common
stocks included in the S&P 500 Index by their price-to-book ratios. The
resulting list is then divided in half by market capitalization. Stocks in the
half of the list that have higher price-to-book ratios are included in the
S&P/BARRA Value Index.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity value index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA Value Index while
reducing the downside risk of underperforming the S&P/BARRA Value Index over
time.
The initial stock universe considered by the Adviser is the S&P/BARRA Value
Index. The Adviser ranks the attractiveness of each security according to a
multi-factor valuation model. Although the universe consists exclusively of
value stocks, both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration are useful in determining a stock's value in relation to lenders in
the same industry. A second quantitative model which measures the earnings
momentum of each security is added to the screening process to serve as a
validity check in the portfolio construction process. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweights or
eliminates the less attractive securities and modestly emphasizes the most
attractive stocks resulting in a portfolio of 100 to 200 holdings that capture
the overall investment characteristics of the S&P/BARRA Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets, in common stocks which are included in the S&P/BARRA Value Index. The
Fund is expected, however, to maintain a 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 Obligations and
repurchase agreements.
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P SmallCap 600/BARRA Value Index ("S&P/BARRA SmallCap Value Index").
The S&P/BARRA SmallCap Value Index is a subset of the S&P 600 Index.
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The S&P 600 Index is a market capitalization weighted index consisting of 600
domestic stocks which capture the economic and industry characteristics of small
stock performance. The S&P/BARRA SmallCap Value Index is a market capitalization
weighted index consisting of approximately 375 companies selected from the S&P
600 Index on the basis of price-to-book ratios. Those companies with lower
price-to-book ratios make up the S&P/BARRA SmallCap Value Index. The S&P/BARRA
SmallCap Value Index is rebalanced semi-annually to reflect changes in the S&P
600 Index.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser,
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA SmallCap Value Index
while reducing the downside risk of underperforming the S&P/BARRA SmallCap Value
Index over time.
The initial stock universe considered by the Adviser is the S&P/BARRA SmallCap
Value Index. The Adviser ranks the attractiveness of each security according to
a multi-factor valuation model. Although the universe consists exclusively of
value stocks, both value and momentum factors are considered in the ranking
process. Value factors are considered in the ranking process. Value factors such
as book value, earnings yield and cash flow measure a stock's intrinsic worth
versus its market price, while momentum characteristics such as price momentum,
earnings growth and earnings acceleration are useful in determining a stock's
value in relation to others in the same industry. A second quantitative model
which measures the earnings momentum of each security is added to the screening
process to serve as a validity check in the portfolio construction process. Each
stock is assigned a ranking from 1 to 10 (best to worst). The Adviser then
either underweights or eliminates the less attractive securities and modestly
emphasizes the most attractive stocks resulting in a portfolio of 200 to 300
holdings that capture the overall investment characteristics of the S&P/BARRA
SmallCap Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets in common stocks which are included in the S&P/BARRA SmallCap Value
Index. The Fund is expected, however, to maintain a 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 or deposit, bankers' acceptances and time deposits, U.S. Government
Obligations and repurchase agreements.
ABOUT THE INDEXES: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The S&P
SmallCap 600 Index is composed of 600 domestic stocks, which are chosen by S&P
based on, among other things, market size, liquidity and industry group
representation. The S&P SmallCap 600 Index is designed to be a benchmark of
small capitalization stock performance. Most of these stocks are listed on
either the New York, American or NASDAQ stock exchanges.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index (collectively,
the "BARRA Value Indexes") are constructed by dividing the stocks in the S&P 500
Index and the S&P 600 Index, respectively, according to a single attribute:
price-to-book ratios. The BARRA Value Indexes are capitalization-weighted,
meaning that each stock is weighted in the approximate index in proportion to
its market value. Additionally, price-to-book ratios tend to be more stable over
time than alternative measures such as price-to-earnings ratios, historical
earnings growth rates, or return on equity. This results in indexes with
relatively low turnover. Generally, the companies in the BARRA Value Indexes
also exhibit characteristics associated with "value" stocks: lower
price-to-earnings ratios, higher dividend yields, and lower historical and
predicted earnings growth than the S&P 500 Index or the S&P 600 Index,
respectively.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index are relatively
concentrated. The S&P/BARRA Value
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Index tends to be more heavily concentrated in the Energy, Utility, and
Financial sectors than the S&P 500 Index. Additionally, the S&P/BARRA SmallCap
Value Index tends to be more heavily concentrated in the Utility and Financial
sectors than the S&P 600 Index.
GENERAL: Each Index 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. exchange-traded financial futures approved by the CFTC and
options thereon for market exposure risk management. Each Fund may lend its
portfolio securities to qualified institutional investors. Each Fund also may
invest in restricted, private placement and other illiquid securities. In
addition, the Funds may invest in securities issued by other investment
companies, consistent with the Fund's investment objective and policies.
In addition, when consistent with the Fund's respective investment objective,
each of the Funds will employ various techniques to manage capital gain
distributions. These techniques include utilizing a share identification
methodology whereby the Fund will specifically identify each lot of shares of
portfolio securties that it holds, which will allow the Fund to sell first those
specific shares with the highest tax basis in order to reduce the amount of
recognized capital gains as compared with a sale of identical portfolio
securities, if any, with a lower tax basis. The Fund will sell first those
shares with the highest tax basis only when it is in the best interest of the
Fund to do so, and reserves the right to sell other shares when appropriate. In
addition, the Fund may, at times, sell portfolio securities in order to realize
capital losses. Such capital losses would be used to offset realized capital
gains thereby reducing capital gain distributions. Additionally, the Adviser
will, consistent with the portfolio construction process discussed above, employ
a low portfolio turnover strategy designed to defer the realization of capital
gains.
The inclusion of a stock in the S&P 500 Index, the S&P 600 Index, S&P/BARRA
Value Index or the S&P/BARRA SmallCap Value Index in no way implies that S&P or
BARRA believes the stock to be an attractive investment. The Indexes are
determined, composed and calculated by S&P and BARRA without regard to the
Funds. Neither S&P or BARRA is a sponsor of, or in any way affiliated with, the
Funds, and neither S&P or BARRA makes any representation or warranty, expressed
or implied, on the advisability of investing in the Funds or as to the
advisability of investing in the Funds or as to the ability of the Indexes to
track general stock market performance. S&P and BARRA disclaim all warranties of
merchantability or fitness for a particular purpose or use with respect to the
Indexes or any data included therein.
Equity mutual funds, like other investors in equity securities, incur
transaction (brokerage) costs in connection with the purchase and sale of
portfolio securities. For some funds, these costs can have a material negative
impact on performance. With respect to the Index Funds, the Adviser will attempt
to minimize these transaction costs by utilizing program trades and computerized
exchanges called "crossing networks" which allow institutions to execute trades
at the mid-point of the bid/ask spread and at a reduced commission rate.
For more information concerning these and other investments in which the Funds
may invest and their investment practices, see "Appendix A."
BOND FUNDS:
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
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<PAGE>
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
International Growth 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 1940 Act. The
Fund may invest in securities of issuers located in any region or country and
that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various countries and currencies will vary in accordance with the
Adviser's assessment of the relative yield and appreciation of such securities.
Fundamental economic strength, credit quality and interest rate trends are the
principal factors considered by the Adviser in determining whether to increase
or decrease the emphasis placed upon a particular country or particular type of
security within the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase, will be determined to be of
comparable quality by the Adviser. The Fund also may invest in securities rated
"Baa" by Moody's or "BBB" by S&P, but does not, as a general matter, intend to
invest more than 10% of its total assets in such securities. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such event in determining whether the Fund should continue
to hold the obligation. In no event will the Fund hold more than 5% of its total
net assets in securities rated below investment grade. See "Appendix B" below
for a description of these rating designations. The Adviser expects that the
Fund's 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. The
Fund also may invest in money market instruments.
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
dollar-weighted maturity of the Fund will not exceed five years and the 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, collateralized mortgage
obligations or "CMOs",
45
<PAGE>
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 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, 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 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 dollar-weighted maturity of the Fund's portfolio will be between three
and five 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-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.
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, prevailing market or economic circumstances warrant.
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 dollar-weighted maturity of the Fund's portfolio will be between 3 and
10 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
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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-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.
The Fund also may invest in "high quality" money market instruments, 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, prevailing market or economic 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 fixed income securities. It is expected
that the average dollar-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-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. 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.
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, 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
dollar-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; U.S. Government Obligations; dollar-denominated and
non-dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments; 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
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NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality.
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,
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.
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 U.S. and foreign exchange-traded financial futures approved by the
CFTC and options thereon for market exposure risk-management. Each Fund also may
lend its portfolio securities to qualified institutional investors and may
invest in repurchase agreements, 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. Nations Global Government Income Fund may
invest in forward foreign exchange contracts.
The Funds also may invest in instruments issued by trusts or certain
partnerships including pass-through certificates respresenting participations
in, or debt instruments backed by, the securities and other assets owned by such
trusts and partnerships.
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
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reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
PORTFOLIO TURNOVER (NON-MONEY MARKET FUNDS): Generally, the Equity Funds, the
Index Funds 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, except for Nations Managed Value Index Fund and Nations Managed
SmallCap Value Index Fund, see "Financial Highlights." While it is not possible
to predict exactly annual portfolio turnover rates, it is expected that under
normal market conditions, the annual portfolio turnover rate for each of Nations
Managed Value Index Fund and Nations Managed SmallCap Value Index Fund will not
exceed 25%. With respect to Nations International Growth Fund, it is expected
that under normal market conditions, the annual portfolio turnover rate will not
exceed 100%.
RISK CONSIDERATIONS: Investments by a Fund in common stocks and other equity
securities are subject to stock market risks. The value of the stocks that the
Fund holds, like the broader stock market, may decline over short or even
extended periods. The U.S. stock market tends to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As of the
date of this Prospectus, the stock market, as measured by the S&P 500 Index and
other commonly used indices, was trading at or close to record levels. There can
be no guarantee that these levels will continue.
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 the Fund's
investment objective and do not unduly increase the Fund's exposure to market or
other risks.
Certain of the Funds may invest in securities of smaller and newer issuers.
Investments in such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also present greater
risks than investments in more established companies with longer operating
histories and greater financial capacity. For additional risk information
regarding the Funds' investments in particular instruments, see "Appendix
A -- Portfolio Securities."
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN NATIONS INTERNATIONAL
EQUITY FUND, NATIONS INTERNATIONAL GROWTH FUND, NATIONS EMERGING MARKETS FUND,
NATIONS PACIFIC GROWTH FUND AND NATIONS GLOBAL GOVERNMENT INCOME FUNDS:
Investors should understand and consider carefully the special risks involved in
foreign investing. In addition, each Fund presents unique risks of which
investors should be aware.
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
49
<PAGE>
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.
The above risk considerations are also relevant to an investment in Nations
International Growth Fund.
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.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations International
Growth Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Income Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE INDEX FUNDS: The
techniques employed by the Adviser to seek to manage capital gain distributions
will generally only have the effect of deferring the realization of capital
gains. For example, to the extent that the capital gains recognized on a sale of
portfolio securities arise from the sale of specifically-identified securities
with higher tax bases, subsequent sales of the same portfolio securities will be
calculated by reference to the lower tax basis securities that remain in the
portfolio. Under
50
<PAGE>
this scenario, an investor who purchases shares of a Fund after the first sale
could receive capital gain distributions that are higher than the distributions
that would have been received if this methodology had not been used. Therefore,
certain investors actually could be disadvantaged by the techniques employed by
the Fund to seek to manage capital gain distributions, depending on the timing
of their purchase of Fund shares. Even if there are no subsequent sales, upon a
redemption or exchange of Fund shares an investor will have to recognize gain to
the extent that the net asset value of Fund shares at such time exceeds such
investor's tax basis in his or her Fund shares.
The various techniques employed by the Funds to manage capital gain
distributions may result in the accumulation of substantial unrealized gains in
the Funds' portfolios. Moreover, the realization of capital gains is not
entirely within a Fund's control because it is at least partly dependent on
shareholder purchase and redemption activity. Capital gain distributions may
vary considerably from year to year.
Furthermore, the U.S. Treasury has proposed legislation which would require
holders of substantially identical securities to determine their tax basis using
the average cost of all of their holdings in such securities. If enacted, the
legislation would prevent the Funds from specifically identifying each lot of
shares that they hold and from selling first those specific shares with the
highest tax basis. Thus, the legislation would restrict the Funds' ability to
manage capital gains.
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 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. Nations Prime Fund, Nations Value Fund, Nations Equity Income Fund, Nations
International Equity Fund, Nations International Growth Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund, Nations Capital Growth Fund, Nations
Emerging Growth Fund, Nations Small Company Growth Fund, Nations Disciplined
Equity Fund, Nations Managed Index Fund, Nations Managed SmallCap Index Fund,
Nations Managed Value Index Fund, Nations Managed SmallCap Value Index Fund,
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 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:
51
<PAGE>
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.
Nations International Growth Fund may not borrow money except as a temporary
measure and then only in amounts not exceeding 5% of the value of the Fund's
total assets or from banks or in connection with reverse repurchase agreements
provided that immediately after such borrowing, all borrowings of the Fund do
not exceed one-third of the Fund's total assets and no purchases of portfolio
instruments will be made while the Fund has borrowings outstanding in an amount
exceeding 5% of its total assets.
Nations Small Company Growth Fund may not borrow money except as a temporary
measure for extraordinary or emergency purposes or except in connection with
reverse repurchase agreements and mortgage rolls; provided that the Fund will
maintain asset coverage of 300% for all borrowings.
The investment objective and policies of each Fund, unless otherwise specified
are non-fundamental and may be changed without shareholder approval.
Shareholders of Nations International Growth Fund and Nations Small Company
Growth Fund, however must receive at least 30 days' prior written notice in the
event an investment objective is changed. If the investment objective or
policies of a Fund change, shareholders should consider whether the Fund remains
an appropriate investment in light of their current position and needs.
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 SAI. 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
MONEY MARKET FUND: From time to time the Money Market Fund 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 the 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.
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 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 gain distributions.
Aggregate total return reflects the total percentage change in the value of the
investment over the measuring period again assuming the
reinvest-
52
<PAGE>
ment of all dividends and capital gain 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.
Set forth below is certain performance data for the Enhanced Equity Index Common
Trust Fund and Enhanced SmallCap Equity Index Common Trust Fund (the "CTFs"),
each of which is currently managed on behalf of NationsBank by TradeStreet.
(Prior to the formation of TradeStreet in 1995, the CTFs were managed solely by
NationsBank.) The performance data for the CTFs is deemed relevant because the
Enhanced Equity Index and Enhanced Small Cap Equity Index Common Trust Funds
have investment objectives and policies that are substantially similar to those
of Nations Managed Index Fund and Nations Managed SmallCap Index Fund,
respectively. Moreover, the portfolio manager of TradeStreet (who currently
manages the CTFs and the Funds) employs the same quantitative investment process
for the Funds that has, and continues to be, utilized for the CTFs. THIS
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE OF THE CTFS AND IS NOT NECESSARILY
INDICATIVE OF THE FUTURE PERFORMANCE OF THE CTFS OR THE FUNDS.
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS INDICATED THROUGH
MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
One Three Five Inception
Year Year Year (12/31/88)**
Enhanced Equity
Index Common
Trust Fund* 19.98% 22.31% 16.08% 16.52%
S&P 500 Index 19.77% 22.28% 16.39% 16.28%
Lipper S&P 500
Index Funds
Average*** 19.19% 21.73% 15.89% 15.66%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Enhanced Lipper S&P
Equity Index 500 Index
Common Trust S&P Funds
Year Fund* 500 Index Average***
1989 34.12% 31.55% 30.58%
1990 -1.52% -3.15% -3.57%
1991 31.72% 30.56% 29.65%
1992 5.52% 7.64% 7.12%
1993 10.47% 9.99% 9.52%
1994 0.69% 1.31% 0.90%
1995 37.66% 37.45% 36.82%
1996 23.62% 23.08% 22.30%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS INDICATED THROUGH
MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Since
One Inception
Year (10/1/95)
Enhanced Small Cap Equity
Index Common Trust Fund* 11.76% 11.68%
S&P 600 Index 8.39% 9.83%
</TABLE>
* The total returns above reflect the deduction of 0.50% of fees and expenses
per annum. The CTFs are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which if applicable, may have adversely
affected the performance results of the CTFs.
** Prior to 12/31/88 the Enhanced Equity Index Common Trust Fund was managed
with a different objective and policies and therefore performance prior
thereto is not included in the prior performance calculations.
*** The Lipper S&P 500 Index Funds Average represents the average performance of
mutual funds with similar objectives monitored by Lipper Analytical
Services, Inc. during the periods shown.
Set forth below is certain performance data for the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite,
reflecting the performance of private accounts, including U.K. authorized unit
trusts, managed by Gartmore plc, as defined below. The performance data for
these accounts is deemed relevant because the Pacific Ex-Japan Composite, the
Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite have
investment objectives, policies and restrictions that are
substan-
53
<PAGE>
tially similar to those of Nations Pacific Growth Fund, Nations Emerging Markets
Fund and Nations Global Government Income Fund, respectively. There is
substantial continuity between the portfolio managers of Gartmore plc who were
responsible for managing those accounts and the portfolio managers of Gartmore
who are responsible for managing Nations Pacific Growth Fund, Nations Emerging
Markets Fund and Nations Global Government Income Fund, respectively. THIS
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NOT NECESSARILY INDICATIVE
OF THE FUTURE PERFORMANCE OF GARTMORE OR THE FUNDS.
PACIFIC EX-JAPAN COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
One Year Two Years Three Years Four Years
Pacific Ex-Japan
Composite 3.95% 8.44% 7.79% 17.11%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Indexl -2.44% 8.58% 7.08% 15.62%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
Inception
Five Years Six Years Seven Years (1/1/88)
Pacific Ex-Japan
Composite 18.84% 18.08% 14.79% 20.42%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Indexl 16.69% 16.61% 15.77% 19.02%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Morgan Stanley
Capital
International
Pacific Combined Far East
Ex-Japan (Ex-Japan)
Composite Free Indexl
1988 11.9% 30.0%
1989 58.40% 32.1%
1990 0.0% -6.5%
1991 22.1% 31.0%
1992 22.9% 21.8%
1993 110.0% 103.4%
1994 -13.9% -17.5%
1995 4.0% 8.8%
1996 13.5 11.1
</TABLE>
* The average annual total returns and annual total returns are net of fees.
The fees for these accounts were 1% per annum until September 30, 1988, and
1.5% per annum thereafter. The accounts are not subject to certain investment
limitations, diversification requirements, and other restrictions imposed by
the 1940 Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results of the accounts.
l The Morgan Stanley Capital International Combined Far East (Ex-Japan) Free
Index is a capitalization-weighted index that tracks 7 countries and
represents only those securities that are available for investment by
international investors; many issues are still restricted to domestic
investors in certain Pacific Basin countries.
EMERGING MARKETS COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Four Years
Since
Inception
One Year Two Years Three Years 1/1/93
Emerging Markets
Composite 16.2% 11.1% -1.8% 10.2%
IFC Investables
Indexl 11.4% 13.4% 3.1% 13.39%
</TABLE>
54
<PAGE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Emerging
Markets IFC Investables
Composite Indexl
1993 76.5% 79.6%
1994 -19.0% -12.0%
1995 -11.3% -8.5%
1996 13.0% 9.4%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (1/1/93) and are net of fees. The fees for these
accounts were 1.5% per annum. The accounts are not subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable,
may have adversely affected the performance results of the accounts.
l The IFC Investables Index includes over 1,100 stocks representing 27 stock
markets in developing countries, and reflects the accessibility of markets and
individual stocks for foreign ownership.
GLOBAL GOVERNMENT BOND
EX-U.K. COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
One Year Two Years Three Years
Global
Government
Bond
Ex-U.K.
Composite** -1.2% 4.4% 6.1%
J.P. Morgan
Global
Government
Bonds Indexl 1.0% 3.9% 6.5%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Since
Inception
Four Years Five Years 10/1/90
Global Government
Bond Ex-U.K.
Composite** 6.2% 8.4% 10.31%
J.P. Morgan
Global
Government Bonds
Indexl 6.5% 7.9% 8.97%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Global J.P. Morgan
Government Global
Bond Ex-U.K. Government
Composite Bonds Indexl
1991 20.8% 16.0%
1992 4.8% 5.2%
1993 15.0% 11.6%
1994 -0.9% 1.5%
1995 22.8% 19.6%
1996 0.6% 3.5%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (10/1/90) and are net of fees. The fees on these
accounts varied by contractual agreement and have been assumed to be 1.5% per
annum. The accounts are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results of the accounts.
** The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J.P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
l The J.P. Morgan Global Government Bonds Index is a capitalization-weighted
index that tracks government bonds issued in 13 countries located in the
United States, Europe and the Far East.
Set forth below is the average annual total return and annual total return for
Nations International Equity Fund for the periods ending March 31, 1997:
NATIONS INTERNATIONAL
EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
Inception
One Five on
Year Three Years Years 12/2/91
Nations
International
Equity Fund 1.32% 6.23% 8.24% 7.10%
Morgan Stanley
Capital
International
EAFE Indexl 1.46% 6.53% 10.57% 6.01%
</TABLE>
55
<PAGE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C>
Morgan Stanley
Nations Capital
International International EAFE
Equity Fund Indexl
1992 -8.6% -12.2%
1993 27.21% 32.6%
1994 2.6% 7.8%
1995 8.5% 11.2%
1996 8.5% 6.1%
</TABLE>
l The Morgan Stanley Capital International EAFE Index represents an unmanaged
index used to portray the pattern of common stock price movement in Europe,
Australia and the Far East.
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 Investor A Shares, the Money Market Funds offer Primary A Shares,
Primary B Shares, Investor B Shares, Investor C Shares and Daily Shares. In
addition to Investor A Shares, the Non-Money Market Funds offer Primary A
Shares, Primary B Shares, Investor B Shares (formerly Investor N) and Investor C
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 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 or by calling Nations Funds at the
toll-free number indicated on the cover of this Prospectus.
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 Funds 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 investment
sub-adviser to all of the Funds except for those Funds listed below, for which
56
<PAGE>
Gartmore Global Partners serves as investment sub-adviser. TradeStreet is a
wholly owned subsidiary of NationsBank. TradeStreet provides investment
management services to individuals, corporations and institutions.
Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as investment sub-adviser to Nations
International Equity Fund, Nations International Growth 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.
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 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 Nations Prime Fund plus .20% of the
combined average daily net assets of such Fund in excess of $250 million; 1.00%
of the average daily net assets of Nations Small Company Growth Fund; .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; .50% of the average daily net
assets of Nations Managed Index Fund, Nations Managed Value Index Fund, Nations
Managed SmallCap Value Index Fund and Nations Managed SmallCap Index Fund; .75%
of the average daily net assets of each of Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund and Nations Disciplined Equity Fund;
.65% of the first $100 million of Nations Government Securities Fund's average
daily net assets, plus .55% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus .50% of the Fund's average daily net
assets in excess of $250 million; .75% of the first $100 million of Nations
Equity Income Fund's average daily net assets, plus .70% of the Fund's average
daily net assets in excess of $100 million and up to $250 million, plus .60% of
the Fund's average daily net assets in excess of $250 million; .90% of the
average daily net assets of Nations International Equity Fund, Nations
International Growth Fund and Nations Pacific Growth Fund; 1.10% of the average
daily net assets of Nations Emerging Markets Fund; .90% of the average daily net
assets of Nations Pacific Growth Fund; and .70% of the average daily net assets
of Nations Global Government Income Fund.
For the services provided 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 average daily net assets;
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.20% of Nations Equity Income Fund's average daily net assets; .10% of the
average daily net assets of Nations Managed Index Fund, Nations Managed Value
Index Fund, Nations Managed SmallCap Value Index Fund and Nations Managed
SmallCap Index Fund; .25% of Nations Value Fund's, Nations Capital Growth
Fund's, Nations Emerging Growth Fund's and Nations Disciplined Equity Fund's
average daily net assets; .25% of Nations Small Company Growth Fund's average
daily net assets; .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.
For services provided pursuant to a sub-advisory agreement, NBAI will pay
Gartmore sub-advisory fees computed daily and paid monthly, at the annual rate
of .70% of Nations International Equity Fund's average daily net assets; .85% of
Nations Emerging Markets Fund's average daily net assets; .70% of Nations
Pacific Growth Fund's average daily net assets and .54% of Nations Global
Government Income Fund's average daily net assets. For services provided and
expenses assumed, Gartmore is entitled to receive from NBAI sub-advisory fees,
computed daily and paid monthly, at the annual rate .40% of Nations
International Growth Fund's average daily net assets up to and including
$325,000,000 in assets and .25% in excess of $325,000,000. As of the date of
this Prospectus, the Board of Directors has approved, and recommended to
shareholders that they approve, an increase in the fees to be paid by NBAI to
Gartmore to .70% of Nations International Growth Fund's average daily net
assets. This increase will be implemented as soon as practicable following
receipt of shareholder approval.
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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Value Fund -- .75%, Nations Capital Growth Fund -- .75%, Nations
Emerging Growth Fund -- .75%, Nations Disciplined Equity Fund -- .75%, Nations
Managed Index Fund -- .06%, Nations Managed SmallCap Index Fund -- .00%, Nations
Short-Intermediate Government Fund -- .40%, Nations Short-Term Income
Fund -- .30%, Nations Diversified Income Fund -- .50%, Nations Strategic Fixed
Income Fund -- .50%. No fees were paid with respect to Nations Managed Value
Index Fund or Nations Managed SmallCap Value Index Fund because neither Fund had
yet commenced operations during the period indicated above.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Prime Fund -- .15%, Nations Equity Income Fund -- .67%, Nations
International Equity Fund -- .90% and Nations Government Securities
Fund -- .50%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Emerging Markets Fund -- 1.10%, Nations Pacific Growth Fund -- .90% and
Nations Global Government Income Fund -- .70%.
For the fiscal period from September 1, 1996 to May 16, 1997, after waivers, the
Pilot Funds paid Boatmen's Trust Company, under a previous investment advisory
agreement, advisory fees at the indicated rates of the following Funds' average
daily net assets: Nations Small Company Growth Fund (formerly the Pilot Small
Capitalization Equity Fund) -- .75%; Nations International Growth Fund (formerly
the Pilot International Equity Fund) -- .48%. During the same period, after
waivers, the Pilot Funds paid Kleinwort Benson Investment Management Americas
Inc., under a previous sub-advisory agreement, sub-advisory fees at the rate of
.32% of Nations International Growth Fund's average daily net assets.
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For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations Value
Fund -- .25%, Nations Capital Growth Fund -- .25%, Nations Emerging Growth
Fund -- .25%, Nations Disciplined Equity Fund -- .25%, Nations Managed Index
Fund -- .10%, Nations Managed SmallCap Index Fund -- .10%, Nations
Short-Intermediate Government Fund -- .15%, Nations Short-Term Income
Fund -- .15%, Nations Diversified Income Fund -- .15%, Nations Strategic Fixed
Income Fund -- .15%, Nations Prime Fund -- .055%, Nations Equity Income
Fund -- .20% and Nations Government Securities Fund -- .15%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid Gartmore under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Emerging Markets Fund -- .85%, Nations Pacific Growth Fund -- .70% and Nations
Global Government Income Fund -- .54% and Nations International Equity
Fund -- .70%.
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.
Sharon M. Herrmann 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 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 is Principal Portfolio Manager of Nations International Equity
Fund and has been the Portfolio Manager since February, 1995. He joined Gartmore
as a Global Fund Manager in 1993 and currently holds the position of Head of the
International and Global Portfolio Team. Previously, Mr. Watson was a director
and global fund manager with James Capel Fund Managers, London, as well as
Client Services Manager for international clients. From 1980 to 1987 he
associated with Capel-Cure Myers in their Portfolio Management Division. He
began his career in 1976 when he joined the investment division at Samuel
Montagu. Mr. Watson is a member of the Securities Institute.
Philip Ehrmann is Principal Portfolio Manager of Nations Emerging Markets Fund
and is the Head of the Gartmore Emerging Markets Team. He has been the Portfolio
Manager for the Fund
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since 1995. Prior to joining Nations Gartmore in 1995, Mr. Ehrmann was the
Director of Emerging Markets for Invesco in London. He began his career in 1981
as an institutional stockbroker with Rowe & Pitman Inc. and also spent a brief
period with Prudential Bache Securities as an institutional salesman before
joining Invesco in 1984. Mr. Ehrmann graduated from the London School of
Economics with a degree in Economics, Industry and Trade.
Seok Teoh is Principal Portfolio Manager of Nations Pacific Growth Fund and has
been the Portfolio Manager since the Fund's inception. She has been associated
with Gartmore since 1990 as the London based manager on its Far East Team.
Previously, Ms. Teoh managed Far East equities for Rothschild Asset Management
in Tokyo and in Singapore. She was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh,
who is a native of Singapore, is fluent in Mandarin and Cantonese and received
an Economics degree from the University of Durham.
Philip J. Sanders 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.
Scott A. Billeadeau is a Senior Portfolio Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Emerging Growth Fund and
Nations Small Company Growth Fund. Mr. Billeadeau has been Portfolio Manager of
the Funds since June, 1997. Previously he was Senior Analyst and Senior
Portfolio Manager for BankAmerica's Pacific Horizon Aggressive Growth Fund at
Security Pacific Corp. since 1991. Mr. Billeadeau has worked in the investment
community since 1986. His past experience also includes quantitative analysis
for American Express Financial Advisors, Inc. Mr. Billeadeau received an AB in
Economics from Princeton University. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research, as well as the Seattle Society of Securities Analysts.
Jeffery C. Moser is a Senior Product Manager, Equity Management for TradeStreet
and Senior Portfolio Manager for Nations Disciplined Equity Fund, Nations
Managed Value Index Fund and Nations Managed SmallCap Value Index Fund. Mr.
Moser has been Portfolio Manager of Nations Managed Value Index Fund and Nations
Managed SmallCap Value Index Fund since their inception and has managed 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.
Mark Rimmer is Principal Portfolio Manager of Nations Global Government Income
Fund and has been the Portfolio Manager since the Fund's inception. He has been
associated with Gartmore since 1990 as an International Fixed Income Fund
Manager. Previously, Mr. Rimmer managed multi-currency funds for institutional
clients at Gulf International Bank in Bahrain, and prior to that he was a senior
trader for Sumitomo Finance International, London. He
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graduated from Cambridge University with a degree in Economics.
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 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 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.
Christopher G. Gunster is a Portfolio Manager, Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Government Securities Fund. Mr.
Gunster has been the lead Portfolio Manager since July, 1997. Prior to assuming
his position with TradeStreet, he was Assistant Vice President and Associate
Portfolio Manager for the Investment Management Group at NationsBank since 1993.
Mr. Gunster has worked in the investment community since 1987. His past
experience includes investment marketing for The Boston Company and options
trading for Shatkin Investments, a regional broker/dealer. Mr. Gunster received
a B.A. in Chemistry from Kenyon College and an M.B.A. in Finance from Babson
Graduate 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. Mr. Swaim has been Portfolio Manager for the 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.
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.
Brad Pope is a Product Manager, Fixed Income Management for TradeStreet and
Portfolio Manager for Nations Short-Term Income Fund. He is a senior member of
the Fixed Income Team. As such, his responsibilities include setting duration
policy for the Nations Funds fixed income funds. Mr. Pope has been the Portfolio
Manager for Nations Short-Term Income Fund since August 1996. Prior to assuming
this position, he was a manager in the structured products area. He joined the
Investment Management Group at NationsBank, TradeStreet's predecessor
organization, in 1988. Mr. Pope has over nine years of investment experience,
including working on the trading floor of the Chicago Board of Trade. Mr. Pope
received a B.B.A. in Finance from the University of Texas at Austin.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund, Nations
Managed Index Fund and Nations Managed SmallCap Index Fund. He has been
Portfolio Manager for these funds since
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their inception. Prior to assuming his position with TradeStreet in 1996, 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
Chicago Quantitative Alliance, the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Brian O'Neill is the Principal Senior Investment Manager of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Fund since July, 1997. Mr. O'Neill joined Gartmore as a Senior Investment
Manager on the Global Portfolio Team in 1981 with responsibility for a variety
of specialized global funds, including resource funds. Mr. O'Neill began his
career with Royal Insurance in 1970 as an investment analyst specializing in
United Kingdom research. He then expanded his field of expertise to include
management of global equities, and in 1978 he moved to Antony Gibbs & Sons where
he was appointed as a fund manager, specializing in global equities. Mr. O'Neill
graduated from Glasgow University in 1969 with a MA Honours degree in Political
Economy.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds 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 Funds 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, 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 .10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 --
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.10%, Nations Capital Growth Fund -- .10%, Nations Emerging Growth Fund -- .10%,
Nations Disciplined Equity Fund -- .10%, Nations Managed Index Fund -- .10%,
Nations Managed SmallCap Index Fund -- .10%, Nations Short-Intermediate
Government Fund -- .10%, Nations Short-Term Income Fund -- .10%, Nations
Diversified Income Fund -- .10%, Nations Strategic Fixed Income Fund -- .10%. No
fees were paid with respect to Nations Managed Value Index Fund or Nations
Managed SmallCap Value Index Fund because neither Fund had yet commenced
operations during the period indicated above.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .09%,
Nations Equity Income Fund -- .10%, Nations International Equity Fund -- .10%
and Nations Government Securities Fund -- .10%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Emerging Markets
Fund -- .10%, Nations Pacific Growth Fund -- .10% and Nations Global Government
Income Fund -- .10%.
NationsBank serves as sub-administrator for Nations Funds 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. Nations Funds
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 Agents (as defined below) which assist
customers in purchasing Investor A Shares of the Funds.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as custodian for the
assets of each Fund, except the international portfolios. 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 to the Nations Funds Family, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees at the rate of (i) $300,000
per annum, to be paid monthly in payments of $25,000 for custodian services for
up to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
BONY, Avenue des Arts, 35 1040 Brussels, Belgium, serves as Custodian for the
assets of the Nations International Equity Fund, Nations International Growth
Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
Global Government Income Fund.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all Fund except the international portfolios, for which BONY is already
serving as Custodian. BONY is located at 90 Washington Street, New York, New
York 10286. In return for providing sub-custodial services, BONY receives, in
addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess including
all Nations' Money Market 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 Funds. Their
address is 160 Federal Street, Boston, Massachuetts 02110.
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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, 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, Stephens or First Data under their respective agreements with Nations
Funds; and any extraordinary expenses. Investor A Shares may bear certain class
specific expenses and also bear certain additional shareholder service and sales
support costs. Any general expenses of Nations Fund Trust, 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 bear to the assets of Nations Fund
Trust, Nations Fund, Inc. or Nations Portfolios 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 Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Portfolios, Nations Institutional
Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family currently has
more than 52 distinct investment portfolios and total assets in excess of $27
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 Daily
Shares. The Non-Money Market Funds currently offer five classes of
shares -- Investor A Shares, Investor B Shares (formerly Investor N Shares),
Investor C Shares, Primary A Shares and Primary B Shares. This Prospectus
relates only to the Investor A Shares of Nations Managed Index Fund, Nations
Managed SmallCap Index Fund, Nations Managed Value Index Fund, Nations Managed
SmallCap Value Index Fund, Nations Value Fund, Nations Capital Growth Fund,
Nations Emerging Growth Fund, Nations Disciplined Equity Fund, Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, and Nations Strategic Fixed Income 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 Funds 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.
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As of July 15, 1997, 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 420,000,000,000 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 Prime Fund, Nations Equity Income Fund, Nations
Small Company Growth Fund, Nations Government Securities Fund, Nations
International Equity Fund and Nations International Growth 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 Agent (as defined below) or
Nations Funds 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, 1997, 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
Agent (as defined below) or Nations Funds at 1-800-321-7854.
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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, 1997, 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.
PENDING LEGAL PROCEEDINGS: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and Stephens
Inc. (Case No. 94-995-Civ.-T-23E). As relevant to Nations Government Securities
Fund and Nations Short-Intermediate Government Fund, plaintiffs allege that,
among other things, defendants violated the Securities Exchange Act of 1934 and
various state securities fraud statutes by employing a scheme to defraud
plaintiffs into purchasing shares of the funds and making untrue statements of
material fact and omitting to state material facts in connection with sales of
shares of the funds. Plaintiffs further allege that, among other things,
defendants concealed the risks associated with such funds by blurring the
distinctions between banks and non-bank subsidiaries and by obscuring the
differences between traditional, federally insured bank products and uninsured,
non-depository products.
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About Your Investment
How To Buy Shares
Investor A Shares are available to the following categories of Investors:
(Bullet) Investors who purchase through accounts established with certain
fee-based investment advisers or financial planners, including
Nations Funds Personal Investment Planner accounts, wrap fee
accounts and other managed agency/asset allocation accounts.
(Bullet) Directors, officers, and employees of NationsBank Corporation,
its affiliates and subsidiaries.
(Bullet) Individuals investing a distribution received from a NationsBank
trust account and certain other rollovers or distributions
received from NationsBank fiduciary accounts.
(Bullet) Current Investor A Shareholders (other than Investor A
shareholders who own such shares exclusively through a cash sweep
option) who purchased Investor A Shares prior to August 1, 1997.
(Bullet) Employee benefit plans making an initial investment of $1 million
or more in the Nations Funds Family.
(Bullet) Investors (other than those described above) investing $1 million
or more in the Nations Funds Family through an Agent (as defined
below) (a "Substantial Investor.") In determining whether an
investor qualifies as a Substantial Investor, all current
holdings of Funds in the Nations Funds Family other than the
Nations Funds money market or index funds, Nations Short-Term
Income Fund and Nations Short-Term Municipal Income Fund, will be
considered.
Investor A Shares of the Index Funds and the Money Market Fund are also
available to other investors through a separate prospectus. Other procedures may
apply. For more information, call Nations Funds at 1-800-321-7854.
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 Funds ("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."
Purchases of Investor A Shares through a Nations Funds Personal Investment
Planner account, which is a managed agency/asset allocation account established
with NBAI (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 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
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employee pension plans ("SEPs"), salary reduction-simplified employee pension
plans ("SAR-SEPs"), Savings Incentives Method Plans for Employees ("SIMPLE
IRAs"), salary reduction-Individual Retirement Accounts ("SAR-IRAs") or similar
types of accounts. However, the assets of such plans must reach an asset value
of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs, 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 Funds 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, and Investor A
Shares of the Money Market Funds are purchased at net asset value per share
without the imposition of a sales charge. Purchases of 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"). Purchases of Money Market Funds may
be effected only on days on which the Federal Reserve Bank of New York is open
for business (a "Bank 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.
Nations Funds 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: Certain 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 Funds
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Nations Funds at 1-800-321-7854 for an account
number and use the following wire instructions:
Nations Funds
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 Nations Funds at 1-800-321-7854.
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 -- NON-MONEY MARKET FUNDS: Purchase orders for
Investor A Shares of 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 Funds'
Custodian. Such payment must be received no later than 4:00 p.m., Eastern time,
by the third Business Day
follow-
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ing 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.
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 for Investor A Shares of a Money Market Fund must be received by Stephens
or by the Transfer Agent by 3:00 p.m., Eastern time. 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 Agent
transmitting the order, and any funds received will be returned promptly to the
sending 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 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 Agents are responsible for transmitting orders for purchases of Investor A
Shares by their customers ("Customers"), and delivering required funds, on a
timely basis. Stephens is responsible for transmitting orders it receives to
Nations Funds.
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 the last day of the applicable month. Subject
to certain exceptions for employees of NationsBank and its affiliates and pre-
existing SIP accounts, the systematic investment amount may be in any amount
from $50 to $100,000. For more information concerning the SIP, contact your
Agent or Nations Funds.
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 Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
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 Nations Funds
at 1-800-321-7854 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
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through an Agent, redemption orders should be transmitted by telephone or in
writing through the same Agent. Redemption proceeds are normally remitted in
federal funds wired to the redeeming Agent or investor 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 Funds. There is no redemption charge.
Redemption orders for Money Market Funds must be received on a Business Day
before 3:00 p.m., Eastern time, and payment will normally be wired the same day.
Nations Funds 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 Transfer Agent after 3:00 p.m., Eastern time, will
be processed on the next Business Day.
Nations Funds 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 Funds 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 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 Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CHECKWRITING PRIVILEGE: Free checkwriting is available with respect to Investor
A Shares of the Money Market Fund. 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.
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 Funds Personal Investment
Planner are 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
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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) payments made to
pay medical expenses which exceed 7.5% of income and distributions to pay for
insurance by an individual who has separated from employment and who has
received unemployment compensation under a federal or state program for at least
12 weeks, (iv) effected pursuant to Nations Funds' 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, (v) in connection with the combination of Nations Funds with any other
registered investment company by merger, acquisition of assets or by any other
transaction, and (vi) 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.
REINSTATEMENT PRIVILEGE: 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.
REDEMPTION FEE: A redemption fee of 1% of the current net asset value will be
assessed on certain Investor A Shares purchased after July 31, 1997 and redeemed
within 18 months of the date of purchase by a Substantial Investor. In addition,
a 1% redemption fee will be assessed on Investor A Shares purchased after such
date by an employee benefit plan that (i) made its initial investment after such
date and (ii) redeemed such shares within 18 months of purchase in connection
with a complete liquidation of such plan's holdings in the Nations Funds Family.
This fee is retained by the Fund or Funds for the benefit of the remaining
shareholders and is intended to encourage long-term investment in the Funds and
to avoid transaction and other expenses associated with short-term investments.
The Funds reserve the right to modify the terms of or terminate this fee at any
time.
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 Funds 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
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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 Funds at any time.
How To Exchange Shares
The exchange feature enables a shareholder of a fund of Nations Funds (other
than an index fund) to acquire shares of the same class that are offered by
another fund of Nations Funds (other than an index fund) when the shareholder
believes that a shift between funds is an appropriate investment decision.
Shareholders of an index fund of Nations Funds may acquire shares of the same
class that are offered by another index fund of Nations Funds. 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 a Fund, exchange requests
should be communicated to the Fund by calling Nations Funds at 1-800-321-7854 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 Funds and each of the other funds of Nations Funds 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 Funds 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 circumstances.
The current prospectus for each fund of Nations
Funds 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. 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 Funds and Stephens reserve 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.
Investor A Shares of Nations Short-Term Income Fund acquired directly or
indirectly through an exchange from Investor B Shares of
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another non-money market fund may be re-exchanged only for Investor B Shares of
another non-money market fund, Investor C Shares of a Nations Funds 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
B 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 Funds money
market fund. The CDSC that is ultimately charged upon redemption is based upon
the total period of time the shareholder holds Investor B Shares of any fund
that charges a CDSC.
An investor who owns his or her shares through a Nations Funds IRA that
initially invests in Investor A Shares of a Money Market Fund may exchange those
shares for Investor B Shares of a non-money market fund offered by Nations
Funds. Additionally, Investor B Shares of a non-money market fund acquired
through such an exchange prior to January 1, 1996 or after July 31, 1997, 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 purchase of the Investor B Shares.
If Investor A Shares are exchanged for shares of the same class of another fund,
any redemption fee applicable to the original shares purchased will be assessed
upon the redemption of the acquired shares. The holding period of such shares
(for purposes of determining whether a redemption fee is applicable) will
computed from the time of the initial purchase of the Investor A Shares of a
Fund, except that the holding period will not accrue while the shares owned are
Investor A shares of Nations Short-Term Municipal Income Fund, Nations
Short-Term Income Fund or a Nations Funds money market fund. If a redemption fee
ultimately is charged, it will be retained by the initial Fund purchased.
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 Funds to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or the last 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 Nations
Funds.
With regard to Money Market Fund, an investor who is participating in the
Nations Funds Automatic Exchange Feature ("AEF") may acquire Investor A or
Investor C Shares of a non-money market fund offered by Nations Funds. In
addition, Investor C Shares of a non-money market fund acquired prior to August
1, 1997 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.
Shareholder Servicing And Distribution
Plans
MONEY MARKET FUNDS: 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. Aggregate payments
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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 Funds to Customers. The Funds may not pay for shareholder
servicing activities under 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 Funds 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.
NON-MONEY MARKET FUNDS: 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
Investor A Plan are calculated daily and paid monthly at a rate or rates set
from time to time by each Fund, provided that the annual rate may not exceed
0.25% of the average daily net asset value of the Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate Selling Agents for providing sales
support assistance in connection with the sale of Investor A Shares to
Customers, which may include forwarding sales literature and advertising
provided by Nations Funds to Customers.
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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.
GENERAL: 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 Funds 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.
In addition, the Trustees and Directors have approved a Shareholder Servicing
Plan (the "Servicing Plan") with respect to the Investor A Shares of the Nations
Short-Term Municipal Income Fund. Pursuant to its Servicing Plan, the Nations
Short-Term Municipal Income Fund may pay Servicing Agents that have entered into
a Servicing Agreement with Nations Funds for certain shareholder support
services that are provided by the Servicing Agents. Payments under the Fund's
Servicing Plan may not exceed 0.25% of the average daily net asset value of the
Fund's Investor A Shares. The shareholder services provided by Servicing Agents
include, but are not limited to, those listed above with respect to the Investor
A Plan.
Nations Funds 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 Funds 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 Funds. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Funds 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 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 Fund are valued as of 3:00 p.m., Eastern
time, each Bank Business Day. Shares of the Non-Money Market Funds are valued as
of the close of regular trading on the Exchange (currently
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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, Martin Luther King Jr. 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 Funds 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: Dividends from net investment income are declared
and paid monthly by Nations Capital Growth Fund, Nations Disciplined Equity
Fund, Nations Equity Income Fund, Nations Managed Index Fund, Nations Value Fund
and Nations Small Company Growth Fund. Dividends from net investment income are
declared and paid annually by Nations International Growth Fund. All other
Equity Funds and Index Funds declare and pay dividends from net investment
income each calendar quarter. Dividends from net investment income are declared
daily and paid monthly by the Money Market Fund and the Bond Funds. 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 A Shares will be reduced by the amount of any
dividend or distribution. Accordingly, dividends and distributions on newly
purchased shares represent, in substance, a return of capital. However, such
dividends and distributions would nevertheless be taxable. 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.
MONEY MARKET FUND: Dividends from net investment income of the Fund are declared
daily to shareholders at 3:00 p.m., Eastern time, 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 Agent. Dividends
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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.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. These distributions
will not qualify for the dividends received deduction for corporate
shareholders.
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 in a Fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
such Fund to the extent that the 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, as discussed more
fully below and in the SAIs.
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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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 tax on dividends, distributions and proceeds from the disposition of
Fund shares paid to certain foreign shareholders.
Portions of Nations International Equity Fund's, Nations International Growth
Fund's, Nations
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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, if more than
50% of the value of the total assets of each of those Funds consists of
securities of foreign issuers, it may elect to "pass through" to its
shareholders these foreign taxes, if any. Upon such an election, 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 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, 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,
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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 the Government National Mortgage
Association, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. Such Certificates are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage loans issued by
lenders such as mortgage bankers, commercial banks and savings and loan
associations. Such mortgage loans may have fixed or adjustable rates of
interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets. A Fund will only invest in SMBS
whose mortgage assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of
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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.
The mortgage-backed securities in which the Funds invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the Funds
also may be subject to credit risk. Credit risk is the risk that the issuers of
securities in which a Fund invests may default in the payment of principal
and/or interest. Any such defaults or adverse changes in an issuers financial
condition or credit rating may adversely affect the value of the Funds'
protfolio investments and, hence, the value of your investment in the
corresponding Fund.
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 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,
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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. The Funds (except Nations International Growth Fund) will limit their
investments in bank obligations so that 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). Nations Small Company Growth Fund will limit its
investments in interest bearing savings deposits of commercial savings banks up
to 5% of its total assets.
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risk, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements, certain of the
Funds may borrow 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
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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 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. 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
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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.
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 income (including interest, distributions and disposition
proceeds), 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
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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.
Certain Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs, in registered
form, are designed for use in the U.S. securities markets. GDRs are designed for
use in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
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.
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
com-
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pany'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 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 and the Money Market Funds
will not hold more than 10%. 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
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 under the 1933 Act, or which
were issued under Section 4(2) of 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 or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, 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: Certain of the Funds may invest in lower-rated debt
securities.
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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 the Fund to value its portfolio securities, and the
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: 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 obligations with greater maturities, provided such obligations are subject to
demand features or resets which are less 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.
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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.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed
portfo-
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lio 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 Funds.
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 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
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.
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.
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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. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. 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, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Assocation; 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 Assocation. 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. The Money Market Fund 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.
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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
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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.
91
<PAGE>
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 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 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:
92
<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:
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 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.
93
<PAGE>
Prospectus
INVESTOR A SHARES
AUGUST 1, 1997
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Funds") of Nations Fund
Trust, Nations Fund, Inc., and Nations Fund
Portfolios, Inc. ("Nations Portfolios"), each an
open-end management investment company in the
Nations Funds Family ("Nations Funds" or "Nations
Funds Family"). This Prospectus describes one class
of shares of each Fund -- Investor A Shares.
NATIONS TAX EXEMPT FUND (THE "MONEY MARKET FUND")
SEEKS TO MAINTAIN A NET ASSET VALUE OF $1.00 PER
SHARE.
INVESTMENTS IN THE MONEY MARKET FUND ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND
THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET
FUND 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 prospective
purchasers of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust,
Nations Fund, Inc. and Nations 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 Funds at its address or
telephone number shown below. The SAIs dated August
1, 1997 are incorporated by reference in their
entirety into this Prospectus. The SEC maintains a
Web site (http://www.sec.gov) that contains the
SAIs, material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to certain of the Funds,
Gartmore Global Partners ("Gartmore") is investment
sub-adviser to certain other Funds. As used herein
the term "Adviser" shall mean NBAI, TradeStreet
and/or Gartmore as the context may require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
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.
NF-97220-897
MONEY MARKET FUND
Nations Tax Exempt Fund
EQUITY FUNDS
Nations Value Fund
Nations Equity Income Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Small Company Growth Fund
Nations International Equity Fund
Nations International Growth Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
INDEX FUNDS
Nations Managed Index Fund
Nations Managed SmallCap Index Fund
Nations Managed Value Index Fund
Nations Managed SmallCap Value Index Fund
BOND FUND
Nations Global Government Income Fund
TAX-EXEMPT FUNDS
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
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 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
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
NF-97220-897
<PAGE>
Table Of Contents
Prospectus Summary 3
About The Funds
Expenses Summary 7
Financial Highlights 15
Objectives 49
How Objectives Are Pursued 52
How Performance Is Shown 72
How The Funds Are Managed 76
Organization And History 84
About Your
Investment
How To Buy Shares 87
How To Redeem Shares 90
How To Exchange Shares 92
Shareholder Servicing And Distribution Plan 94
How The Funds Value Their Shares 96
How Dividends And Distributions Are Made;
Tax Information 96
Appendix A -- Portfolio Securities 99
Appendix B -- Description Of Ratings 112
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 FUNDS OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUNDS 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 COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(BULLET) MONEY MARKET FUND:
(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 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) Nations Small Company Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity securities.
(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 regions, including developing countries.
(Bullet) Nations International Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity securities
of companies domiciled in countries outside the United States and
listed on major stock exchanges primarily in Europe and the Pacific
Basin.
(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 market 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).
3
<PAGE>
(Bullet) INDEX FUNDS:
(BULLET) Nations Managed Index Fund's investment objective is to seek, over
the long-term, to provide a total return which (gross of fees and
expenses) exceeds the total return of the Standard & Poor's 500
Composite Stock Price Index.
(Bullet) Nations Managed SmallCap Index Fund's investment objective is to
seek, over the long-term, to provide a total return which (gross of
fees and expenses) exceeds the total return of the Standard & Poor's
SmallCap 600 Index.
(Bullet) Nations Managed Value Index Fund's investment objective is to seek,
over the long-term, to provide a total return that (gross of fees and
expenses) exceeds the total return of the S&P 500/BARRA Value Index.
(Bullet) Nations Managed SmallCap Value Index Fund's investment objective is
to seek, over the long-term, to provide a total return that (gross of
fees and expenses) exceeds the total return of the S&P SmallCap
600/BARRA Value Index.
(Bullet) BOND FUND:
(Bullet) Nations Global Government Income Fund's investment objective is to
seek total return by investing primarily in high quality debt
securities issued by governments, banks and supranational entities
located throughout the world.
(Bullet) TAX-EXEMPT FUNDS:
(Bullet) Nations Municipal Income Fund's investment objective is to seek high
current income exempt from Federal income tax with the potential for
principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
(Bullet) Nations Short-Term Municipal Income Fund's investment objective is to
seek high current income exempt from Federal income tax consistent
with minimal fluctuation of principal. The Fund invests in investment
grade, short-term municipal securities.
(Bullet) Nations Intermediate Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal income tax consistent
with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
(Bullet) Nations Florida Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal income
and the Florida state intangibles taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations Florida Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal income and the Florida state
intangibles taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) Nations Georgia Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
Georgia state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Georgia Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal and Georgia state income
taxes with the potential for principal fluctuation associated with
investments in long-term municipal securities. The Fund invests in
investment grade, long-term municipal securities.
(Bullet) Nations Maryland Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
Maryland state income taxes consistent with moderate fluc-
4
<PAGE>
tuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations Maryland Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal and Maryland state
income taxes with the potential for principal fluctuation associated
with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
(Bullet) Nations North Carolina Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
North Carolina state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations North Carolina Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and North Carolina
state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) Nations South Carolina Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
South Carolina state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
(Bullet) Nations South Carolina Municipal Bond Fund's investment objective is
to seek high current income exempt from Federal and South Carolina
state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
(Bullet) Nations Tennessee Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal income
tax and the Tennessee Hall Income Tax on unearned income consistent
with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
(Bullet) Nations Tennessee Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal income tax and the
Tennessee Hall Income Tax on unearned income with the potential for
principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
(Bullet) Nations Texas Intermediate Municipal Bond Fund's investment objective
is to seek high current income exempt from Federal income tax
consistent with moderate fluctuation of principal. The Fund invests
in investment grade, intermediate-term municipal securities.
(Bullet) Nations Texas Municipal Bond Fund's investment objective is to seek
high current income exempt from Federal income tax with the potential
for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term
municipal securities.
(Bullet) Nations Virginia Intermediate Municipal Bond Fund's investment
objective is to seek high current income exempt from Federal and
Virginia state income taxes consistent with moderate fluctuation of
principal. The Fund invests in investment grade, intermediate-term
municipal securities.
(Bullet) Nations Virginia Municipal Bond Fund's investment objective is to
seek high current income exempt from Federal and Virginia state
income taxes with the potential for principal fluctuation associated
with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. and Gartmore Global Partners provide sub-
advisory services to the Funds. See "How The Funds Are Managed."
5
<PAGE>
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are
declared and paid monthly by Nations Capital Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Income Fund, Nations Managed
Index Fund, Nations Value Fund and Nations Small Company Growth Fund.
Dividends from net investment income are declared and paid annually by
Nations International Growth Fund. All other Equity Funds and Index
Funds declare and pay dividends from net investment income each
calendar quarter. The Money Market Fund and 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.
The U.S. stock market tends to be cyclical, with periods when stock
prices generally rise and periods when prices generally decline. As of
the date of this Prospectus the stock market, as measured by the
Standard & Poor's 500 Composite Stock Price Index and other commonly
used indices, was trading at or close to record levels. There can be no
guarantee that these levels will continue. Certain of the Funds may
invest in securities of smaller and newer issuers. Investments in such
companies may present greater opportunities for capital appreciation
because of high potential earnings growth, but also present greater
risks than investments in more established companies with longer
operating histories and greater financial capacity. 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
(as defined below), 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. 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 International Growth 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 International Growth 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
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."
6
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in a Fund. The
following tables summarize shareholder transaction and operating expenses for
the Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor A Shares of a Fund
over specified periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION Nations Tax Nations Value Nations Equity Nations Capital Nations Emerging
EXPENSES Exempt Fund Fund Income Fund Growth Fund Growth Fund
<S> <C> <C> <C> <C> <C>
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
Redemption Fees Payable to the
Fund2 None 1.00% 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .16% .75% .67% .75% .75%
Rule 12b-1 Fees (including
shareholder servicing fees) .10% .25% .25% .25% .25%
Other Expenses .39% .19% .22% .21% .23%
Total Operating Expenses (After
Fee Waivers) .65% 1.19% 1.14% 1.21% 1.23%
<CAPTION>
Nations
SHAREHOLDER TRANSACTION Disciplined
EXPENSES Equity 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
Redemption Fees Payable to the
Fund2 1.00%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .75%
Rule 12b-1 Fees (including
shareholder servicing fees) .25%
Other Expenses .25%
Total Operating Expenses (After
Fee Waivers) 1.25%
</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 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months. See
"How To Redeem Shares -- Redemption Fee."
7
<PAGE>
<TABLE>
<CAPTION>
INVESTOR A SHARES
Nations Small Nations Nations Nations Nations
SHAREHOLDER TRANSACTION Company Growth International International Emerging Pacific
EXPENSES Fund Equity Fund Growth Fund Markets Fund Growth Fund
<S> <C> <C> <C> <C> <C>
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
Redemption Fees Payable to the
Fund2 1.00% 1.00% 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee Waivers) .75% .90% .90% 1.10% .90%
Rule 12b-1 Fees .25% .25% .25% .25% .25%
Other Expenses .20% .26% .22% .64% .52%
Total Operating Expenses (After Fee
Waivers) 1.20% 1.41% 1.37% 1.99% 1.67%
<CAPTION>
SHAREHOLDER TRANSACTION Nations Managed
EXPENSES Index 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
Redemption Fees Payable to the
Fund2 None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee Waivers) .30%
Rule 12b-1 Fees .25%
Other Expenses .20%
Total Operating Expenses (After Fee
Waivers) .75%
</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 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months. See
"How To Redeem Shares -- Redemption Fee."
8
<PAGE>
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Managed Nations Managed Global Short-Term
SHAREHOLDER TRANSACTION SmallCap Managed SmallCap Government Municipal
EXPENSES Index Fund Value Index Value Index Income Fund Income Fund
<S> <C> <C> <C> <C> <C>
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 0
purchase price or
redemption proceeds)1 None None None None None
Redemption Fees Payable
to the Fund2 None None None None None
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees (After
Fee Waivers) .30% .30% .30% .70% .30%
Rule 12b-1 Fees
(including
shareholder servicing
fees)
(After Fee Waivers) .25% .25% .25% .25% .20%3
Other Expenses .20% .20% .20% .56% .10%
Total Operating
Expenses (After Fee
Waivers) .75% .75% .75% 1.51% .60%
<CAPTION>
Nations
Intermediate Nations
SHAREHOLDER TRANSACTION Municipal Municipal
EXPENSES Bond Fund Income Fund
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price) None None
Maximum Deferred Sales
Charge (as a
percentage of the
lower of the original
purchase price or
redemption proceeds)1 None None
Redemption Fees Payable
to the Fund2 1.00% 1.00%
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees (After
Fee Waivers) .30% .40%
Rule 12b-1 Fees
(including
shareholder servicing
fees)
(After Fee Waivers) .20% .20%
Other Expenses .20% .20%
Total Operating
Expenses (After Fee
Waivers) .70% .80%
</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 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months. See
"How To Redeem Shares -- Redemption Fee."
3 Shareholder servicing fees for Nations Short-Term Municipal Income Fund are
paid pursuant to a separate Shareholder Servicing Plan. See "Shareholder
Servicing And Distribution Plan."
9
<PAGE>
<TABLE>
<CAPTION>
INVESTOR A SHARES
Nations Nations Nations
Florida Nations Georgia Nations Maryland
Intermediate Florida Intermediate Georgia Intermediate
SHAREHOLDER TRANSACTION Municipal Municipal Municipal Municipal Municipal
EXPENSES Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C>
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
Redemption Fees Payable to the Fund2 1.00% 1.00% 1.00% 1.00% 1.00%
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees (After Fee Waivers) .30% .40% .30% .40% .30%
Rule 12b-1 Fees (including
shareholder servicing fees) (After
Fee Waivers) .20% .20% .20% .20% .20%
Other Expenses .20% .20% .20% .20% .20%
Total Operating Expenses (After Fee
Waivers) .70% .80% .70% .80% .70%
<CAPTION>
Nations
Maryland
SHAREHOLDER TRANSACTION Municipal
EXPENSES Bond 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
Redemption Fees Payable to the Fund2 1.00%
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees (After Fee Waivers) .40%
Rule 12b-1 Fees (including
shareholder servicing fees) (After
Fee Waivers) .20%
Other Expenses .20%
Total Operating Expenses (After Fee
Waivers) .80%
</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 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months. See
"How To Redeem Shares -- Redemption Fee."
10
<PAGE>
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations
Nations South Nations
North Carolina Nations Carolina South
Intermediate North Carolina Intermediate Carolina
SHAREHOLDER TRANSACTION Municipal Bond Municipal Bond Municipal Municipal
EXPENSES Fund Fund Bond Fund Bond 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
Redemption Fees Payable to Fund2 1.00% 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .30% .40% .30% .40%
Rule 12b-1 Fees (including shareholder
servicing fees) (After Fee Waivers) .20% .20% .20% .20%
Other Expenses .20% .20% .20% .20%
Total Operating Expenses (After Fee Waivers) .70% .80% .70% .80%
<CAPTION>
Nations
Tennessee
Intermediate
SHAREHOLDER TRANSACTION Municipal
EXPENSES Bond 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
Redemption Fees Payable to Fund2 1.00%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .30%
Rule 12b-1 Fees (including shareholder
servicing fees) (After Fee Waivers) .20%
Other Expenses .20%
Total Operating Expenses (After Fee Waivers) .70%
</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 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months. See
"How To Redeem Shares -- Redemption Fee."
11
<PAGE>
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations
Nations Texas Nations Virginia
Tennessee Intermediate Nations Intermediate
SHAREHOLDER TRANSACTION Municipal Municipal Bond Texas Municipal Municipal Bond
EXPENSES Bond Fund Fund Bond Fund 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
Redemption Fees Payable to the Fund2 1.00% 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .40% .30% .40% .30%
Rule 12b-1 Fees (including shareholder servicing
fees) (After Fee Waivers) .20% .20% .20% .20%
Other Expenses .20% .20% .20% .20%
Total Operating Expenses (After Fee Waivers) .80% .70% .80% .70%
<CAPTION>
Nations Virginia
SHAREHOLDER TRANSACTION Municipal Bond
EXPENSES 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
Redemption Fees Payable to the Fund2 1.00%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .40%
Rule 12b-1 Fees (including shareholder servicing
fees) (After Fee Waivers) .20%
Other Expenses .20%
Total Operating Expenses (After Fee Waivers) .80%
</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 There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions of Investor A Shares held less than 18 months. See
"How To Redeem Shares -- Redemption Fee."
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 Tax Nations Value Nations Equity Nations Capital Nations Emerging
Exempt Fund Fund Income Fund Growth Fund Growth Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 7 $ 12 $ 12 $ 12 $ 13
3 Years $ 21 $ 38 $ 36 $ 38 $ 39
5 Years $ 36 $ 65 $ 63 $ 66 $ 68
10 Years $ 81 $ 144 $ 139 $ 147 $ 149
<CAPTION>
Nations Nations Small
Disciplined Company Growth
Equity Fund Fund
1 Year $ 13 $ 12
3 Years $ 40 $ 38
5 Years $ 69 $ 66
10 Years $ 151 $ 145
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Nations Nations
International International Nations Emerging Nations Pacific Nations Managed
Equity Fund Growth Fund Markets Fund Growth Fund Index Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 14 $ 14 $ 20 $ 17 $ 8
3 Years $ 45 $ 43 $ 62 $ 53 $ 24
5 Years $ 77 $ 75 $ 107 $ 91 $ 42
10 Years $ 169 $ 165 $ 232 $ 198 $ 93
<CAPTION>
Nations Managed
SmallCap Index Nations Managed
Fund Value Index Fund
1 Year $ 8 $ 8
3 Years $ 24 $ 24
5 Years $ 42 N/A
10 Years $ 93 N/A
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Nations Managed Nations Global Short-Term Intermediate
SmallCap Value Government Income Municipal Income Municipal Bond Nations Municipal
Index Fund Fund Fund Fund Income Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 8 $ 15 $ 6 $ 7 $ 8
3 Years $ 24 $ 48 $ 19 $ 22 $ 26
5 Years N/A $ 82 $ 33 $ 39 $ 44
10 Years N/A $ 180 $ 75 $ 87 $ 99
<CAPTION>
Nations Florida
Intermediate Nations Florida
Municipal Bond Municipal Bond
Fund Fund
1 Year $ 7 $ 8
3 Years $ 22 $ 26
5 Years $ 39 $ 44
10 Years $ 87 $ 99
</TABLE>
<TABLE>
<CAPTION>
Nations North
Nations Georgia Nations Maryland Carolina
Intermediate Nations Georgia Intermediate Nations Maryland Intermediate
Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 7 $ 8 $ 7 $ 8 $ 7
3 Years $ 22 $ 26 $ 22 $ 26 $ 22
5 Years $ 39 $ 44 $ 39 $ 44 $ 39
10 Years $ 87 $ 99 $ 87 $ 99 $ 87
<CAPTION>
Nations South
Nations North Carolina
Carolina Intermediate
Municipal Bond Municipal Bond
Fund Fund
1 Year $ 8 $ 7
3 Years $ 26 $ 22
5 Years $ 44 $ 39
10 Years $ 99 $ 87
</TABLE>
<TABLE>
<CAPTION>
Nations South Nations Tennessee Nations Texas
Carolina Intermediate Nations Tennessee Intermediate Nations Texas
Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 8 $ 7 $ 6 $ 7 $ 8
3 Years $ 26 $ 22 $ 26 $ 22 $ 26
5 Years $ 44 $ 39 $ 44 $ 39 $ 44
10 Years $ 99 $ 87 $ 99 $ 87 $ 99
<CAPTION>
Nations Virginia
Intermediate Nations Virginia
Municipal Bond Municipal Bond
Fund Fund
1 Year $ 7 $ 8
3 Years $ 22 $ 26
5 Years $ 39 $ 44
10 Years $ 87 $ 99
</TABLE>
13
<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. The
"Other Expenses" figures in the above tables for Investor A Shares of the
following Funds are based on estimated amounts for the Fund's current fiscal
year and reflect anticipated fee waivers and reimbursements: Nations Florida
Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations North
Carolina Intermediate Municipal Bond Fund, Nations North Carolina 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 and Nations
Virginia Municipal Bond Fund. The figures for the other Funds reflect amounts
incurred during the 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/or reimbursements will continue. In particular, to the
extent other expenses are less than expected, waivers and/or reimbursements of
management fees, if any, may decrease. Shareholders will be notified of any
decrease that materially increases Total Operating Expenses. 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 Plan."
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for
Investor A Shares of the indicated Fund would have been as follows: Nations Tax
Exempt Fund -- .40% and .89%, respectively; Nations Small Company Growth
Fund -- 1.00% and 1.45%, respectively; Nations Managed Index Fund -- .50% and
.95%, respectively; Nations Managed SmallCap Index Fund -- .50% and .95%,
respectively; Nations Managed Value Index Fund -- .50% and .95%, respectively;
and Nations Managed SmallCap Value Index Fund -- .50% and .95%, respectively.
Absent fee waivers, "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 Municipal Income Fund -- .50%, .25% and .85%,
respectively; Nations Intermediate Municipal Bond Fund -- .50%, .25% and .95%,
respectively; Nations Municipal Income Fund -- .60%, .25% 1.05%, respectively;
Nations Florida Intermediate Municipal Bond Fund -- .50%, .25% and .95%,
respectively; Nations Florida Municipal Bond Fund -- .60%, .25% and 1.05%,
respectively; Nations Georgia Intermediate Municipal Bond Fund -- .50%, .25% and
.95%, respectively; Nations Georgia Municipal Bond Fund -- .60%, .25% and 1.05%,
respectively; Nations Maryland Intermediate Municipal Bond Fund -- .50%, .25%
and .95%, respectively; Nations Maryland Municipal Bond Fund -- .60%, .25% and
1.05%, respectively; Nations North Carolina Intermediate Municipal Bond
Fund -- .50%, .25% and .95%, respectively; Nations North Carolina Municipal Bond
Fund -- .60%, .25% and 1.05%, respectively; Nations South Carolina Intermediate
Municipal Bond Fund -- .50%, .25% and .95%, respectively; Nations South Carolina
Municipal Bond Fund -- .60%, .25% and 1.05%, respectively; Nations Tennessee
Intermediate Municipal Bond Fund -- .50%, .25% and .95%, respectively; Nations
Tennessee Municipal Bond Fund -- .60%, .25% and 1.05% Nations Texas Intermediate
Municipal Bond Fund -- .50%, .25% and .95%, respectively; Nations Texas
Municipal Bond Fund -- .60%, .25% and 1.05%, respectively; Nations Virginia
Intermediate Municipal Bond Fund -- .50%, .25% and .95%, respectively; and
Nations Virginia Municipal Bond Fund -- .60%, .25% and 1.05% 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.
14
<PAGE>
Financial Highlights
The following financial information has been derived from the audited 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 period 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. Financial Highlights for Nations Managed Value Index Fund and
Nations Managed SmallCap Value Index Fund are not provided below because neither
Fund had yet commenced operations during the period indicated below.
Information for Investor A Shares of Nations International Growth Fund and
Nations Small Company Growth Fund has been derived from the audited financial
statements dated May 16, 1997 for the Class A Shares of The Pilot Funds' Pilot
International Equity Fund and Pilot Small Capitalization Equity Fund, the
predecessor funds to Nations International Growth Fund and Nations Small Company
Growth Fund, respectively. This information has been audited by Arthur Andersen
LLP and is provided to help you understand the historical performance of the
Funds and their predecessors. The reports of Arthur Andersen LLP accompany the
financial statements dated May 16, 1997 and are incorporated by reference in the
SAI, which is available upon request.
15
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS TAX EXEMPT FUND
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92
<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 0.0300 0.0104 0.0335 0.0231 0.0198 0.0266
Dividends from net
investment income (0.0300) (0.0104) (0.0335) (0.0231) (0.0198) (0.0266)
Total dividends and
distributions (0.0300) (0.0104) (0.0335) (0.0231) (0.0198) (0.0266)
Net asset value, end
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 3.04% 1.04% 3.40% 2.36% 2.00% 2.68%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 145,337 $ 128,414 $ 126,207 $ 151,714 $ 119,552 $ 80,158
Ratio of operating
expenses to average
net assets 0.55% 0.55%+ 0.55% 0.52% 0.48% 0.55%
Ratio of net
investment income
to average net
assets 3.00% 3.10%+ 3.37% 2.34% 1.98% 2.50%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 0.80% 0.83%+ 0.82% 0.84% 0.84% 0.72%
Net investment income
per share without
waivers and/or
expense
reimbursements $ 0.0274 $ 0.0095 $ 0.0309 $ 0.0199 $ 0.0162 $ 0.0248
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/91*
Operating
performance:
Net asset value,
beginning of period $ 1.00
Net investment income 0.0422
Dividends from net
investment income (0.0422)
Total dividends and
distributions (0.0422)
Net asset value, end
of period $ 1.00
Total return++ 4.30%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 1,690
Ratio of operating
expenses to average
net assets 0.42%+
Ratio of net
investment income
to average net
assets 4.23%+
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 $ 0.0404
</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.
16
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS VALUE FUND
YEAR PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 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> <C>
Operating
performance:
Net asset value,
beginning of period $ 16.60 $ 16.21 $ 12.98 $ 13.72 $ 12.45 $ 11.16 $ 9.71
Net investment income 0.21 0.05 0.23 0.20 0.22 0.26 0.34
Net realized and
unrealized
gain/(loss) on
investments 2.70 1.06 3.92 (0.20) 1.35 1.59 1.47
Net
increase/(decrease)
in net asset value
from operations 2.91 1.11 4.15 0.00 1.57 1.85 1.81
Distributions:
Dividends from net
investment income (0.22) (0.10) (0.25) (0.20) (0.21) (0.27) (0.36)
Distributions from
net realized
capital gains (1.42) (0.62) (0.67) (0.54) (0.09) (0.29) --
Total dividends and
distributions (1.64) (0.72) (0.92) (0.74) (0.30) (0.56) (0.36)
Net asset value, end
of period $ 17.87 $ 16.60 $ 16.21 $ 12.98 $ 13.72 $ 12.45 $ 11.16
Total return++ 17.80% 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) $ 70,305 $ 54,341 $ 48,440 $ 35,445 $ 32,607 $ 24,536 $ 13,514
Ratio of operating
expenses to average
net assets 1.22%(c) 1.21%+ 1.19% 1.18% 1.21% 1.06% 0.53%
Ratio of net
investment income
to average net
assets 1.26% 1.05%+ 1.65% 1.60% 1.73% 2.15% 3.33%
Portfolio turnover
rate 47% 12% 63% 75% 64% 60% 51%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 1.22%(c) 1.21%+ 1.19% 1.18% 1.22% 1.15% 0.99%
Net investment income
per share without
waivers and/or
expense
reimbursements $ 0.21(c) $ 0.05 $ 0.23 $ 0.21 $ 0.22 $ 0.25 $ 0.30
Average commission
rate paid (b) $ 0.0649 $ 0.0648 N/A N/A N/A N/A N/A
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/90*
Operating
performance:
Net asset value,
beginning of period $ 10.04
Net investment income 0.35
Net realized and
unrealized
gain/(loss) on
investments (0.36)
Net
increase/(decrease)
in net 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
17
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EQUITY INCOME FUND
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96 (a) 05/31/95 05/31/94 05/31/93 05/31/92
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 13.11 $ 11.78 $ 11.41 $ 12.02 $ 11.40 $ 10.19
Net investment income 0.36 0.27 0.40 0.37 0.34 0.29
Net realized and
unrealized gain on
investments 1.58 1.77 1.10 0.21 1.05 1.27
Net increase in net
asset value from
operations 1.94 2.04 1.50 0.58 1.39 1.56
Distributions:
Dividends from net
investment income (0.38) (0.34) (0.40) (0.38) (0.32) (0.28)
Distributions from net
realized capital
gains (2.41) (0.37) (0.73) (0.81) (0.45) (0.07)
Total dividends and
distributions (2.79) (0.71) (1.13) (1.19) (0.77) (0.35)
Net asset value, end
of period $ 12.26 $ 13.11 $ 11.78 $ 11.41 $ 12.02 $ 11.40
Total return++ 15.30% 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) $ 47,891 $ 42,606 $ 35,538 $ 33,691 $ 32,760 $ 3,418
Ratio of operating
expenses to average
net assets 1.16%(c) 1.15%+ 1.17% 1.19% 1.17% 1.35%
Ratio of net
investment income to
average net assets 2.84% 2.59%+ 3.50% 3.16% 3.12% 2.90%
Portfolio turnover
rate 102% 59% 158% 116% 55% 84%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 1.16%(c) 1.15%+ 1.18% 1.20% 1.29% 2.46%
Net investment
income/(loss) per
share without
waivers and/or
expense
reimbursements $ 0.36(c) $ 0.27 $ 0.40 $ 0.37 $ 0.33 $ 0.18
Average commission
rate paid (b) $ 0.0609 $ 0.0287 N/A N/A N/A N/A
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/91*
Operating performance:
Net asset value,
beginning of period $ 10.04
Net investment income 0.05
Net realized and
unrealized gain on
investments 0.10
Net increase in net
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/(loss) 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 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
18
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS CAPITAL GROWTH FUND
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97## 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 13.41 $ 14.22 $ 11.21 $ 11.06 $ 10.67
Net investment income/(loss) 0.02 0.01 0.06 0.07 0.07
Net realized and unrealized gain on
investments 1.65 0.38 3.28 0.14 0.41
Net increase in net asset value
from operations 1.67 0.39 3.34 0.21 0.48
Distributions:
Dividends from net investment
income (0.02) (0.01) (0.07) (0.06) (0.08)
Distributions from net realized
capital gains (3.39) (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (3.41) (1.20) (0.33) (0.06) (0.09)
Net asset value, end of period $ 11.67 $ 13.41 $ 14.22 $ 11.21 $ 11.06
Total return++ 11.58% 3.02% 30.70% 1.93% 4.56%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 20,465 $ 18,311 $ 16,770 $ 11,038 $ 11,182
Ratio of operating expenses to
average net assets 1.21%(d) 1.21%+ 1.23% 1.15% 1.05%
Ratio of net investment income to
average net assets 0.14% 0.13%+ 0.46% 0.60% 0.59%
Portfolio turnover rate 75% 25% 80% 56% 81%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.21% 1.21%+ 1.23% 1.16% 1.14%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.02 $ 0.01 $ 0.06 $ 0.07 $ 0.06
Average commission rate paid (c) $ 0.0604 $ 0.0632 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of
period $ 10.00
Net investment income/(loss) 0.01
Net realized and unrealized gain on
investments 0.66#
Net increase in net 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 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 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.
## 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
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.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
19
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EMERGING GROWTH FUND
YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96#(a) 11/30/95 11/30/94# 11/30/93*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.91 $ 14.17 $ 11.35 $ 10.85 $ 9.87
Net investment/(loss) (0.07) (0.01) (0.01) (0.06) (0.03)
Net realized and unrealized gain on investments 0.19 1.25 3.23 0.70 1.02
Net increase in net asset value from operations 0.12 1.24 3.22 0.64 0.99
Distributions:
Distributions from net realized capital gains (1.34) (1.50) (0.40) (0.14) (0.01)
Total dividends and distributions (1.34) (1.50) (0.40) (0.14) (0.01)
Net asset value, end of period $ 12.69 $ 13.91 $ 14.17 $ 11.35 $ 10.85
Total return++ 0.18% 9.80% 29.65% 5.90% 9.99%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 12,126 $ 7,802 $ 5,765 $ 3,234 $ 2,095
Ratio of operating expenses to average net
assets 1.23%(c) 1.24%+ 1.23% 1.26% 1.05%+
Ratio of net investment/(loss) to average net
assets (0.51)% (0.31)%+ (0.17)% (0.54)% (0.40)%+
Portfolio turnover rate 93% 39% 139% 129% 159%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursement 1.23%(c) 1.24%+ 1.23% 1.26% 1.26%+
Net investment/(loss) per share without waivers
and/or expense reimbursement $ (0.07)(c) $ (0.01) $ (0.01) $ (0.05) $ (0.04)
Average commission rate paid (b) $ 0.0562 $ 0.0599 N/A N/A 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
20
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS DISCIPLINED EQUITY FUND
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.16 $ 17.04 $ 13.06 $ 13.30
Net investment income/(loss) 0.08 0.04 0.09 0.00(b)
Net realized and unrealized gain/(loss) on
investments 2.80 0.35 3.96 (0.23)#
Net increase/(decrease) in net asset value from
operations 2.88 0.39 4.05 (0.23)
Distributions:
Dividends from net investment income (0.09) (0.04) (0.07) (0.01)
Distributions from net realized capital gains (1.51) (0.23) -- --
Return of capital -- -- -- (0.00)(b)
Total dividends and distributions: (1.60) (0.27) (0.07) (0.01)
Net asset value, end of period $ 18.44 $ 17.16 $ 17.04 $ 13.06
Total return++ 16.76% 2.35% 31.05% (1.71)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,837 $ 4,722 $ 3,234 $ 252
Ratio of operating expenses to average net
assets 1.29%(d) 1.12%+ 1.40% 1.23%+
Ratio of net investment income/(loss) to
average net assets 0.45% 0.72%+ 0.75% 0.02%+
Portfolio turnover rate 120% 47% 124% 177%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.29% 1.12%+ 1.40% 1.66%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.08 $ 0.04 $ 0.09 $ (0.07)
Average commission rate paid (c) $ 0.0377 $ 0.0627 N/A N/A
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 04/29/94*
Operating performance:
Net asset value, beginning of period $ 14.94
Net investment income/(loss) (0.04)
Net realized and unrealized gain/(loss) on
investments 1.35
Net increase/(decrease) in net 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.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
21
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NATIONS SMALL COMPANY GROWTH FUND
PERIOD PERIOD
ENDED ENDED
INVESTOR A SHARES* 05/16/97 08/31/96(a)
<S> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 10.64 $ 10.00
Net investment income 0.03 0.05
Net realized and unrealized gain on investments and futures 1.46 0.64
Total income from investment activities 1.49 0.69
Distributions from net investment income (0.03) (0.05)
Distributions from net realized gains (0.05) --
Total Distributions (0.08) (0.05)
Net asset value at the end of the period $ 12.05 $ 10.64
Total return (b) 13.98% 6.88%
Ratio of expenses to average net assets 1.23%(c) 1.25%(c)
Ratio of net investment income to average net assets 0.30%(c) 0.66%(c)
Portfolio turnover rate (e) 48% 31%
Net assets at end of period (in 000's) $ 3,697 $ 2,611
Ratio of expenses to average net assets (assuming no waiver or expense
reimbursements) 1.66%(c) 1.65%(c)
Ratio of net investment income to average net assets (assuming no waiver or expense
reimbursements) (0.13)(c) 0.26%(c)
Average Commission Rate (d) $ .0323 $ .0340
</TABLE>
* Investor A Shares of Nations Small Company Growth Fund were formerly Class A
Shares of the Pilot Small Capitalization Equity Fund, a predecessor
portfolio.
(a) Share activity commenced December 12, 1995.
(b) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken for Class
A Shares. Total return is not annualized.
(c) Annualized.
(d) The average commission rate represents the total dollar amount of
commissions paid on portfolio transactions divided by the total number of
portfolio shares purchased and sold for which commissions were charged.
Disclosure is not required for prior periods.
(e) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued.
22
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL EQUITY FUND
YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96(a)# 05/31/95# 05/31/94# 05/31/93*#
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.39 $ 11.67 $ 12.00 $ 10.56 $ 10.38
Net investment income 0.05 0.04 0.11 0.06 0.07
Net realized and unrealized gain/(loss) on
investments 0.11 1.78 (0.20) 1.44 0.21
Net increase/(decrease) in net asset value from
operations 0.16 1.82 (0.09) 1.50 0.28
Distributions:
Dividends from net investment income (0.09) (0.04) (0.02) (0.04) (0.08)
Distributions in excess of net investment
income (0.00)(c) (0.04) -- -- --
Distributions from net realized capital gains (0.42) (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized capital
gains (0.03) -- (0.10) -- --
Total dividends and distributions (0.54) (0.10) (0.24) (0.06) (0.10)
Net asset value, end of period $ 13.01 $ 13.39 $ 11.67 $ 12.00 $ 10.56
Total return++ 1.08% 15.66% (0.69)% 14.00% 2.91%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 9,443 $ 7,643 $ 4,877 $ 3,219 $ 839
Ratio of operating expenses to average net
assets 1.41% 1.42%+ 1.28% 1.42% 1.55%+
Ratio of net investment income to average net
assets 0.37% 0.40%+ 0.92% 0.50% 0.78%+
Portfolio turnover rate 36% 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 per share without waivers
and/or expense reimbursements -- $ 0.04 $ 0.11 $ 0.05 $ 0.07
Average commission rate paid (b) $ 0.0279 $ 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 period 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.
(c) Amount represents less than $0.01 per share.
23
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL GROWTH FUND
EIGHT
PERIOD YEAR YEAR YEAR MONTHS
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES* 05/16/97 08/31/96 08/31/95(i) 08/31/94 08/31/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value at the
beginning of the period $ 16.90 $ 16.14 $ 16.29 $ 14.13 $ 11.85
Net investment
income/(loss) (0.05) 0.04 0.08(h) 0.07(h) 0.02(h)
Net realized and
unrealized gain/(loss)
on investments 2.85 1.69 (0.22)(h) 1.65(h) 2.51(h)
Net realized and
unrealized gain/(loss)
on foreign currency
related transactions (c) (0.95) (0.12) 0.39(h) 0.59(h) (0.25)(h)
Total income/(loss) from
investment activities 1.85 1.61 0.25 2.31 2.28
Distributions from net
investment income (0.14) (0.46) (0.11) -- --
Distributions from net
realized gain on
investments and foreign
currency related
transactions (0.34) (0.39) (0.29) (0.15) --
Net asset value at the end
of the period $ 18.27 $ 16.90 $ 16.14 $ 16.29 $ 14.13
Total return (d) 11.14%(e) 10.40% 1.77% 16.48% 19.24%(e)
Portfolio turnover rate
(k) 33.68% 22.31% 35.91% 35.40% 26.65%(g)
Ratio of expenses to
average net assets 1.42%(f) 1.32% 1.42% 1.37% 2.17%(f)
Ratio of net investment
income (loss) to average
net assets 0.29%(f) 0.48% 0.50% 0.48% 0.25%(f)
Net assets at end of
period (in 000's) $ 26,730 $ 26,730 $ 27,625 $ 44,990 $ 55,816
Average Commission
Rate (j) $ 0.0107 $ 0.0160 -- -- --
<CAPTION>
YEAR
ENDED
INVESTOR A SHARES* 12/31/92(a)(b)
Operating performance:
Net asset value at the
beginning of the period $ 12.29
Net investment
income/(loss) 0.04(h)
Net realized and
unrealized gain/(loss)
on investments (0.46)(h)
Net realized and
unrealized gain/(loss)
on foreign currency
related transactions (c) --
Total income/(loss) from
investment activities (0.42)
Distributions from net
investment income (0.02)
Distributions from net
realized gain on
investments and foreign
currency related
transactions --
Net asset value at the end
of the period $ 11.85
Total return (d) (3.42)%
Portfolio turnover rate
(k) 58.55%
Ratio of expenses to
average net assets 1.78%
Ratio of net investment
income (loss) to average
net assets 0.35%
Net assets at end of
period (in 000's) $ 56,358
Average Commission
Rate (j) --
</TABLE>
* Investor A Shares of Nations International Growth Fund were formerly Class A
Shares of the Pilot International Equity Fund, a predeccessor portfolio.
(a) Prior to a tax-free reorganization into Pilot Administration shares
effective July 12, 1993, the Pilot Kleinwort Benson International Equity
Portfolio was a separate portfolio of Kleinwort Benson Investment
Strategies known as Kleinwort Benson International Equity Fund. The
predecessor portfolio was advised by Kleinwort Benson International
Investment Limited and had a December 31 fiscal year end.
(b) Prior to July 12, 1993, the Pilot Administration shares were not subject to
an Administration Plan.
(c) For years preceding the fiscal year ended August 31, 1993, net realized and
unrealized gain/(losses) from foreign currency related transactions were
included in net realized and unrealized gain/(losses) from investments.
Effective January 1, 1993, realized and unrealized gain/(losses) from
foreign currency related transactions are disclosed separately from net
realized and unrealized gain/(losses) from investments.
(d) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken for the
Class A Shares.
(e) Not annualized.
(f) Annualized.
(g) Excludes the transfer of assets effective on August 6, 1993 from a
collective trust for which Boatmen's Trust Company served as trustee.
(h) Calculated based on the average shares outstanding methodology.
(i) The Administration Class Shares were redesignated as the Class A Shares.
(j) Represents the total dollar amount of commissions paid on security
transactions divided by total number of security shares purchased and sold
for which commissions were charged. Disclosure is not required for prior
periods.
(k) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued and is not
annualized.
24
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS INTERNATIONAL GROWTH FUND (CONT.)
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES* 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of the
period $ 12.65 $ 15.58 $ 14.66 $ 13.21 $ 22.92
Net investment income/(loss) 0.06 0.12 0.07 (0.01) --
Net realized and unrealized capital
gain/(loss) on investments 1.36 (2.40) 3.22 2.73 2.11
Net realized and unrealized gain/(loss)
on foreign currency related
transactions (c) -- -- -- -- --
Total income/(loss) from investments 1.42 (2.28) 3.29 2.72 2.11
Distributions from net investment income (0.08) (0.14) (0.22) -- --
Distributions from net realized gain on
investments and foreign currency
related transactions (1.70) (0.51) (2.15) (1.27) (11.82)
Net asset value at the end of the period $ 12.29 $ 12.65 $ 15.58 $ 14.66 $ 13.21
Total return (d) 11.81% (14.77)% 22.99% 21.03% 9.28%
Portfolio turnover rate (k) 51.88% 52.00% 61.54% 54.84% 58.98%
Ratio of expenses to average net assets 1.79% 1.82% 2.00% 2.31% 1.72%
Ratio of net investment income/(loss) to
average net assets 0.45% 0.76% 0.39% (0.07)% 0.01%
Net assets at end of period (in 000's) $ 65,939 $ 72,007 $ 80,224 $ 59,864 $ 53,800
Average commission rate (j) -- -- -- -- --
</TABLE>
* Investor A Shares of Nations International Growth Fund were formerly Class A
Shares of the Pilot International Equity Fund, a predeccessor portfolio.
(a) Prior to a tax-free reorganization into Pilot Administration shares
effective July 12, 1993, the Pilot Kleinwort Benson International Equity
Portfolio was a separate portfolio of Kleinwort Benson Investment
Strategies known as Kleinwort Benson International Equity Fund. The
predecessor portfolio was advised by Kleinwort Benson International
Investment Limited and had a December 31 fiscal year end.
(b) Prior to July 12, 1993, the Pilot Administration shares were not subject to
an Administration Plan.
(c) For years preceding the fiscal year ended August 31, 1993, net realized and
unrealized gain/(losses) from foreign currency related transactions were
included in net realized and unrealized gain/(losses) from investments.
Effective January 1, 1993, realized and unrealized gain/(losses) from
foreign currency related transactions are disclosed separately from net
realized and unrealized gain/(losses) from investments.
(d) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken for the
Class A Shares.
(e) Not annualized.
(f) Annualized.
(g) Calculated on a portfolio-wide level and excludes the transfer of assets
effective on August 6, 1993.
(h) Calculated based on the average shares outstanding methodology.
(i) Effective August 21, 1995 the Administration Class Shares were redesignated
as the Class A Shares.
(j) Represents the total dollar amount of commissions paid on security
transactions, for the time periods of May 4, 1996 to August 31, 1996,
divided by total number of security shares purchased and sold for which
commissions were charged. Disclosure is not required for prior periods.
(k) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued and is not
annualized.
25
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EMERGING MARKETS FUND
YEAR PERIOD
ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96*#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.32 $ 10.00
Net investment income/(loss) (0.01) (0.05)
Net realized and unrealized gain on investments 1.21 0.37
Net increase in net asset value from operations 1.20 0.32
Dividends from net investment income (0.02) --
Distributions in excess of net investment income (0.05) --
Distributions from net realized capital gains (0.06) --
Total dividends and distributions (0.13) --
Net asset value, end of period $ 11.39 $ 10.32
Total return++ 11.74% 3.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 894 $ 477
Ratio of operating expenses to average net assets 1.99% 2.38%+
Ratio of net investment income/(loss) to average net assets 0.12% (0.63)%+
Portfolio turnover rate 31% 17%
Averge commission rate paid (a) $ 0.0003 $ 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.
26
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NATIONS PACIFIC GROWTH FUND
YEAR PERIOD
ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96*#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.23 $ 10.00
Net investment income/(loss) 0.00(a) (0.04)
Net realized and unrealized gain on investments 0.19 0.29
Net increase in net asset value from operations 0.19 0.25
Dividends from net investment income (0.03) --
Distributions in excess of net investment income (0.02) (0.02)
Distributions from net realized capital gains -- --
Distributions in excess of net realized capital gain -- --
Total dividends and distributions (0.05) (0.02)
Net asset value, end of period $ 10.37 $ 10.23
Total return++ 1.86% 2.52%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,480 $ 1,375
Ratio of operating expenses to average net assets 1.67% 2.01%+
Ratio of net investment income/(loss) to average net assets 0.14% (0.52)%+
Portfolio turnover rate 78% 23%
Average commission rate paid (b) $ 0.0126 $ 0.0178
</TABLE>
* Nations Pacific Growth 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) Amount represents less than $0.01 per share.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
27
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NATIONS MANAGED INDEX FUND
PERIOD
ENDED
INVESTOR A SHARES 03/31/97*
<S> <C>
Net asset value, beginning of period $ 10.00
Net investment income 0.12
Net realized and unrealized gain on investments 1.89
Net increase in net asset value from operations 2.01
Dividends from net investment income (0.12)
Total dividends and distributions (0.12)
Net asset value, end of period $ 11.89
Total return++ 20.12%
Ratio to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,038
Ratio of operating expenses to average net assets 0.75%+(b)
Ratio of net investment income to average net assets 1.67%+
Portfolio turnover rate 17%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.30%+(b)
Net investment income per share without waivers and/or expense reimbursements $ 0.09(b)
Average commission rate paid (a) $ 0.0259
</TABLE>
* Nations Managed Index Fund's Investor A Shares commenced on July 31, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
28
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NATIONS MANAGED SMALLCAP INDEX FUND
PERIOD
ENDED
INVESTOR A SHARES 03/31/97*
<S> <C>
Net asset value, beginning of period $ 10.00
Net investment income 0.03
Net realized and unrealized gain/(loss) on investments (0.18)
Net increase/(decrease) in net asset value from operations (0.15)
Dividends from net investment income (0.03)
Distributions in excess of net investment income (0.00)(b)
Total dividends and distributions (0.03)
Net asset value, end of period $ 9.82
Total return++ (1.52)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 334
Ratio of operating expenses to average net assets .75%+
Ratio of net investment income to average net assets .80%+
Portfolio turnover rate 18%
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.46%+
Net investment income per share without waivers and/or expense reimbursements $ 0.01
Average commission rate paid (a) $ 0.0279
</TABLE>
* Nations Managed SmallCap Index Fund's Investor A Shares commenced operations
on October 15, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
(b) Amount represents less than $0.01 per share.
29
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NATIONS GLOBAL GOVERNMENT INCOME FUND
YEAR PERIOD
ENDED ENDED
INVESTOR A SHARES 03/31/97# 03/31/96*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.07 $ 10.00
Net investment income 0.44 0.37
Net realized and unrealized gain/(loss) on investments (0.02) 0.11
Net increase in net asset value from operations 0.42 0.48
Distributions:
Dividends from net investment income (0.45) (0.35)
Distributions in excess of net investment income (0.09) (0.02)
Distributions from net realized capital gains (0.16) (0.04)
Total dividends and distributions (0.70) (0.41)
Net asset value, end of period $ 9.79 $ 10.07
Total return++ 3.99% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 15,104 $ 14,898
Ratio of operating expenses to average net assets 1.51% 1.57%+
Ratio of net investment income to average net assets 4.35% 4.92%+
Portfolio turnover rate 100% 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.
30
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.98 $ 10.03 $ 9.69 $ 9.96
Net investment income 0.42 0.14 0.42 0.36
Net realized and unrealized gain/(loss) on
investments (0.03) (0.05) 0.34 (0.27)
Net increase in net asset value from operations 0.39 0.09 0.76 0.09
Distributions:
Dividends from net investment income (0.42) (0.14) (0.42) (0.36)
Distributions from net realized capital gains -- -- -- (0.00)#
Total dividends and distributions (0.42) (0.14) (0.42) (0.36)
Net asset value, end of period $ 9.95 $ 9.98 $ 10.03 $ 9.69
Total return++ 3.96% 0.90% 7.95% 0.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,417 $ 4,599 $ 3,741 $ 217
Ratio of operating expenses to average net
assets 0.60%(a) 0.60%+(a) 0.65%(a) 0.52%(a)
Ratio of net investment income to average net
assets 4.16% 4.17%+ 4.18% 3.65%
Portfolio turnover rate 80% 16% 82% 57%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.04% 1.06%+ 1.13% 0.99%
Net investment income per share without waivers
and/or expense reimbursements $ 0.37 $ 0.12 $ 0.37 $ 0.33
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.98
Net investment income 0.03
Net realized and unrealized gain/(loss) on
investments (0.02)
Net increase in net asset value from operations 0.01
Distributions:
Dividends from net investment income (0.03)
Distributions from net realized capital gains --
Total dividends and distributions (0.03)
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) $ 731
Ratio of operating expenses to average net
assets 0.24%+
Ratio of net investment income to average net
assets 3.01%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.19%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.02
</TABLE>
* Nations Short-Term Municipal Income Fund's Investor A Shares commenced
operations on November 2, 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.
31
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.03 $ 10.17 $ 9.24 $ 10.11
Net investment income 0.46 0.15 0.47 0.42
Net realized and unrealized gain/(loss) on
investments (0.02) (0.14) 0.93 (0.86)
Net increase/(decrease) in net asset value from
operations 0.44 0.01 1.40 (0.44)
Distributions:
Dividends from net investment income (0.46) (0.15) (0.47) (0.42)
Distributions in excess of net investment
income -- -- -- (0.00)#
Distributions from net realized capital gains -- -- -- (0.01)
Total dividends and distributions (0.46) (0.15) (0.47) (0.43)
Net asset value, end of period $ 10.01 $ 10.03 $ 10.17 $ 9.24
Total return++ 4.42% 0.13% 15.38% (4.48)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,067 $ 1,500 $ 1,249 $ 172
Ratio of operating expenses to average net
assets 0.70%(a) 0.70%+(a) 0.65%(a) 0.53%(a)
Ratio of net investment income to average net
assets 4,54% 4.55%+ 4.71% 4.41%
Portfolio turnover rate 21% 4% 31% 51%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.01% 1.03%+ 1.04% 1.06%
Net investment income per share without waivers
and/or expense reimbursements $ 0.42 $ 0.14 $ 0.44 $ 0.38
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.10
Net investment income 0.12
Net realized and unrealized gain/(loss) on
investments 0.01
Net increase/(decrease) in net asset value from
operations 0.13
Distributions:
Dividends from net investment income (0.12)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.12)
Net asset value, end of period $ 10.11
Total return++ 1.28%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 68
Ratio of operating expenses to average net
assets 0.39%+
Ratio of net investment income to average net
assets 3.92%+
Portfolio turnover rate 23%
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 $ 0.10
</TABLE>
* Nations Intermediate Municipal Bond Fund's Investor A Shares commenced
operations on August 17, 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.
32
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS MUNICIPAL INCOME FUND
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning
of period $ 10.84 $ 11.08 $ 9.64 $ 11.33 $ 10.65 $ 10.25
Net investment income 0.57 0.19 0.57 0.55 0.57 0.58
Net realized and
unrealized gain/(loss)
on investments 0.05 (0.24) 1.44 (1.44) 0.72 0.41
Net increase/(decrease) in
net asset value from
operations 0.62 (0.05) 2.01 (0.89) 1.29 0.99
Distributions:
Dividends from net
investment income (0.57) (0.19) (0.57) (0.55) (0.57) (0.58)
Distributions in excess of
net investment income -- -- -- (0.00)# -- --
Distributions from net
realized capital gains -- -- -- (0.25) (0.04) (0.01)
Total dividends and
distributions (0.57) (0.19) (0.57) (0.80) (0.61) (0.59)
Net asset value, end of
period $ 10.89 $ 10.84 $ 11.08 $ 9.64 $ 11.33 $ 10.65
Total return++ 5.82% (0.47)% 21.31% (8.34)% 12.37% 9.88%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $ 15,075 $ 26,085 $ 27,963 $ 23,754 $ 28,415 $ 21,056
Ratio of operating
expenses to average net
assets 0.80% 0.80%+ 0.80% 0.79% 0.60% 0.52%
Ratio of operating
expenses to average net
assets including
interest expense (a) (a) (a) 0.80% -- --
Ratio of net investment
income to average net
assets 5.21% 5.15%+ 5.43% 5.24% 5.09% 5.42%
Portfolio turnover rate 25% 4% 49% 63% 48% 19%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 1.11% 1.11%+ 1.08% 1.08% 0.99% 0.99%
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.54 $ 0.18 $ 0.54 $ 0.52 $ 0.53 $ 0.53
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/91*
<S> <C>
Operating performance:
Net asset value, beginning
of period $ 10.00
Net investment income 0.52
Net realized and
unrealized gain/(loss)
on investments 0.25
Net increase/(decrease) in
net asset value from
operations 0.77
Distributions:
Dividends from net
investment income (0.52)
Distributions in excess of
net investment income --
Distributions from net
realized capital gains --
Total dividends and
distributions (0.52)
Net asset value, end of
period $ 10.25
Total return++ 7.87%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $ 7,234
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 6.07%+
Portfolio turnover rate 54%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 0.88%+
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.45
</TABLE>
* Nations Municipal Income Fund's Investor A Shares commenced operations on
February 1, 1991.
+ 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.
33
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.46 $ 10.63 $ 9.61 $ 10.50
Net investment income 0.47 0.16 0.46 0.43
Net realized and unrealized gain/(loss) on
investments (0.06) (0.17) 1.02 (0.88)
Net increase/(decrease) in net asset value from
operations 0.41 (0.01) 1.48 (0.45)
Distributions:
Dividends from net investment income (0.47) (0.16) (0.46) (0.43)
Distributions in excess of net investment
income -- -- -- (0.00)#
Distributions from net realized capital gains -- -- -- (0.01)
Total dividends and distributions (0.47) (0.16) (0.46) (0.44)
Net asset value, end of period $ 10.40 $ 10.46 $ 10.63 $ 9.61
Total return++ 4.01% (0.13)% 15.68% (4.43)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,142 $ 2,029 $ 2,292 $ 2,114
Ratio of operating expenses to average net
assets 0.70%(a) 0.70%+(a) 0.75%(a) 0.73%(a)
Ratio of net investment income to average net
assets 4.52% 4.46%+ 4.50% 4.26%
Portfolio turnover rate 16% 18% 27% 34%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.01% 1.06%+ 1.01% 0.94%
Net investment income per share without waivers
and/or expense reimbursements $ 0.44 $ 0.14 $ 0.44 $ 0.41
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.99
Net investment income 0.42
Net realized and unrealized gain/(loss) on
investments 0.51
Net increase/(decrease) in net asset value from
operations 0.93
Distributions:
Dividends from net investment income (0.42)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.42)
Net asset value, end of period $ 10.50
Total return++ 9.44%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,261
Ratio of operating expenses to average net
assets 0.59%+
Ratio of net investment income to average net
assets 4.13%+
Portfolio turnover rate 15%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.95%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.39
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund Investor A Shares commenced
operations on December 14, 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.
34
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS FLORIDA MUNICIPAL BOND FUND
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.47 $ 9.76 $ 8.40 $ 9.98
Net investment income 0.46 0.15 0.49 0.47
Net realized and unrealized gain/(loss) on investments 0.01 (0.29) 1.36 (1.58)
Net increase/(decrease) in net asset value from operations 0.47 (0.14) 1.85 (1.11)
Dividends from net investment income (0.46) (0.15) (0.49) (0.47)
Total dividends and distributions (0.46) (0.15) (0.49) (0.47)
Net asset value, end of period $ 9.48 $ 9.47 $ 9.76 $ 8.40
Total return++ 5.09% (1.40)% 22.45% (11.35)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,781 $ 1,836 $ 1,787 $ 1,024
Ratio of operating expenses to average net assets 0.80% 0.80%+ 0.59% 0.39%+
Ratio of operating expenses to average net assets including
interest expense (a) (a) (a) (a)
Ratio of net investment income to average net assets 4.87% 4.83%+ 5.24% 5.37%+
Portfolio turnover rate 23% 7% 13% 46%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.13% 1.16%+ 1.15% 1.09%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.43 $ 0.14 $ 0.44 $ 0.42
</TABLE>
* Nations Florida Municipal Bond Fund Investor A Shares commenced operations on
December 10, 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.
35
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 10.63 $ 10.81 $ 9.82 $ 10.82 $ 10.28
Net investment income 0.48 0.16 0.48 0.47 0.48
Net realized and unrealized
gain/(loss) on investments (0.05) (0.18) 0.99 (0.98) 0.57
Net increase/(decrease) in net
asset value from operations 0.43 (0.02) 1.47 (0.51) 1.05
Distributions:
Dividends from net investment
income (0.48) (0.16) (0.48) (0.47) (0.48)
Distributions in excess of net
investment income -- -- -- (0.00)# --
Distributions from net realized
capital gains -- -- -- (0.02) (0.03)
Total dividends and distributions (0.48) (0.16) (0.48) (0.49) (0.51)
Net asset value, end of period $ 10.58 $ 10.63 $ 10.81 $ 9.82 $ 10.82
Total return++ 4.12% (0.19)% 15.20% (4.87)% 10.37%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 8,810 $ 8,625 $ 9,175 $ 10,401 $ 16,752
Ratio of operating expenses to
average net assets 0.70% 0.70%+ 0.75% 0.72% 0.61%
Ratio of operating expenses to
average net assets including
interest expense (a) (a) (a) 0.73% --
Ratio of net investment income to
average net assets 4.52% 4.47%+ 4.56% 4.56% 4.42%
Portfolio turnover rate 9% 3% 17% 22% 6%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.00% 1.03%+ 1.00% 0.93% 0.92%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.45 $ 0.15 $ 0.45 $ 0.45 $ 0.45
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of
period $ 9.98
Net investment income 0.30
Net realized and unrealized
gain/(loss) on investments 0.30
Net increase/(decrease) in net
asset value from operations 0.60
Distributions:
Dividends from net investment
income (0.30)
Distributions in excess of net
investment income --
Distributions from net realized
capital gains --
Total dividends and distributions (0.30)
Net asset value, end of period $ 10.28
Total return++ 6.12%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 3,809
Ratio of operating expenses to
average net assets 0.34%+
Ratio of operating expenses to
average net assets including
interest expense --
Ratio of net investment income to
average net assets 5.01%+
Portfolio turnover rate 12%
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 $ 0.27
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Investor A Shares commenced
operations on May 4, 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.
36
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS GEORGIA MUNICIPAL BOND FUND
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.48 $ 9.72 $ 8.38 $ 9.99
Net investment income 0.45 0.14 0.49 0.47
Net realized and unrealized gain/(loss) on investments 0.02 (0.24) 1.34 (1.61)
Net increase/(decrease) in net asset value from operations 0.47 (0.10) 1.83 (1.14)
Dividends from net investment income (0.45) (0.14) (0.49) (0.47)
Total dividends and distributions (0.45) (0.14) (0.49) (0.47)
Net asset value, end of period $ 9.50 $ 9.48 $ 9.72 $ 8.38
Total return++ 5.05% (1.08)% 22.25% (11.71)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 208 $ 7 $ 7 $ 6
Ratio of operating expenses to average net assets 0.80%(a) 0.80%+(a) 0.60%(a) 0.39%+(a)
Ratio of net investment income to average net assets 4.76% 4.76%+ 5.22% 5.42%+
Portfolio turnover rate 19% 7% 26% 35%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.25% 1.34%+ 1.29% 1.22%+
Net investment income per share without waivers and/or
expense reimbursements 0.41% $ 0.12 $ 0.42 $ 0.40
</TABLE>
* Nations Georgia Municipal Bond Fund Investor A Shares commenced operations on
December 30, 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 ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
37
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C> <C> <C>
Operating
performance:
Net asset value,
beginning of
period $ 10.80 $ 10.95 $ 10.00 $ 11.09 $ 10.72 $ 10.44
Net investment
income 0.48 0.16 0.48 0.48 0.51 0.54
Net realized and
unrealized gain/
(loss) on
investments (0.10) (0.15) 0.98 (0.99) 0.44 0.31
Net
increase/(decrease)
in net asset
value from
operations 0.38 0.01 1.46 (0.51) 0.95 0.85
Distributions:
Dividends from net
investment
income (0.48) (0.16) (0.48) (0.48) (0.51) (0.54)
Distributions from
net realized
capital gains -- -- (0.03) (0.10) (0.07) (0.03)
Distributions in
excess of net
realized capital
gains -- -- -- (0.00)# -- --
Total dividends
and
distributions (0.48) (0.16) (0.51) (0.58) (0.58) (0.57)
Net asset value,
end of period $ 10.70 $ 10.80 $ 10.95 $ 10.00 $ 11.09 $ 10.72
Total return++ 3.62% 0.09% 14.94% (4.82)% 8.96% 8.32%+++
Ratios to average
net assets/
supplemental
data:
Net assets, end of
period (in
000's) $ 14,988 $ 19,456 $ 21,208 $ 22,145 $ 22,144 $ 20,092
Ratio of operating
expenses to
average net
assets 0.70%(a) 0.70%+(a) 0.75%(a) 0.71%(a) 0.64% 0.48%
Ratio of net
investment
income to
average net
assets 4.50% 4.42%+ 4.56% 4.55% 4.58% 4.98%
Portfolio turnover
rate 10% 4% 11% 22% 26% 38%
Ratio of operating
expenses to
average net
assets without
waivers and/or
expense
reimbursements 0.98% 1.01%+ 1.00% 0.91% 0.88% 0.87%
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.45 $ 0.15 $ 0.45 $ 0.46 $ 0.48 $ 0.50
<CAPTION>
YEAR PERIOD
ENDED ENDED
INVESTOR A SHARES 11/30/91 11/30/90*
<S> <C> <C>
Operating
performance:
Net asset value,
beginning of
period $ 10.21 $ 10.00
Net investment
income 0.60 0.16
Net realized and
unrealized gain/
(loss) on
investments 0.24 0.21
Net
increase/(decrease
in net asset
value from
operations 0.84 0.37
Distributions:
Dividends from net
investment
income (0.60) (0.16)
Distributions from
net realized
capital gains (0.01) --
Distributions in
excess of net
realized capital
gains -- --
Total dividends
and
distributions (0.61) (0.16)
Net asset value,
end of period $ 10.44 $ 10.21
Total return++ 8.46%+++ 3.72%+++
Ratios to average
net assets/
supplemental
data:
Net assets, end of
period (in
000's) $ 9,934 $ 2,228
Ratio of operating
expenses to
average net
assets 0.20% 0.21%+
Ratio of net
investment
income to
average net
assets 5.76% 6.12% +
Portfolio turnover
rate 26% 49%
Ratio of operating
expenses to
average net
assets without
waivers and/or
expense
reimbursements 0.71% 0.84%+
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.55 $ 0.13
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Investor 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.
38
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS MARYLAND MUNICIPAL BOND FUND
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.39 $ 9.63 $ 8.37 $ 9.77
Net investment income 0.44 0.14 0.46 0.49
Net realized and unrealized gain/(loss) on
investments 0.02 (0.24) 1.26 (1.40)
Net increase/(decrease) in net asset value from
operations 0.46 (0.10) 1.72 (0.91)
Dividends from net investment income (0.44) (0.14) (0.46) (0.49)
Total dividends and distributions (0.44) (0.14) (0.46) (0.49)
Net asset value, end of period $ 9.41 $ 9.39 $ 9.63 $ 8.37
Total return++ 4.99% (1.01)% 20.99% (9.59)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,409 $ 1,086 $ 1,031 $ 9
Ratio of operating expenses to average net
assets 0.80% 0.80%+ 0.60% 0.39%(a)
Ratio of net investment income to average net
assets 4.68% 4.52%+ 4.94% 5.30%
Portfolio turnover rate 18% 7% 11% 39%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.32% 1.43%+ 1.46% 1.48%
Net investment income per share without waivers
and/or expense reimbursements $ 0.39 $ 0.12 $ 0.38 $ 0.41
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.80
Net investment income 0.03
Net realized and unrealized gain/(loss) on
investments (0.03)
Net increase/(decrease) in net asset value from
operations 0.00
Dividends from net investment income (0.03)
Total dividends and distributions (0.03)
Net asset value, end of period $ 9.77
Total return++ 0.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6
Ratio of operating expenses to average net
assets 0.13%+
Ratio of net investment income to average net
assets 3.97%+
Portfolio turnover rate 1%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.76%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.02
</TABLE>
* Nations Maryland Municipal Bond Fund Investor A Shares commenced operations
on November 4, 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.
39
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.36 $ 10.51 $ 9.53 $ 10.46
Net investment income 0.45 0.15 0.43 0.42
Net realized and unrealized gain/(loss) on
investments (0.02) (0.15) 0.99 (0.88)
Net increase/(decrease) in net asset value from
operations 0.43 0.00 1.42 (0.46)
Distributions:
Dividends from net investment income (0.45) (0.15) (0.43) (0.42)
Distributions in excess of net investment
income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) (0.05)
Total dividends and distributions (0.45) (0.15) (0.44) (0.47)
Net asset value, end of period $ 10.34 $ 10.36 $ 10.51 $ 9.53
Total return++ 4.25% (0.01)% 15.18% (4.51)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,723 $ 7,672 $ 8,525 $ 8,896
Ratio of operating expenses to average net
assets 0.70%(a) 0.70%+ 0.77%(a) 0.73%(a)
Ratio of net investment income to average net
assets 4.37% 4.27%+ 4.27% 4.20%
Portfolio turnover rate 26% 3% 57% 37%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.02% 1.07%+ 1.04% 1.00%
Net investment income per share without waivers
and/or expense reimbursements $ 0.42 $ 0.14 $ 0.41 $ 0.40
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.01
Net investment income 0.42
Net realized and unrealized gain/(loss) on
investments 0.45
Net increase/(decrease) in net asset value from
operations 0.87
Distributions:
Dividends from net investment income (0.42)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.42)
Net asset value, end of period $ 10.46
Total return++ 8.76%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,749
Ratio of operating expenses to average net
assets 0.57%+
Ratio of net investment income to average net
assets 4.08%+
Portfolio turnover rate 29%
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 $ 0.38
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Investor A Shares
commenced operations on December 14, 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.
40
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.49 $ 9.73 $ 8.36 $ 9.85
Net investment income 0.45 0.15 0.49 0.50
Net realized and unrealized gain/(loss) on
investments (0.02) (0.24) 1.37 (1.49)
Net increase/(decrease) in net asset value from
operations 0.43 (0.09) 1.86 (0.99)
Dividends from net investment income (0.45) (0.15) (0.49) (0.50)
Total dividends and distributions (0.45) (0.15) (0.49) (0.50)
Net asset value, end of period $ 9.47 $ 9.49 $ 9.73 $ 8.36
Total return++ 4.62% (0.94)% 22.63% (10.41)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 594 $ 448 $ 347 $ 1,161
Ratio of operating expenses to average net
assets 0.80%(a) 0.80%+ 0.58%(a) 0.39%(a)
Ratio of net investment income to average net
assets 4.75% 4.66%+ 5.23% 5.35%
Portfolio turnover rate 28% 22% 40% 29%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.14% 1.19%+ 1.16% 1.10%
Net investment income per share without waivers
and/or expense reimbursements $ 0.42 $ 0.14 $ 0.44 $ 0.43
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.97
Net investment income 0.04
Net realized and unrealized gain/(loss) on
investments (0.12)
Net increase/(decrease) in net asset value from
operations (0.08)
Dividends from net investment income (0.04)
Total dividends and distributions (0.04)
Net asset value, end of period $ 9.85
Total return++ (0.80)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,085
Ratio of operating expenses to average net
assets 0.09%+
Ratio of net investment income to average net
assets 3.97%+
Portfolio turnover rate 10%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.21%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.03
</TABLE>
* Nations North Carolina Municipal Bond Fund Investor A Shares commenced
operations on November 1, 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.
41
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 10.52 $ 10.69 $ 9.76 $ 10.61 $ 10.18
Net investment income 0.49 0.16 0.49 0.48 0.48
Net realized and
unrealized gain/(loss)
on investments (0.02) (0.17) 0.93 (0.84) 0.43
Net increase/(decrease)
in net asset value from
operations 0.47 (0.01) 1.42 (0.36) 0.91
Distributions:
Dividends from net
investment income (0.49) (0.16) (0.49) (0.48) (0.48)
Distributions in excess
of net investment
income -- -- -- (0.00)# --
Distributions from net
realized capital gains -- -- -- (0.01) --
Total dividends and
distributions (0.49) (0.16) (0.49) (0.49) (0.48)
Net asset value, end of
period $ 10.50 $ 10.52 $ 10.69 $ 9.76 $ 10.61
Total return++ 4.51% (0.07)% 14.79% (3.54)% 9.16%
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 10,465 $ 14,288 $ 14,452 $ 16,378 $ 20,024
Ratio of operating
expenses to average net
assets 0.70%(a) 0.70%+(a) 0.75%(a) 0.72%(a) 0.60%
Ratio of net investment
income to average net
assets 4.60% 4.61%+ 4.72% 4.64% 4.53%
Portfolio turnover rate 13% 6% 11% 30% 11%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 0.99% 1.02%+ 0.95% 0.93% 0.90%
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.46 $ 0.15 $ 0.47 $ 0.46 $ 0.45
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value,
beginning of period $ 9.98
Net investment income 0.30
Net realized and
unrealized gain/(loss)
on investments 0.20
Net increase/(decrease)
in net asset value from
operations 0.50
Distributions:
Dividends from net
investment income (0.30)
Distributions in excess
of net investment
income --
Distributions from net
realized capital gains --
Total dividends and
distributions (0.30)
Net asset value, end of
period $ 10.18
Total return++ 5.03%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 7,414
Ratio of operating
expenses to average net
assets 0.33%+
Ratio of net investment
income to average net
assets 4.83%+
Portfolio turnover rate 7%
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 $ 0.27
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Investor A Shares
commenced operations on May 5, 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 on the operating expense ratio was less than 0.01%.
(b) Fiscal year changed to March 31. Prior to this, the fiscal year end was
November 30.
42
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.77 $ 9.99 $ 8.65 $ 9.86
Net investment income 0.47 0.16 0.50 0.50
Net realized and unrealized gain/(loss) on
investments 0.02 (0.22) 1.34 (1.21)
Net increase/(decrease) in net asset value from
operations 0.49 (0.06) 1.84 (0.71)
Dividends from net investment income (0.47) (0.16) (0.50) (0.50)
Total dividends and distributions (0.47) (0.16) (0.50) (0.50)
Net asset value, end of period $ 9.79 $ 9.77 $ 9.99 $ 8.65
Total return++ 5.12% (0.64)% 21.74% (7.45)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 811 $ 1,219 $ 1,238 $ 140
Ratio of operating expenses to average net
assets 0.80% 0.80%+ 0.60% 0.39%
Ratio of operating expenses to average net
assets including interest expense (a) (a) (a) (a)
Ratio of net investment income to average net
assets 4.79% 4.76%+ 5.24% 5.30%
Portfolio turnover rate 30% 20% 13% 14%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.20% 1.33%+ 1.28% 1.30%
Net investment income per share without waivers
and/or expense reimbursements $ 0.43 $ 0.14 $ 0.44 $ 0.42
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.87
Net investment income 0.03
Net realized and unrealized gain/(loss) on
investments (0.01)
Net increase/(decrease) in net asset value from
operations 0.02
Dividends from net investment income (0.03)
Total dividends and distributions (0.03)
Net asset value, end of period $ 9.86
Total return++ 0.21%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 14
Ratio of operating expenses to average net
assets 0.10%+
Ratio of operating expenses to average net
assets including interest expense --
Ratio of net investment income to average net
assets 4.16%+
Portfolio turnover rate 8%
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 South Carolina Municipal Bond Fund Investor A Shares commenced
operations on November 8, 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.
43
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.09 $ 10.23 $ 9.30 $ 10.18
Net investment income 0.44 0.15 0.44 0.43
Net realized and unrealized gain/(loss) on
investments (0.01) (0.14) 0.93 (0.87)
Net increase/(decrease) in net asset value from
operations 0.43 0.01 1.37 (0.44)
Distributions:
Dividends from net investment income (0.44) (0.15) (0.44) (0.43)
Distributions in excess of net investment
income -- -- -- (0.00)#
Distributions from net realized capital gains -- -- -- (0.01)
Total dividends and distributions (0.44) (0.15) (0.44) (0.44)
Net asset value, end of period $ 10.08 $ 10.09 $ 10.23 $ 9.30
Total return++ 4.33% 0.06% 15.00% (4.41)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,840 $ 7,439 $ 7,573 $ 7,831
Ratio of operating expenses to average net
assets 0.70% 0.70%+ 0.77% 0.70%
Ratio of operating expenses to average net
assets including interest expense (a) -- (a) 0.71%
Ratio of net investment income to average net
assets 4.35% 4.31%+ 4.45% 4.38%
Portfolio turnover rate 28% 3% 34% 41%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.13% 1.22%+ 1.12% 1.07%
Net investment income per share without waivers
and/or expense reimbursements $ 0.40 $ 0.13 $ 0.41 $ 0.40
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.29
Net realized and unrealized gain/(loss) on
investments 0.18
Net increase/(decrease) in net asset value from
operations 0.47
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++ 4.68%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 15,573
Ratio of operating expenses to average net
assets 0.42%+
Ratio of operating expenses to average net
assets including interest expense --
Ratio of net investment income to average net
assets 4.16%+
Portfolio turnover rate 16%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.09%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.24
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund Investor A Shares
commenced operations on April 2, 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.
44
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.68 $ 9.87 $ 8.58 $ 9.80
Net investment income 0.46 0.15 0.50 0.50
Net realized and unrealized gain/(loss) on
investments 0.02 (0.19) 1.29 (1.22)
Net increase/(decrease) in net asset value from
operations 0.48 (0.04) 1.79 (0.72)
Dividends from net investment income (0.46) (0.15) (0.50) (0.50)
Total dividends and distributions (0.46) (0.15) (0.50) (0.50)
Net asset value, end of period $ 9.70 $ 9.68 $ 9.87 $ 8.58
Total return++ 5.02% (0.37)% 21.28% (7.58)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,018 $ 973 $ 203 $ 43
Ratio of operating expenses to average net
assets 0.80% 0.80%+ 0.60% 0.39%
Ratio of operating expenses to average net
assets including interest expense (a) 0.81%+ (a) (a)
Ratio of net investment income to average net
assets 4.71% 4.72%+ 5.29% 5.38%
Portfolio turnover rate 31% 2% 45% 38%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.44% 1.67%+ 1.47% 1.38%
Net investment income per share without waivers
and/or expense reimbursements $ 0.40 $ 0.12 $ 0.42 $ 0.42
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.88
Net investment income 0.04
Net realized and unrealized gain/(loss) on
investments (0.08)
Net increase/(decrease) in net asset value from
operations (0.04)
Dividends from net investment income (0.04)
Total dividends and distributions (0.04)
Net asset value, end of period $ 9.80
Total return++ (0.43)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 34
Ratio of operating expenses to average net
assets 0.17%+
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 3%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.86%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.03
</TABLE>
* Nations Tennessee Municipal Bond Fund Investor A Shares commenced operations
on November 2, 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.
45
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.21 $ 10.36 $ 9.53 $ 10.35
Net investment income 0.45 0.15 0.44 0.42
Net realized and unrealized gain/(loss) on
investments (0.03) (0.15) 0.83 (0.79)
Net increase/(decrease) in net asset value from
operations 0.42 0.00 1.27 (0.37)
Distributions:
Dividends from net investment income (0.45) (0.15) (0.44) (0.42)
Distributions in excess of net investment
income -- -- -- (0.00)#
Distributions from net realized capital gains -- -- -- (0.03)
Total dividends and distributions (0.45) (0.15) (0.44) (0.45)
Net asset value, end of period $ 10.18 $ 10.21 $ 10.36 $ 9.53
Total return++ 4.17% (0.02)% 13.60% (3.66)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 909 $ 801 $ 806 $ 718
Ratio of operating expenses to average net
assets 0.70% 0.70%+ 0.77%(a) 0.73%(a)
Ratio of net investment income to average net
assets 4.39% 4.32%+ 4.42% 4.22%
Portfolio turnover rate 34% 11% 64% 61%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.04% 1.09%+ 1.03% 0.96%
Net investment income per share without waivers
and/or expense reimbursements $ 0.41 $ 0.14 $ 0.42 $ 0.40
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.15
Net investment income 0.37
Net realized and unrealized gain/(loss) on
investments 0.20
Net increase/(decrease) in net asset value from
operations 0.57
Distributions:
Dividends from net investment income (0.37)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.37)
Net asset value, end of period $ 10.35
Total return++ 5.64%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 968
Ratio of operating expenses to average net
assets 0.59%+
Ratio of net investment income to average net
assets 4.28%+
Portfolio turnover rate 63%
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 $ 0.34
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund Investor A Shares commenced
operations on February 4, 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.
46
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.49 $ 9.70 $ 8.39 $ 9.92
Net investment income 0.46 0.15 0.49 0.47
Net realized and unrealized gain/(loss) on investments (0.01) (0.21) 1.31 (1.53)
Net increase/(decrease) in net asset value from operations 0.45 (0.06) 1.80 (1.06)
Dividends from net investment income (0.46) (0.15) (0.49) (0.47)
Total dividends and distributions (0.46) (0.15) (0.49) (0.47)
Net asset value, end of period $ 9.48 $ 9.49 $ 9.70 $ 8.39
Total return++ 4.78% (0.62)% 21.85% (10.98)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 371 $ 317 $ 351 $ 55
Ratio of operating expenses to average net assets 0.80%(a) 0.80%+ 0.59%(a) 0.40%+(a)
Ratio of net investment income to average net assets 4.79% 4.72%+ 5.25% 5.34%+
Portfolio turnover rate 52% 6% 50% 107%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.23% 1.31%+ 1.25% 1.24%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.42 $ 0.13 $ 0.43 $ 0.39
</TABLE>
* Nations Texas Municipal Bond Fund Investor A Shares commenced operations on
December 17, 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.
47
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92
<S> <C> <C> <C> <C> <C> <C>
Operating
performance:
Net asset value,
beginning of period $ 10.69 $ 10.83 $ 9.94 $ 10.99 $ 10.59 $ 10.34
Net investment income 0.49 0.16 0.49 0.48 0.51 0.54
Net realized and
unrealized
gain/(loss) on
investments (0.10) (0.14) 0.89 (0.96) 0.42 0.29
Net
increase/(decrease)
in net asset value
from operations 0.39 0.02 1.38 (0.48) 0.93 0.83
Distributions:
Dividends from net
investment income (0.49) (0.16) (0.49) (0.48) (0.51) (0.54)
Distributions from
net realized
capital gains -- -- (0.00)# (0.09) (0.02) (0.04)
Distributions in
excess of net
realized capital
gains -- -- -- (0.00)# -- --
Total dividends and
distributions (0.49) (0.16) (0.49) (0.57) (0.53) (0.58)
Net asset value, end
of period $ 10.59 $ 10.69 $ 10.83 $ 9.94 $ 10.99 $ 10.59
Total return++ 3.71% 0.20% 14.16% (4.52)% 8.91% 8.18%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 55,791 $ 68,003 $ 73,253 $ 79,412 $ 103,689 $ 76,650
Ratio of operating
expenses to average
net assets 0.70%(a) 0.70%+(a) 0.76%(a) 0.79%(a) 0.72% 0.65%
Ratio of net
investment income
to average net
assets 4.59% 4.52%+ 4.67% 4.58% 4.65% 5.04%
Portfolio turnover
rate 20% 2% 22% 14% 26% 13%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 0.94% 0.96%+ 0.94% 0.91% 0.84% 0.97%
Net investment income
per share without
waivers and/or
expense
reimbursements $ 0.47 $ 0.15 $ 0.47 $ 0.47 $ 0.49 $ 0.50
<CAPTION>
YEAR PERIOD
ENDED ENDED
INVESTOR A SHARES 11/30/91 11/30/90*
<S> <C> <C>
Operating
performance:
Net asset value,
beginning of period $ 10.14 $ 10.08
Net investment income 0.58 0.61
Net realized and
unrealized
gain/(loss) on
investments 0.21 0.11
Net
increase/(decrease)
in net asset value
from operations 0.79 0.72
Distributions:
Dividends from net
investment income (0.58) (0.66)
Distributions from
net realized
capital gains (0.01) --
Distributions in
excess of net
realized capital
gains -- --
Total dividends and
distributions (0.59) (0.66)
Net asset value, end
of period $ 10.34 $ 10.14
Total return++ 8.04%+++ 7.41%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 44,540 $ 24,303
Ratio of operating
expenses to average
net assets 0.45% 0.26%+
Ratio of net
investment income
to average net
assets 5.67% 6.09%+
Portfolio turnover
rate 24% 19%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 0.73% 0.80% +
Net investment income
per share without
waivers and/or
expense
reimbursements $ 0.55 $ 0.55
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Investor A Shares
commenced operations on December 5, 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.
48
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/97 03/31/96(b) 11/30/95 11/30/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.38 $ 9.62 $ 8.29 $ 9.77
Net investment income 0.46 0.16 0.49 0.49
Net realized and unrealized gain/(loss) on
investments 0.02 (0.24) 1.33 (1.48)
Net increase/(decrease) in net asset value from
operations 0.48 (0.08) 1.82 (0.99)
Dividends from net investment income (0.46) (0.16) (0.49) (0.49)
Total dividends and distributions (0.46) (0.16) (0.49) (0.49)
Net asset value, end of period $ 9.40 $ 9.38 $ 9.62 $ 8.29
Total return++ 5.23% (0.91)% 22.39% (10.44)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 726 $ 661 $ 650 $ 168
Ratio of operating expenses to average net
assets 0.80% 0.80%+ 0.59% 0.39%
Ratio of operating expenses to average net
assets including interest expense (a) 0.81%+ (a) (a)
Ratio of net investment income to average net
assets 4.90% 4.86%+ 5.31% 5.34%
Portfolio turnover rate 37% 8% 16% 61%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.18% 1.27%+ 1.24% 1.17%
Net investment income per share without waivers
and/or expense reimbursements $ 0.42 $ 0.14 $ 0.44 $ 0.43
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.84
Net investment income 0.03
Net realized and unrealized gain/(loss) on
investments (0.07)
Net increase/(decrease) in net asset value from
operations (0.04)
Dividends from net investment income (0.03)
Total dividends and distributions (0.03)
Net asset value, end of period $ 9.77
Total return++ (0.42)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 25
Ratio of operating expenses to average net
assets 0.10%+
Ratio of operating expenses to average net
assets including interest expense --
Ratio of net investment income to average net
assets 3.88%+
Portfolio turnover rate 0%
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 $ 0.02
</TABLE>
* Nations Virginia Municipal Bond Fund Investor A Shares commenced operations
on November 8, 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.
Objectives
MONEY MARKET FUND:
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 CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies
49
<PAGE>
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 SMALL COMPANY GROWTH FUND: Nations Small Company Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities.
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 regions, including developing countries.
NATIONS INTERNATIONAL GROWTH FUND: Nations International Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of companies domiciled in countries outside the United
States and listed on major stock exchanges primarily in Europe and the Pacific
Basin.
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 market 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).
INDEX FUNDS:
NATIONS MANAGED INDEX FUND: Nations Managed Index Fund's investment objective is
to seek, over the long-term, to provide a total return which (gross of fees and
expenses) exceeds the total return of the Standard & Poor's 500 Composite Stock
Price Index.
NATIONS MANAGED SMALLCAP INDEX FUND: Nations Managed SmallCap Index Fund's
investment objective is to seek, over the long-term, to provide a total return
which (gross of fees and expenses) exceeds the total return of the Standard &
Poor's SmallCap 600 Index.
NATIONS MANAGED VALUE INDEX FUND: Nations Managed Value Index Fund's investment
objective is to seek, over the long-term, to provide a total return that (gross
of fees and expenses) exceeds the total return of the S&P 500/BARRA Value Index.
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: Nations Managed SmallCap Value Index
Fund's investment objective is to seek, over the long-term, to provide a total
return that (gross of fees and expenses) exceeds the total return of the S&P
SmallCap 600/BARRA Value Index.
BOND FUND:
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to seek total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
TAX-EXEMPT FUNDS:
NATIONS SHORT-TERM MUNICIPAL INCOME FUND: The investment objective of Nations
Short-Term Municipal Income Fund is to seek high current income exempt from
Federal income tax consistent with minimal fluctuation of principal. The Fund
invests in investment grade, short-term municipal securities.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: Nations Intermediate Municipal Bond
Fund's investment objective is to seek high current income exempt from Federal
income tax
50
<PAGE>
consistent with moderate fluctuation of principal. The Fund invests in
investment grade, intermediate-term municipal securities.
NATIONS MUNICIPAL INCOME FUND: The investment objective of Nations Municipal
Income Fund is to seek high current income exempt from Federal income tax with
the potential for principal fluctuation associated with investments in long-term
municipal securities. The Fund invests in investment grade, long-term municipal
securities.
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND: Nations Florida Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income and the Florida state intangibles taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS FLORIDA MUNICIPAL BOND FUND: Nations Florida Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
and the Florida state intangibles taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Georgia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Georgia state income taxes consistent with moderate fluctuation
of principal. The Fund invests in investment grade, intermediate-term municipal
securities.
NATIONS GEORGIA MUNICIPAL BOND FUND: Nations Georgia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Georgia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND: Nations Maryland Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Maryland state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
NATIONS MARYLAND MUNICIPAL BOND FUND: Nations Maryland Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Maryland state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term municipal securities.
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations North Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and North Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND: Nations North Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and North Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations South Carolina
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal and South Carolina state income taxes consistent with
moderate fluctuation of principal. The Fund invests in investment grade,
intermediate-term municipal securities.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND: Nations South Carolina Municipal
Bond Fund's investment objective is to seek high current income exempt from
Federal and South Carolina state income taxes with the potential for principal
fluctuation associated with investments in long-term municipal securities. The
Fund invests in investment grade, long-term municipal securities.
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NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND: Nations Tennessee
Intermediate Municipal Bond Fund's investment objective is to seek high current
income exempt from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of principal. The Fund
invests in investment grade, intermediate-term municipal securities.
NATIONS TENNESSEE MUNICIPAL BOND FUND: Nations Tennessee Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax and the Tennessee Hall Income Tax on unearned income with the potential for
principal fluctuation associated with investments in long-term municipal
securities. The Fund invests in investment grade, long-term municipal
securities.
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND: Nations Texas Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal income tax consistent with moderate fluctuation of principal. The
Fund invests in investment grade, intermediate-term municipal securities.
NATIONS TEXAS MUNICIPAL BOND FUND: Nations Texas Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal income
tax with the potential for principal fluctuation associated with investments in
long-term municipal securities. The Fund invests in investment grade, long-term
municipal securities.
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Virginia Intermediate
Municipal Bond Fund's investment objective is to seek high current income exempt
from Federal and Virginia state income taxes consistent with moderate
fluctuation of principal. The Fund invests in investment grade, intermediate-
term municipal securities.
NATIONS VIRGINIA MUNICIPAL BOND FUND: Nations Virginia Municipal Bond Fund's
investment objective is to seek high current income exempt from Federal and
Virginia state income taxes with the potential for principal fluctuation
associated with investments in long-term municipal securities. The Fund invests
in investment grade, long-term 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 are 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 are sometimes collectively
referred to as the "State Municipal Bond Funds".
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.
How Objectives Are Pursued
MONEY MARKET FUND:
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; having a long-term rating of
"A" or higher from D&P, Fitch, S&P, IBCA, BankWatch or Moody's in the case of
certain bonds which are 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."
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 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.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940 (the "1940 Act"), the Fund invests only in first tier
securities (as defined below). For more information concerning the Fund's
investments, see "Appendix A."
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Money Market
Fund to value its 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 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 greater maturi-
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ties, provided such obligations are subject to demand features or resets which
are less than 397 days, 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. 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.
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 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 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
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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 and repurchase
agreements. 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 provided by the stocks in the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index")1 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.
(1) "Standard & Poor's 500" is a
registered service mark of
Standard & Poor's Corporation.
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The Fund may invest in various money market instruments and repurchase
agreements. 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 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 and repurchase
agreements. 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 equity securities,
consisting of common stocks, preferred stocks and convertible securities, such
as warrants, rights 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,
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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 and repurchase agreements. 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 greater 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, it 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 the Fund, the Adviser utilizes quantitative analysis and
optimization tools. This approach seeks to identify companies with improving
profit potential through analysis of 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. The quantitative analysis also includes ranking the attractiveness
of equity securities according to a multi-factor valuation model. Both value and
growth factors are considered in the ranking process. Value factors such as book
value, earnings yield and cash flow measure a stock's intrinsic worth versus its
market price, while growth characteristics such as price momentum, earnings
growth and earnings acceleration measure a stock relative to others in the same
industry. The objective is to maintain a broadly diversified portfolio which
ranks in the top quartile on earnings momentum and in the top third on
valuation. This approach generally produces a dividend yield less than the
market average. Although this Fund seeks to invest in attractively priced
securities with increasing earnings, its investment objective focuses on
long-term capital appreciation; income is not an objective of this 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
rat-
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ing 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, money
market instruments and repurchase agreements.
NATIONS SMALL COMPANY GROWTH FUND: In pursuing its investment objective, the
Fund will invest at least 65% of its total assets in equity securities,
including securities convertible into equity securities, under normal
circumstances. In addition, the Fund will invest at least 65% of its total
assets in companies with a market capitalization of $1 billion or less.
In making investment decisions for the Fund, the Adviser, on a quarterly basis,
classifies approximately 6,000 companies by market value and eliminates the
largest 20%. The remaining companies constitute the Fund's small-capitalization
universe and generally represent only one-tenth of the aggregate U.S. equity
market capitalization. Due to the large number of small stocks to choose from,
the Adviser's selection process uses advanced quantitative techniques to
identify, buy and sell candidates in a timely and objective manner. The strategy
is to own those investments offering both attractive fundamental valuation and
relatively good prospects for earnings improvement. Typically, two types of
companies are candidates for purchase: (i) mature companies which may have
fallen from a larger market value due to business difficulties, but which now
exhibit improving prospects; and (ii) smaller or younger companies which are
experiencing strong trends in earnings growth, but remain reasonably valued and
therefore offer premium growth at a discount in comparison to other companies.
The Adviser's internally designed investment approach uses a sophisticated
valuation process which measures changes in current earnings estimates and
longer-term growth trends, compares recent earnings results with market
expectations, and evaluates a company's earnings power relative to its stock
price. Companies become purchase candidates based upon a composite ranking of
these factors, and the top 20% are further evaluated on additional criteria.
Candidates for investment must also possess a sound financial structure and
demonstrate consistent factor rankings before being added to the Fund's
portfolio.
The Fund's weighted median capitalization generally is not expected to exceed
125% of the weighted median capitalization of the Russell 2000 Small Stock Index
(the "Russell 2000") as measured on a quarterly basis, although this may vary
from time to time. Furthermore, a stock may be sold if the composite rank falls
into the bottom 20% of the universe, financial quality weakens significantly, or
if individual factors demonstrate patterns of deterioration.
The Fund may invest up to 35% of its total assets in securities of issuers with
a market capitalization greater than $1 billion and in debt securities. However,
the Fund will not invest more than 10% of its total assets in debt securities,
unless the Fund assumes a temporary defensive position as discussed below. Debt
securities, if any, purchased by the Fund will be rated AA or above by S&P or Aa
or above by Moody's or, if unrated, determined by the Adviser to be of
comparable quality. For temporary defensive purposes, the Fund may invest up to
100% of its assets in debt securities. Debt securities in which the Fund may
invest include short-term and intermediate-term obligations of corporations, the
U.S. and foreign governments and international organizations (such as the World
Bank), and money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending and repurchase agreements.
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The Fund currently intends to limit any investment in foreign securities to 5%
of total assets.
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"), Global
Depositary Receipts ("GDRs"), 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 defensive purposes, the Fund may temporarily
invest substantially all of its assets in U.S. financial markets or in U.S.
dollar-denominated instruments.
NATIONS INTERNATIONAL GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in foreign equity securities listed on major exchanges, consisting of common
stocks, preferred stocks, convertible securities, such as warrants, rights and
convertible debt. The Fund may purchase the stock of small-, mid-and large-
capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Directors, the former Soviet Union and the
Middle East. Debt securities, if any, purchased by the Fund will be rated in the
top two categories by an NRSRO or, if unrated, determined by the Adviser to be
of comparable quality. For temporary defensive purposes, the Fund may invest up
to 100% of its assets in debt and equity securities of U.S. issuers. Debt
securities in which the Fund may invest include short-term and intermediate-term
obligations of corporations, foreign governments and international organizations
(such as the International Bank for Reconstruction and Development (the "World
Bank")), and money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements. The Fund also 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.
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 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.
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Emerging market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the 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, 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
International Growth 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.
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
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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
International Growth 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.
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 and also may invest in repurchase agreements,
restricted, private placement and other illiquid securities. Each Equity Fund
may invest in real estate investment trust securities and may invest in
securities issued by other investment companies, consistent with the Fund's
investment objective and policies. Nations International Equity Fund, Nations
International Growth Fund, Nations Pacific Growth Fund and Nations Emerging
Markets Fund may invest in forward foreign exchange contracts.
INDEX FUNDS:
NATIONS MANAGED INDEX FUND: In seeking to achieve its investment objective, the
Fund will invest in selected equity securities that are included in the S&P 500
Index. The S&P 500 Index is a market capitalization weighted index consisting of
500 common stocks chosen for market size, liquidity and industry group
representation.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P 500 Index while minimizing
the downside risk of underperforming the S&P 500 Index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index. The
Adviser ranks the attractiveness of each security according to a multi-factor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum,
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earnings growth and earnings acceleration view a stock relative to others in the
same industry. A second quantitative model which measures the earnings momentum
of each security is added to the screening process to serve as a validity check
in the portfolio construction process. Each stock is assigned a ranking from 1
to 10 (best to worst). The Adviser then either underweights or eliminates the
less attractive securities and modestly emphasizes the most attractive stocks
resulting in a portfolio of 300 to 400 holdings that capture the overall
investment characteristics of the S&P 500 Index.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical and, in any event at least 80% of its total
assets, in common stocks which are included in the S&P 500 Index. The Fund is
expected, however, to maintain a 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 Obligations and
repurchase agreements.
NATIONS MANAGED SMALLCAP INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the Standard & Poor's SmallCap 600 Index (the "S&P 600 Index")2. The S&P 600
Index is a market capitalization weighted index consisting of 600 domestic
stocks which capture the economic and industry characteristics of small stock
performance.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P 600 Index while minimizing
the downside risk of underperforming the Index over time.
From the initial S&P 600 Index stock universe the Adviser ranks the
attractiveness of each security according to a multi-factor valuation model.
Both value and momentum factors are considered in the ranking process. Value
factors such as book value, earnings yield and cash flow measure a stock's
intrinsic worth versus its market price, while momentum characteristics such as
price momentum, earnings growth and earnings acceleration measure a stock
relative to others in the same industry. A second quantitative model which
measures the earnings momentum of each security is added to the screening
process to serve as a validity check in the portfolio construction process. Each
stock is assigned a ranking from 1 to 10 (best to worst). The Adviser then
either underweights or eliminates the less attractive securities and modestly
emphasizes the most attractive stocks resulting in a portfolio of approximately
400-500 holdings that capture the investment characteristics of the S&P 600
Index.
Under normal conditions, substantially all of the Fund's assets, and, in any
event at least 80% of its total assets, will be invested in common stocks which
are included in the S&P 600 Index. The Fund is expected, however, to maintain a
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 Obligations and repurchase agreements.
NATIONS MANAGED VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P 500 BARRA/Value Index ("S&P/BARRA Value Index"). The S&P/BARRA Value
Index is a subset of the S&P 500 Index. The S&P 500 Index is a market
capitalization weighted index consisting of 500 com-
(2) "Standard & Poor's SmallCap 600"
is a registered service mark of
S&P.
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mon stocks chosen for market size, liquidity and industry group representation.
The S&P/BARRA Value Index is a market capitalization weighted index consisting
of approximately 340 common stocks selected from the S&P 500 Index on the basis
of a higher than average price-to-book ratio. Because of their higher than
average price-to-book ratios, stocks in the S&P/BARRA Value Index, on average,
typically exhibit higher yields than stocks in the S&P 500 Index. Historically,
stocks in the S&P/BARRA Value Index, on average, have exhibited less short-term
volatility than stocks in the S&P 500 Index.
S&P constructs in the S&P/BARRA Value Index semi-annually by ranking all common
stocks included in the S&P 500 Index by their price-to-book ratios. The
resulting list is then divided in half by market capitalization. Stocks in the
half of the list that have higher price-to-book ratios are included in the
S&P/BARRA Value Index.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser
believes that a managed equity value index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA Value Index while
reducing the downside risk of underperforming the S&P/BARRA Value Index over
time.
The initial stock universe considered by the Adviser is the S&P/BARRA Value
Index. The Adviser ranks the attractiveness of each security according to a
multi-factor valuation model. Although the universe consists exclusively of
value stocks, both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration are useful in determining a stock's value in relation to lenders in
the same industry. A second quantitative model which measures the earnings
momentum of each security is added to the screening process to serve as a
validity check in the portfolio construction process. Each stock is assigned a
ranking from 1 to 10 (best to worst). The Adviser then either underweights or
eliminates the less attractive securities and modestly emphasizes the most
attractive stocks resulting in a portfolio of 100 to 200 holdings that capture
the overall investment characteristics of the S&P/BARRA Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets, in common stocks which are included in the S&P/BARRA Value Index. The
Fund is expected, however, to maintain a 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 Obligations and
repurchase agreements.
NATIONS MANAGED SMALLCAP VALUE INDEX FUND: In seeking to achieve its investment
objective, the Fund will invest in selected equity securities that are included
in the S&P SmallCap 600 BARRA/Value Index ("S&P/BARRA SmallCap Value Index").
The S&P/BARRA SmallCap Value Index is a subset of the S&P 600 Index. The S&P 600
Index is a market capitalization weighted index consisting of 600 domestic
stocks which capture the economic and industry characteristics of small stock
performance. The S&P/BARRA SmallCap Value Index is a market capitalization
weighted index consisting of approximately 375 companies selected from the S&P
600 Index on the basis of price-to-book ratios. Those companies with lower
price-to-book ratios make up the S&P/BARRA SmallCap Value Index. The S&P/BARRA
SmallCap Value Index is rebalanced semi-annually to reflect changes in the S&P
600 Index.
Unlike traditional index funds, the Fund has a "managed" overlay. The Adviser,
believes that a managed equity index portfolio can provide investors with
positive incremental performance relative to the S&P/BARRA SmallCap Value Index
while reducing the downside risk of underperforming the S&P/BARRA SmallCap Value
Index over time.
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The initial stock universe considered by the Adviser is the S&P/BARRA SmallCap
Value Index. The Adviser ranks the attractiveness of each security according to
a multi-factor valuation model. Although the universe consists exclusively of
value stocks, both value and momentum factors are considered in the ranking
process. Value factors are considered in the ranking process. Value factors such
as book value, earnings yield and cash flow measure a stock's intrinsic worth
versus its market price, while momentum characteristics such as price momentum,
earnings growth and earnings acceleration are useful in determining a stock's
value in relation to others in the same industry. A second quantitative model
which measures the earnings momentum of each security is added to the screening
process to serve as a validity check in the portfolio construction process. Each
stock is assigned a ranking from 1 to 10 (best to worst). The Adviser then
either underweights or eliminates the less attractive securities and modestly
emphasizes the most attractive stocks resulting in a portfolio of 200 to 300
holdings that capture the overall investment characteristics of the S&P/BARRA
SmallCap Value Index.
Under normal conditions, the Adviser will invest at least 80% of its total
assets in common stocks which are included in the S&P/BARRA SmallCap Value
Index. The Fund is expected, however, to maintain a 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 or deposit, bankers' acceptances and time deposits, U.S. Government
Obligations and repurchase agreements.
ABOUT THE INDEXES: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The S&P
SmallCap 600 Index is composed of 600 domestic stocks, which are chosen by S&P
based on, among other things, market size, liquidity and industry group
representation. The S&P SmallCap 600 Index is designed to be a benchmark of
small capitalization stock performance. Most of these stocks are listed on
either the New York, American or NASDAQ stock exchanges.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index (collectively,
the "BARRA Value Indexes") are constructed by dividing the stocks in the S&P 500
Index and the S&P 600 Index, respectively, according to a single attribute:
price-to-book ratios. The BARRA Value Indexes are capitalization-weighted,
meaning that each stock is weighted in the approximate index in proportion to
its market value. Additionally, price-to-book ratios tend to be more stable over
time than alternative measures such as price-to-earnings ratios, historical
earnings growth rates, or return on equity. This results in indexes with
relatively low turnover. Generally, the companies in the BARRA Value Indexes
also exhibit characteristics associated with "value" stocks: lower
price-to-earnings ratios, higher dividend yields, and lower historical and
predicted earnings growth than the S&P 500 Index or the S&P 600 Index,
respectively.
The S&P/BARRA Value Index and the S&P/BARRA SmallCap Value Index are relatively
concentrated. The S&P/BARRA Value Index tends to be more heavily concentrated in
the Energy, Utility, and Financial sectors than the S&P 500 Index. Additionally,
the S&P/BARRA SmallCap Value Index tends to be more heavily concentrated in the
Utility and Financial sectors than the S&P 600 Index.
The inclusion of a stock in the S&P 500 Index, the S&P 600 Index, the S&P/BARRA
Value Index or the S&P/BARRA SmallCap Value Index in no way implies that S&P or
BARRA believes the stock to be an attractive investment. The Indexes are
determined, composed and calculated by S&P and BARRA without regard to the
Funds. Neither S&P or BARRA is a sponsor of, or in any way affiliated with, the
Funds, and neither S&P or BARRA makes any representation or warranty, expressed
or implied, on the advisability of investing in the Funds or as to the
advisability of investing in the Funds or as to the ability of the Indexes to
track general stock market performance. S&P and BARRA disclaim all
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<PAGE>
warranties of merchantability or fitness for a particular purpose or use with
respect to the Indexes or any data included therein.
GENERAL: Each Index 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. exchange-traded financial futures approved by the CFTC and
options thereon for market exposure risk management. Each Fund may lend its
portfolio securities to qualified institutional investors and also may invest in
repurchase agreements, restricted, private placement and other illiquid
securities. In addition, the Funds may invest in securities issued by other
investment companies, consistent with the Fund's investment objective and
policies.
In addition, when consistent with the Fund's respective investment objective,
each of the Funds will employ various techniques to manage capital gain
distributions. These techniques include utilizing a share identification
methodology whereby the Fund will specifically identify each lot of shares of
portfolio securities that it holds, which will allow the Fund to sell first
those specific shares with the highest tax basis in order to reduce the amount
of recognized capital gains as compared with a sale of identical portfolio
securities, if any, with a lower tax basis. The Fund will sell first those
shares with the highest tax basis only when it is in the best interest of the
Fund to do so, and reserves the right to sell other shares when appropriate. In
addition, the Fund may, at times, sell portfolio securities in order to realize
capital losses. Such capital losses would be used to offset realized capital
gains thereby reducing capital gain distributions. Additionally, the Adviser
will, consistent with the portfolio construction process discussed above, employ
a low portfolio turnover strategy designed to defer the realization of capital
gains.
Equity mutual funds, like other investors in equity securities, incur
transaction (brokerage) costs in connection with the purchase and sale of
portfolio securities. For some funds, these costs can have a material negative
impact on performance. With respect to the Index Funds, the Adviser will attempt
to minimize these transaction costs by utilizing program trades and computerized
exchanges called "crossing networks" which allow institutions to execute trades
at the mid-point of the bid/ask spread and at a reduced commission rate.
For more information concerning these and other investments in which the Funds
may invest and their investment practices, see "Appendix A."
BOND 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
International Growth 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 1940 Act. The
Fund may invest in securities of issuers
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located in any region or country and that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various countries and currencies will vary in accordance with the
Adviser's assessment of the relative yield and appreciation of such securities.
Fundamental economic strength, credit quality and interest rate trends are the
principal factors considered by the Adviser in determining whether to increase
or decrease the emphasis placed upon a particular country or particular type of
security within the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase, will be determined to be of
comparable quality by the Adviser. The Fund also may invest in securities rated
"Baa" by Moody's or "BBB" by S&P, but does not, as a general matter, intend to
invest more than 10% of its total assets in such securities. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating
may be reduced below the minimum rating required for purchase by the Fund. The
Adviser will consider such event in determining whether the Fund should continue
to hold the obligation. In no event will the Fund hold more than 5% of its total
net assets in securities rated below investment grade. See "Appendix B" below
for a description of these rating designations. The Adviser expects that the
Fund's 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.
NATIONS SHORT-TERM MUNICIPAL INCOME FUND, NATIONS INTERMEDIATE MUNICIPAL BOND
FUND AND NATIONS MUNICIPAL INCOME FUND: In pursuing their objectives, the Funds
will invest at least 80% of their total net assets 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 ("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 dollar-weighted maturity and
duration of each of the Funds' portfolios are expected to be as follows: Nations
Municipal Income Fund -- average dollar-weighted maturity greater than 10 years
and duration between 7.5 and 9.5 years; Nations Intermediate Municipal Bond
Fund -- average dollar-weighted maturity between three and 10 years and duration
between five and six years; Nations Short-Term Municipal Income Fund -- average
dollar-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 NRSROs: S&P, Moody's, D&P, Fitch, IBCA, or
BankWatch 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
weak-
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ened 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 net 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 net assets of the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds will be
invested in Municipal Securities. In addition, at least 80% of each Fund's total
net assets will be invested in debt instruments, issued by or on behalf of the
pertinent state and its political subdivisions, agencies, instrumentalities and
authorities.
Under normal market conditions, the average dollar-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 dollar-weighted maturity between three and 10 years and
duration between five and six years; State Municipal Bond Funds -- average
dollar-weighted maturity greater than 10 years and duration between 7.5 and 9.5
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 net 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 by 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 Adviser will consider such an event in determining
whether a Fund should continue to hold the obligation. See
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"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 net assets at the time of purchase.
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 U.S. and foreign exchange-traded financial futures
and options thereon approved by the CFTC for market exposure risk management.
Each Fund also may lend its portfolio securities to qualified institutional
investors and may invest in repurchase agreements, restricted, private placement
and other illiquid securities. Additionally, each Fund may purchase securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
The Funds also may invest in instruments issued by certain trusts, or
partnerships including pass-through certificates representing participations in,
or debt instruments backed by, the securities and other assets owned by such
trusts and partnerships.
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 investments in which the Funds
may invest and the Funds' 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 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, except for Nations
Managed Value Index Fund and Nations Managed SmallCap Value Index Fund, see
"Financial Highlights." While it is not possible to predict exactly annual
portfolio turnover rates, it is expected that under normal market conditions,
the annual portfolio turnover rate for each of Nations Managed Value Index Fund
and Nations Managed SmallCap Value Index Fund will not exceed 25%. With respect
to Nations International Growth Fund, it is expected that under normal market
conditions, the annual portfolio turnover rate will not exceed 100%.
RISK CONSIDERATIONS: Investments by a Fund in common stocks and other equity
securities are subject to stock market risk. The value of the stocks that the
Funds hold, like the broader stock market, may decline over short or even
extended periods. The U.S. stock market tends to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As of the
date of this Prospectus, the stock market, as measured by the S&P 500 Index and
other commonly used indices, was trading at or close to record levels. There can
be no guarantee that these levels will continue.
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 Munici-
68
<PAGE>
pal 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 a 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."
Certain of the Funds may invest in securities of smaller and newer issuers.
Investments in such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also present greater
risks than investments in more established companies with longer operating
histories and greater financial capacity.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NATIONS
INTERNATIONAL EQUITY FUND, NATIONS INTERNATIONAL GROWTH 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 of
which investors should be aware.
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.
The above risk considerations are also relevant to an investment in Nations
International Growth Fund.
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 secur-
69
<PAGE>
ities. 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.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations International
Growth Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Income Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE INDEX FUNDS: The
techniques employed by the Adviser to seek to manage capital gain distributions
will generally only have the effect of deferring the realization of capital
gains. For example, to the extent that the capital gains recognized on a sale of
portfolio securities arise from the sale of specifically-identified securities
with higher tax bases, subsequent sales of the same portfolio securities will be
calculated by reference to the lower tax basis securities that remain in the
portfolio. Under this scenario, an investor who purchases shares of a Fund after
the first sale could receive capital gain distributions that are higher than the
distributions that would have been received if this methodology had not been
used. Therefore, certain investors actually could be disadvantaged by the
techniques employed by the Fund to seek to manage capital gain distributions,
depending on the timing of their purchase of Fund shares. Even if there are no
subsequent sales, upon a redemption or exchange of Fund shares an investor will
have to recognize gain to the extent that the net asset value of Fund shares at
such time exceeds such investor's tax basis in his or her Fund shares.
The various techniques employed by the Funds to manage capital gain
distributions may result in the accumulation of substantial unrealized gains in
the Funds' portfolios. Moreover, the realization of capital gains is not
entirely within a Fund's control because it is at least partly dependent on
shareholder purchase and redemption activity. Capital gain distributions may
vary considerably from year to year.
Furthermore, the U.S. Treasury has proposed legislation which would require
holders of substantially identical securities to determine their tax basis using
the average cost of all of their holdings in such securities. If enacted, the
legislation would prevent the Funds from specifically identifying each lot of
shares that they hold and from selling first those specific shares with the
highest tax basis. Thus, the legislation would restrict the Funds' ability to
manage capital gains.
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 SAI.
Each Fund may not:
70
<PAGE>
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. Nations Tax Exempt Fund, Nations Value Fund, Nations Equity Income Fund,
Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined
Equity Fund, Nations Small Company Growth Fund, Nations International Equity
Fund, Nations International Growth Fund, Nations Emerging Markets Fund, Nations
Pacific Growth Fund, Nations Managed Index Fund, Nations Managed SmallCap Index
Fund, Nations Managed Value Index Fund, Nations Managed SmallCap Value Index
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.
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.
Nations International Growth Fund may borrow money except as a temporary measure
and then only in amounts not exceeding 5% of the value of the Fund's total
assets or from banks or in connection with reverse repurchase agreements
provided that immediately after such borrowing, all borrowings of the Fund do
not exceed one-third of the Fund's total assets and no purchases of portfolio
instruments will be made while the Fund has borrowings outstanding in an amount
exceeding 5% of its total assets.
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.
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 taxes 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 Short-
Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund and Nations
Municipal Income Fund will invest at least 80% of their respective total net
assets in Municipal Securities the interest on which is exempt from Federal
income tax. 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.
Nations Small Company Growth Fund may not borrow money except as a temporary
measure for extraordinary or emergency purposes or
71
<PAGE>
except in connection with reverse repurchase agreements and mortgage rolls;
provided that the Fund will maintain asset coverage of 300% for all borrowings.
The investment objective and policies of each Fund, unless otherwise specified,
are non-fundamental and may be changed without shareholder approval.
Shareholders of Nations Small Company Growth Fund and Nations International
Growth Fund, however, must receive at least 30 days' prior written notice in the
event an investment objective is changed. If the investment objective or
policies of a Fund change, shareholders should consider whether the Fund remains
an appropriate investment in light of their 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 SAI. 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
MONEY MARKET FUND: From time to time the Money Market Fund may advertise the
yield, effective and tax-equivalent yield on 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 the
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 the
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 DATA AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total
return" of a class of shares of a 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 gain 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 gain 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.
72
<PAGE>
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.
Set forth below is certain performance data for the Enhanced Equity Index Common
Trust Fund and Enhanced SmallCap Equity Index Common Trust Fund (the "CTFs"),
each of which is currently managed on behalf of NationsBank by TradeStreet.
(Prior to the formation of TradeStreet in 1995, the CTFs were managed solely by
NationsBank.) The performance data for the CTFs is deemed relevant because the
Enhanced Equity Index and Enhanced SmallCap Equity Index Common Trust Funds have
investment objectives and policies that are substantially similar to those of
Nations Managed Index Fund and Nations Managed SmallCap Index Fund,
respectively. Moreover, the portfolio manager of TradeStreet (who currently
manages the CTFs and the Funds) employs the same quantitative investment process
for the Funds that has, and continues to be, utilized for the CTFs. THIS
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE OF THE CTFS AND IS NOT NECESSARILY
INDICATIVE OF THE FUTURE PERFORMANCE OF THE CTFS OR THE FUNDS.
AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS INDICATED THROUGH
<TABLE>
<CAPTION>
MARCH 31, 1997
Since
One Three Five Inception
Year Year Year (12/31/88)**
<S> <C> <C> <C> <C>
Enhanced Equity
Index Common
Trust Fund* 19.98% 22.31% 16.08% 16.52%
S&P 500 Index 19.77% 22.28% 16.39% 16.28%
Lipper S&P 500
Index Funds
Average*** 19.19% 21.73% 15.89% 15.66%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Enhanced Lipper S&P
Equity Index 500 Index
Common Trust S&P Funds
Year Fund* 500 Index Average***
<S> <C> <C> <C>
1989 34.12% 31.55% 30.58%
1990 -1.52% -3.15% -3.57%
1991 31.72% 30.56% 29.65%
1992 5.52% 7.64% 7.12%
1993 10.47% 9.99% 9.52%
1994 0.69% 1.31% 0.90%
1995 37.66% 37.45% 36.82%
1996 23.62% 23.08% 22.30%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997
<TABLE>
<CAPTION>
Since
Inception
One Year (10/1/95)
<S> <C> <C>
Enhanced Small Cap Equity
Index Common Trust Fund* 11.76% 11.68%
S&P 600 Index 8.39% 9.83%
</TABLE>
* The total returns above reflect the deduction of 0.50% of fees and expenses
per annum. The CTFs are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which if applicable, may have adversely
affected the performance results of the CTFs.
** Prior to 12/31/88 the Enhanced Equity Index Common Trust Fund was managed
with a different objective and policies and therefore performance prior
thereto is not included in the prior performance calculations.
*** The Lipper S&P Index Funds Average represents the average performance of
mutual funds with similar objectives monitored by Lipper Analytical
Services, Inc. during the periods shown.
Set forth below is certain performance data for the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite,
reflecting the performance of private accounts, including U.K. authorized unit
trusts, managed by Gartmore plc, as defined below. The performance data for
these accounts is deemed relevant because the Pacific Ex-Japan Composite, the
Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite have
investment objectives, policies and restrictions that are substan-
73
<PAGE>
tially similar to those of Nations Pacific Growth Fund, Nations Emerging Markets
Fund and Nations Global Government Income Fund, respectively. There is
substantial continuity between the portfolio managers of Gartmore plc who were
responsible for managing those accounts and the portfolio managers of Gartmore
who are responsible for managing Nations Pacific Growth Fund, Nations Emerging
Markets Fund and Nations Global Government Income Fund, respectively. THIS
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NOT NECESSARILY INDICATIVE
OF THE FUTURE PERFORMANCE OF GARTMORE OR THE FUNDS.
PACIFIC EX-JAPAN COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
One Year Two Years Three Years Four Years
<S> <C> <C> <C> <C>
Pacific Ex-Japan
Composite 3.95% 8.44% 7.79% 17.11%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Index (diamond) -2.44% 8.58% 7.08% 15.62%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
Since
Inception
Five Years Six Years Seven Years (1/1/88)
<S> <C> <C> <C> <C>
Pacific Ex-Japan
Composite 18.84% 18.08% 14.79% 20.42%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Index (diamond) 16.69% 16.61% 15.77% 19.02%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
Morgan Stanley
Capital
International
Pacific Combined Far East
Ex-Japan (Ex-Japan)
Composite Free Index (diamond)
<S> <C> <C>
1988 11.9% 30.0%
1989 58.40% 32.1%
1990 0.0% -6.5%
1991 22.1% 31.0%
1992 22.9% 21.8%
1993 110.0% 103.4%
1994 -13.9% -17.5%
1995 4.0% 8.8%
1996 13.5 11.1
</TABLE>
* The average annual total returns and annual total returns are net of fees.
The fees for these accounts were 1% per annum until September 30, 1988, and
1.5% per annum thereafter. The accounts are not subject to certain investment
limitations, diversification requirements, and other restrictions imposed by
the 1940 Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results of the accounts.
(diamond) The Morgan Stanley Capital International Combined Far East (Ex-Japan)
Free Index is a capitalization-weighted index that tracks 7 countries
and represents only those securities that are available for investment
by international investors; many issues are still restricted to
domestic investors in certain Pacific Basin countries.
EMERGING MARKETS COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
Four Years
Since
Inception
One Year Two Years Three Years 1/1/93
<S> <C> <C> <C> <C>
Emerging Markets
Composite 16.2% 11.1% -1.8% 10.2%
IFC Investables
Index (diamond) 11.4% 13.4% 3.1% 13.39%
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS*
Emerging
Markets IFC Investables
Composite Index (diamond)
<S> <C> <C>
1993 76.5% 79.6%
1994 -19.0% -12.0%
1995 -11.3% -8.5%
1996 13.0% 9.4%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (1/1/93) and are net of fees. The fees for these
accounts were 1.5% per annum. The accounts are not subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable,
may have adversely affected the performance results of the accounts.
(diamond) The IFC Investables Index includes over 1,100 stocks representing 27
stock markets in developing countries, and reflects the accessibility
of markets and individual stocks for foreign ownership.
GLOBAL GOVERNMENT BOND
EX-U.K. COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
One Year Two Years Three Years
<S> <C> <C> <C>
Global
Government
Bond
Ex-U.K.
Composite** -1.2% 4.4% 6.1%
J.P. Morgan
Global
Government
Bonds Index (diamond) 1.0% 3.9% 6.5%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997*
<TABLE>
<CAPTION>
Since
Inception
Four Years Five Years 10/1/90
<S> <C> <C> <C>
Global Government
Bond Ex-U.K.
Composite** 6.2% 8.4% 10.31%
J.P. Morgan
Global
Government Bonds
Index (diamond) 6.5% 7.9% 8.97%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
Global J.P. Morgan
Government Global
Bond Ex-U.K. Government
Composite Bonds Index (diamond)
<S> <C> <C>
1991 20.8% 16.0%
1992 4.8% 5.2%
1993 15.0% 11.6%
1994 -0.9% 1.5%
1995 22.8% 19.6%
1996 0.6% 3.5%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (10/1/90) and are net of fees. The fees on these
accounts varied by contractual agreement and have been assumed to be 1.5% per
annum. The accounts are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results of the accounts.
** The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J.P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
(diamond) The J.P. Morgan Global Government Bonds Index is a capitalization-
weighted index that tracks government bonds issued in 13 countries
located in the United States, Europe and the Far East.
75
<PAGE>
Set forth below is the average annual total return and annual total return for
Nations International Equity Fund for the periods ending March 31, 1997:
NATIONS INTERNATIONAL
EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH
MARCH 31, 1997
<TABLE>
<CAPTION>
Since
Inception
One Year Three Years Five Years on 12/2/91
<S> <C> <C> <C> <C>
Nations
International
Equity Fund 1.32% 6.23% 8.24% 7.10%
Morgan Stanley
Capital
International
EAFE Index (diamond) 1.46% 6.53% 10.57% 6.01%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS
Morgan Stanley
Nations Capital
International International
Equity Fund EAFE Index (diamond)
<S> <C> <C>
1992 -8.6% -12.2%
1993 27.21% 32.6%
1994 2.6% 7.8%
1995 8.5% 11.2%
1996 8.5% 6.1%
</TABLE>
(diamond) The Morgan Stanley Capital International EAFE Index represents an
unmanaged index used to portray the pattern of common stock price
movement in Europe, Australia and the Far East.
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 Investor A Shares, the Money Market Funds offer Primary A Shares,
Primary B Shares, Investor B Shares, Investor C Shares and Daily Shares. In
addition to Investor A Shares, the Non-Money Market Funds offer Primary A
Shares, Primary B Shares, Investor B Shares (formerly Investor N Shares) and
Investor C 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 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 or by calling Nations
Funds at the
toll-free number indicated on the cover of this Prospectus.
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.
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Nations Funds 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 investment
sub-adviser to all of the Funds except for those Funds listed below, for which
Gartmore serves as investment sub-adviser. TradeStreet is a wholly owned
subsidiary of NationsBank. TradeStreet provides investment management services
to individuals, corporations and institutions.
Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as investment sub-adviser to Nations
International Equity Fund, Nations International Growth 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.
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 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: .40% of the average daily net assets
of Nations Tax Exempt Fund; 1.00% of the average daily net assets of Nations
Small Company Growth Fund; .50% of the average daily net assets of each of the
Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond
Fund and the State Intermediate Municipal Bond Funds; .60% of the average daily
net assets of each of the Nations Municipal Income Fund and the State Municipal
Bond Funds; .75% of the average daily net assets of each of Nations Value Fund,
Nations Capital Growth Fund, Nations Emerging Growth Fund, and Nations
Disciplined Equity Fund; .50% of the average daily net assets of Nations Managed
Index Fund, Nations Managed SmallCap Index Fund, Nations Value Index Fund, and
Nations Managed SmallCap Value Index Fund; .75% of the first $100 million of
Nations Equity Income Fund's average daily net assets, plus .70% of the Fund's
average daily net assets in excess of $100 million and up to $250 million, plus
.60% of the Fund's average daily net assets in excess of $250 million; .90% of
the average daily net assets of Nations International Equity Fund, Nations
International Growth Fund and Nations Pacific Growth Fund; 1.10% of the average
daily net assets of Nations Emerging Markets Fund; and .70% of the average daily
net assets of Nations Global Government Income Fund.
For the services provided pursuant to sub-advisory agreements, NBAI will pay
TradeStreet
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sub-advisory fees, computed daily and paid monthly, at the annual rates of:
.055% of Nations Tax Exempt Fund's average daily net assets; .20% of Nations
Equity Income Fund's average daily net assets; .10% of the average daily net
assets of Nations Managed Index Fund, Nations Managed SmallCap Index Fund,
Nations Managed Value Index Fund and Nations Managed SmallCap Value Index Fund;
.25% of Nations Value Fund's, Nations Capital Growth Fund's, Nations Emerging
Growth Fund's and Nations Disciplined Equity Fund's average daily net assets;
.15% of Nations Small Company Growth Fund; and .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 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 .70% of Nations International Equity Fund's average daily net
assets; .85% of Nations Emerging Markets Fund's average daily net assets; .70%
of Nations Pacific Growth Fund's average daily net assets and .54% of Nations
Global Government Income Fund's average daily net assets. For services provided
and expenses assumed, Gartmore is entitled to receive from NBAI sub-advisory
fees, computed daily and paid monthly, at the annual rate of .40% of Nations
International Growth Fund's average daily net assets up to and including
$325,000,000 in assets and .25% on assets in excess of $325,000,000. As of the
date of this Prospectus, the Board of Directors has approved, and recommended to
shareholders that they approve, an increase in the fees to be paid by NBAI to
Gartmore to .70% of Nations International Growth Fund's average daily net
assets. This increase will be implemented as soon as practicable following
receipt of shareholder approval.
From time to time, NBAI (and/or TradeStreet, 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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Tax Exempt Fund -- .15%, Nations Value Fund -- .75%, Nations Capital
Growth Fund -- .75%, Nations Emerging Growth Fund -- .75%, Nations Disciplined
Equity Fund -- .75%, Nations Managed Index Fund -- .06%, Nations Managed
SmallCap Index Fund -- .00%, Nations Municipal Income Fund -- .29%, Nations
Short-Term Municipal Income Fund -- .06%, Nations Intermediate Municipal Bond
Fund -- .19%, Nations Florida Intermediate Municipal Bond Fund -- .19%, Nations
Georgia Intermediate Municipal Bond Fund -- .20%, Nations Maryland Intermediate
Municipal Bond Fund -- .22%, Nations North Carolina Intermediate Municipal Bond
Fund -- .18%, Nations South Carolina Intermediate Municipal Bond Fund -- .21%,
Nations Tennessee Intermediate Municipal Bond Fund -- .07%, Nations Texas
Intermediate Municipal Bond Fund -- .16%, Nations Virginia Intermediate
Municipal Bond Fund -- .26%, Nations Florida Municipal Bond Fund -- .27%,
Nations Georgia Municipal Bond Fund -- .15%, Nations Maryland Municipal Bond
Fund -- .08%, Nations North Carolina Municipal Bond Fund -- .26%, Nations South
Carolina Municipal Bond Fund -- .20%, Nations Tennessee Municipal Bond
Fund -- .03%, Nations Texas Municipal Bond Fund -- .17% and Nations Virginia
Municipal Bond Fund -- .22%. No fees were paid with respect to Nations Managed
Value Index Fund or Nations Managed SmallCap Value Index Fund because neither
Fund had yet commenced operations during the period indicated above.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Fund's average daily net assets:
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Nations Equity Income Fund -- .67% and Nations International Equity
Fund -- .90%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Fund's average daily net assets:
Nations Emerging Markets Fund -- 1.10%, Nations Pacific Growth Fund -- .90% and
Nations Global Government Income Fund -- .70%.
For the fiscal period from September 1, 1996 to May 16, 1997, after waivers, the
Pilot Funds paid Boatmen's Trust Company, under a previous investment advisory
agreement, advisory fees at the indicated rates of the following Funds' average
daily net assets: Nations Small Company Growth Fund (formerly the Pilot Small
Capitalization Equity Fund) -- .75%, Nations International Growth Fund (formerly
the Pilot International Equity Fund) -- .48%. During the same period, after
waivers, the Pilot Funds paid Kleinwort Benson Investment Management Americas
Inc., under a previous sub-advisory agreement, sub-advisory fees at the rate of
.32% of Nations International Growth Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations Tax
Exempt Fund -- .055%, Nations Value Fund -- .25%, Nations Capital Growth
Fund -- .25%, Nations Emerging Growth Fund -- .25%, Nations Disciplined Equity
Fund -- .25%, Nations Managed Index Fund -- .10%, Nations Managed SmallCap Index
Fund -- .10%, Nations Municipal Income Fund -- .07%, Nations Short-Term
Municipal Income Fund -- .07%, Nations Intermediate Municipal Bond Fund -- .07%,
Nations Florida Intermediate Municipal Bond Fund -- .07%, Nations Georgia
Intermediate Municipal Bond Fund -- .07%, Nations Maryland Intermediate
Municipal Bond Fund -- .07%, Nations North Carolina Intermediate Municipal Bond
Fund -- .07%, Nations South Carolina Intermediate Municipal Bond Fund -- .07%,
Nations Tennessee Intermediate Municipal Bond Fund -- .07%, Nations Texas
Intermediate Municipal Bond Fund -- .07%, Nations Virginia Intermediate
Municipal Bond Fund -- .07%, Nations Florida Municipal Bond Fund -- .07%,
Nations Georgia Municipal Bond Fund -- .07%, Nations Maryland Municipal Bond
Fund -- .07%, Nations North Carolina Municipal Bond Fund -- .07%, Nations South
Carolina Municipal Bond Fund -- .07%, Nations Tennessee Municipal Bond
Fund -- .07%, Nations Texas Municipal Bond Fund -- .07%, Nations Virginia
Municipal Bond Fund -- .07% and Nations Equity Income Fund -- .20%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid Gartmore under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Emerging Markets Fund -- .85%, Nations Pacific Growth Fund -- .70%; Nations
Global Government Income Fund -- .54%; Nations International Equity Fund -- .70%
and Nations International Growth Fund -- .40%.
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. Prior to assuming her
position with TradeStreet, she was Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. 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.
Sharon M. Herrmann 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
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Research as well as the North Carolina Society of Financial Analysts, Inc.
Eric S. Williams 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 is Principal Portfolio Manager of Nations International Equity
Fund and has been the Portfolio Manager since February, 1995. He joined Gartmore
as a Global Fund Manager in 1993 and currently holds the position of Head of the
International and Global Portfolio Team. Previously, Mr. Watson was a director
and global fund manager with James Capel Fund Managers, London, as well as
Client Services Manager for international clients. From 1980 to 1987 he
associated with Capel-Cure Myers in their Portfolio Management Division. He
began his career in 1976 when he joined the investment division at Samuel
Montagu. Mr. Watson is a member of the Securities Institute.
Philip Ehrmann is Principal Portfolio Manager of Nations Emerging Markets Fund
and is the Head of the Gartmore Emerging Markets Team. He has been the Portfolio
Manager for the Fund since 1995. Prior to joining Nations Gartmore in 1995, Mr.
Ehrmann was the Director of Emerging Markets for Invesco in London. He began his
career in 1981 as an institutional stockbroker with Rowe & Pitman Inc. and also
spent a brief period with Prudential Bache Securities as an institutional
salesman before joining Invesco in 1984. Mr. Ehrmann graduated from the London
School of Economics with a degree in Economics, Industry and Trade.
Seok Teoh is Principal Portfolio Manager of Nations Pacific Growth Fund and has
been the Portfolio Manager since the Fund's inception. She has been associated
with Gartmore since 1990 as the London based manager on its Far East Team.
Previously, Ms. Teoh managed Far East equities for Rothschild Asset Management
in Tokyo and in Singapore. She was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh,
who is a native of Singapore, is fluent in Mandarin and Cantonese and received
an Economics degree from the University of Durham.
Philip J. Sanders 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.
Scott A. Billeadeau is a Senior Portfolio Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Emerging Growth Fund and
Nations Small Company Growth Fund. Mr. Billeadeau has been Portfolio Manager of
the Funds since June 1997. Previously he was Senior Analyst and Senior Portfolio
Manager for BankAmerica's Pacific Horizon Aggressive Growth Fund at Security
Pacific Corp. since 1991. Mr. Billeadeau has worked in the investment community
since 1986. His past experience also includes quantitative analysis for American
Express Financial Advisors, Inc. Mr. Billeadeau received an AB in Economics from
Princeton University. He holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research, as well
as the Seattle Society of Securities Analysts.
Jeffery C. Moser is a Senior Product Manager, Equity Management for TradeStreet
and Senior Portfolio Manager for Nations Disciplined
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Equity Fund, Nations Managed Value Index Fund and Nations Managed SmallCap Value
Index Fund. Mr. Moser has been Portfolio Manager of Nations Managed Value Index
Fund and Nations Managed SmallCap Value Index Fund since their inception and has
managed 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.
Mark Rimmer is Principal Portfolio Manager of Nations Global Government Income
Fund and has been the Portfolio Manager since the Fund's inception. He has been
associated with Gartmore since 1990 as an International Fixed Income Fund
Manager. Previously, Mr. Rimmer managed multi-currency funds for institutional
clients at Gulf International Bank in Bahrain, and prior to that he was a senior
trader for Sumitomo Finance International, London. He graduated from Cambridge
University with a degree in Economics.
Michele M. Poirier is a Director, Municipal Fixed Income Management for
TradeStreet and is 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 Intermediate Municipal Bond 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.
Dawn Daggy-Mangerson is a Portfolio Manager, Municipal Fixed Income Management
for TradeStreet and is Portfolio Manager of Nations Short-Term Municipal Income
Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations Maryland
Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund and
Nations Virginia Municipal Bond Fund. Ms. Daggy-Mangerson has been Portfolio
Manager of the Funds since April 1997. Prior to assuming her position with
TradeStreet, she was a Portfolio Manager for Boatmen's Trust Company since 1995.
Ms. Daggy-Mangerson has worked in the investment community since 1988. Her past
experience also includes portfolio management and trading for Stein Roe Farnham,
a large investment advisory firm. Ms. Daggy-Mangerson received a B.A. in
Commerce and Finance from DePaul University.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund, Nations
Managed Index Fund and Nations Managed SmallCap Index Fund. He has
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been Portfolio Manager for these Funds since their inception. Prior to assuming
his position with TradeStreet in 1996, 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 Chicago Quantitative Alliance,
the Association for Investment Management and Research as well as the North
Carolina Society of Financial Analysts, Inc.
Brian O'Neill is the Principal Senior Investment Manager of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Fund since July, 1997. Mr. O'Neill joined Gartmore as a Senior Investment
Manager on the Global Portfolio Team in 1981 with responsibility or a variety of
specialized global funds, including resource funds. Mr. O'Neill began his career
with Royal Insurance in 1970 as an investment analyst specializing in United
Kingdom research. He then expanded his field of expertise to include management
of global equities, and in 1978 he moved to Antony Gibbs & Sons where he was
appointed as a fund manager, specializing in global equities. Mr. O'Neill
graduated from Glasgow University in 1969 with a MA Honours degree in Political
Economy.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such 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
the Funds pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
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 a
Co-Administration Agreement. Under the Co-Administration Agreement, 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 .10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Tax Exempt
Fund -- .09%, Nations Value Fund -- .10%, Nations Capital Growth Fund -- .10%,
Nations Emerging Growth Fund -- .10%, Nations Disciplined Equity Fund -- .10%,
Nations Managed Index Fund -- .10%, Nations Managed SmallCap Index Fund -- .10%,
Nations Municipal Income Fund -- .09%, Nations Short-Term Municipal Income
Fund -- .09%, Nations Intermediate Municipal Bond Fund -- .09%, Nations Florida
Intermediate Municipal Bond Fund -- .09%, Nations Georgia Intermediate Municipal
Bond Fund -- .09%, Nations Maryland Intermediate
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Municipal Bond Fund -- .09%, Nations North Carolina Intermediate Municipal Bond
Fund -- .09%, Nations South Carolina Intermediate Municipal Bond Fund -- .09%,
Nations Tennessee Intermediate Municipal Bond Fund -- .09%, Nations Texas
Intermediate Municipal Bond Fund -- .09%, Nations Virginia Intermediate
Municipal Bond Fund -- .09%, Nations Florida Municipal Bond Fund -- .09%,
Nations Georgia Municipal Bond Fund -- .09%, Nations Maryland Municipal Bond
Fund -- .09%, Nations North Carolina Municipal Bond Fund -- .09%, Nations South
Carolina Municipal Bond Fund -- .09%, Nations Tennessee Municipal Bond
Fund -- .09%, Nations Texas Municipal Bond Fund -- .09% and Nations Virginia
Municipal Bond Fund -- .09%. No fees were paid with respect to Nations Managed
Value Index Fund or Nations Managed SmallCap Value Index Fund because neither
Fund had yet commenced operations during the period indicated above.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Equity Income
Fund -- .10% and Nations International Equity Fund -- .10%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Emerging Markets
Fund -- .10%, Nations Pacific Growth Fund -- .10% and Nations Global Government
Income Fund -- .10%.
NationsBank serves as sub-administrator for Nations Funds 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. Nations Funds
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 Agents (as defined below) which assist
customers in purchasing Investor A Shares of the Funds.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as custodian for the
assets of all Funds, except the international portfolios. 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 to the Nations Funds Family, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees at the rate of (i) $300,000
per annum, to be paid monthly in payments of $25,000 for custodian services for
up to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
BONY, Avenue des Arts, 35 1040 Brussels, Belgium, serves as Custodian for the
assets of Nations International Equity Fund, Nations International Growth Fund,
Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global
Government Income Fund.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all Funds except the international portfolios, for which BONY is already
serving as Custodian. BONY is located at 90 Washington Street, New York, New
York 10286. In return for providing sub-custodial services, BONY receives, in
addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market 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 Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of a 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
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paid to the Adviser, Stephens and First Data; interest; trustees' fees and
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, Stephens or First Data under
their respective agreements with Nations Funds; and any extraordinary expenses.
Investor A Shares may bear certain class specific expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust, 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
bear to the assets of Nations Fund Trust, Nations Fund, Inc., or Nations
Portfolios or in such other manner as the Board of Trustees or relevant Board of
Directors deems appropriate.
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Portfolios, Nations Institutional
Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family currently has
more than 52 distinct investment portfolios and total assets in excess of $27
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 Daily
Shares. The Non-Money Market Funds currently offer five classes of
shares -- Primary A Shares, Primary B Shares, Investor A Shares, Investor B
Shares (formerly Investor N Shares) and Investor C Shares. This Prospectus
relates only to the Investor A Shares of Nations Tax Exempt Fund, Nations Value
Fund, Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Managed Index Fund, Nations Managed SmallCap
Index Fund, Nations Managed Value Index Fund, Nations Managed SmallCap Value
Index 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 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 Agent (as defined below) or
Nations Funds 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
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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 of shares. See the SAI for examples of instances where
the 1940 Act requires voting by fund.
As of July 15, 1997, 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 the 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 the following funds of Nations Fund, Inc.: Nations Equity
Income Fund, Nations Small Company Growth Fund, Nations International Equity
Fund and Nations International Growth Fund. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact your Agent (as defined below) or Nations Funds 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, 1997, 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
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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 Agent (as defined below) or Nations Funds 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, 1997, 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.
PENDING LEGAL PROCEEDINGS: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and Stephens
Inc. (Case No. 94-995-Civ.-T-23E). As relevant to Nations Government Securities
Fund and Nations Short-Intermediate Government Fund, plaintiffs allege that,
among other things, defendants violated the Securities Exchange Act of 1934 and
various state securities fraud statutes by employing a scheme to defraud
plaintiffs into purchasing shares of the funds and making untrue statements of
material fact and omitting to state material facts in connection with sales of
shares of the funds. Plaintiffs further allege that, among other things,
defendants concealed the risks associated with such funds by blurring the
distinctions between banks and non-bank subsidiaries and by obscuring the
differences between traditional, federally insured bank products and uninsured,
non-depository products.
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About Your Investment
How To Buy Shares
Investor A Shares are available to the following categories of Investors:
(Bullet) Investors who purchase through accounts established with certain
fee-based investment advisers or financial planners, including
Nations Funds Personal Investment Planner accounts, wrap fee
accounts and other managed agency/asset allocation accounts.
(Bullet) Directors, officers, and employees of NationsBank Corporation, its
affiliates and subsidiaries.
(Bullet) Individuals investing a distribution received from a NationsBank
trust account and certain other rollovers or distributions
received from NationsBank fiduciary accounts.
(Bullet) Current Investor A Shareholders (other than Investor A
shareholders who own such shares exclusively through a cash sweep
option) who purchased Investor A Shares prior to August 1, 1997.
(Bullet) Employee benefit plans making an initial investment of $1 million
or more in the Nations Funds Family.
(Bullet) Investors (other than those described above) investing $1 million
or more in the Nations Funds Family through an Agent (as defined
below) (a "Substantial Investor"). In determining whether an
investor qualifies as a Substantial Investor, all current holdings
of Funds in the Nations Funds Family other than the Nations Funds
money market or index funds, Nations Short-Term Income Fund and
Nations Short-Term Municipal Income Fund, will be considered.
Investors A Shares of the Index Funds and the Money Market Fund are also
available to other investors through a separate prospectus. Other procedures may
apply. For more information call Nations Funds at 1-800-321-7854.
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."
Purchases of Investor A Shares through a Nations Funds Personal Investment
Planner account, which is a managed agency/asset allocation account established
with NBAI (an "Account"), are governed by the terms and conditions of the
Account, which are set forth in the Client Agreement and Disclosure Statement
provided by NBAI to each investor who establishes an Account. Because of the
nature of the Account, certain of the features described in this Prospectus are
not available to investors purchasing Investor A Shares through an Account.
Potential investors through an Account should refer to the Client Agreement and
Disclosure Statement for more information regarding the Account, including
information regarding the fees and expenses charged in connection with an
Account.
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There is a minimum initial investment of $1,000 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"), Savings Incentives Method Plans for Employees
("SIMPLE IRAs"), salary reduction-Individual Retirement Account ("SAR-IRAs") or
similar types of accounts. However, the assets of such plans must reach an asset
value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs 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 Funds 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, and Investor A
Shares of the Money Market Funds are purchased at net asset value per share
without the imposition of a sales charge. Purchases of 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"). Purchases of Money Market Funds may
be effected only on days on which the Federal Reserve Bank of New York is open
for business (a "Bank 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.
Nations Funds 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: Certain 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 Funds
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Nations Funds at 1-800-321-7854 for an account
number and use the following wire instructions:
Nations Funds
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 Nations Funds at 1-800-321-7854.
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.
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EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A 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
Funds' 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 Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
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 12 noon, Eastern
time. 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 Agent transmitting the order, and any funds
received will be returned promptly to the sending 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 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 Agents are responsible for transmitting orders for purchases by their
customers ("Customers") and delivering required funds on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Funds.
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 the last day of the applicable month. Subject
to certain exceptions for employees of NationsBank and its affiliates and pre-
existing SIP accounts, the systematic investment amount may be in any amount
from $50 to $100,000. For more information concerning the SIP, contact your
Agent or Nations Funds.
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 Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
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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 Nations Funds
at 1-800-321-7854 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 remitted in
federal funds wired to the redeeming Agent or investor 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 Funds. There is no redemption charge.
Redemption orders for Money Market Funds must be received on a Business Day
before 12 noon, Eastern time, and payment will normally be wired the same day.
Nations Funds 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 Transfer Agent after 12 noon, Eastern time, will be
processed on the next Business Day.
Nations Funds 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 Funds 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 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 Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CHECKWRITING PRIVILEGE: Free checkwriting is available with respect to Investor
A Shares of the Money Market Fund. 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.
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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 Funds Personal Investment
Planner are 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) payments made to
pay medical expenses which exceed 7.5% of income and distributions to pay for
insurance by an individual who has separated from employment and who has
received unemployment compensation under a federal or state program for at least
12 weeks, (iv) effected pursuant to Nations Funds' 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, (v) in connection with the combination of Nations Funds with any other
registered investment company by merger, acquisition of assets or by any other
transaction, and (vi) 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.
REINSTATEMENT PRIVILEGE: 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.
REDEMPTION FEE: A redemption fee of 1% of the current net asset value will be
assessed on certain Investor A Shares purchased after July 31, 1997 and redeemed
within 18 months of the date of purchase by a Substantial Investor. In addition,
a 1% redemption fee will be assessed on Investor A Shares purchased after such
date by an employee benefit plan that (i) made its initial investment after such
date and (ii) redeemed such shares within 18 months of purchase in connection
with a complete liquidation of such plan's holdings in the Nations Funds Family.
This fee is retained by the Fund or Funds for the benefit of the remaining
shareholders and is intended to encourage long-term investment in the Funds and
to avoid transaction and other expenses associated with short-term
invest-
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ments. The Funds reserve the right to modify the terms of or terminate this fee
at any time.
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 Funds 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 Funds at any time.
How To Exchange Shares
The exchange feature enables a shareholder of a fund of Nations Funds (other
than an index fund) to acquire shares of the same class that are offered by
another fund of Nations Funds (other than an index fund) when the shareholder
believes that a shift between funds is an appropriate investment decision.
Shareholders of an index fund of Nations Funds may acquire shares of the same
class that are offered by another index fund of Nations Funds. 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 a Fund, exchange requests
should be communicated to the Fund by calling Nations Funds at 1-800-321-7854 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 Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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 Funds and Stephens reserve the right to reject any exchange
request. Only shares that may legally
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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.
Investor A Shares of Nations Short-Term Municipal Income Fund acquired directly
or indirectly through an exchange from Investor B Shares of another non-money
market fund may be re-exchanged only for Investor B Shares of another non-money
market fund, Investor C Shares of a Nations Funds money market fund or Investor
A Shares of Nations Short-Term 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 B 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 Funds money market fund. The CDSC that is
ultimately charged upon redemption is based upon the total period of time the
shareholder holds Investor B Shares of any fund that charges a CDSC.
An investor who owns his or her shares through a Nations Funds IRA that
initially invests in Investor A Shares of a Money Market Fund may exchange those
shares for Investor B Shares of a non-money market fund offered by Nations
Funds. Additionally, Investor B Shares of a non-money market fund acquired
through such an exchange prior to January 1, 1996, or after July 31, 1997 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 purchase of the Investor B Shares.
If Investor A Shares are exchanged for shares of the same class of another fund,
any redemption fee applicable to the original shares purchased will be assessed
upon the redemption of the acquired shares. The holding period of such shares
(for purposes of determining whether a redemption fee is applicable) will be
computed from the time of the initial purchase of the Investor A Shares of a
Fund, except that the holding period will not accrue while the shares owned are
Investor A Shares of Nations Short-Term Municipal Income Fund, Nations Short-
Term Income Fund or a Nations Funds money market fund. If a redemption fee
ultimately is charged, it will be retained by the initial Fund purchased.
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 Funds to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or the last 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 Nations
Funds.
With regard to Money-Market Funds, an investor who is participating in the
Nations Funds AEF may acquire Investor A or Investor C Shares of a non-money
market fund offered by Nations Funds. In addition, Investor C Shares of a
non-money market fund acquired prior to August 1, 1997 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.
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Shareholder Servicing And Distribution
Plan
MONEY MARKET FUND: 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 Fund. Pursuant to
the Investor A Plan, the Fund 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. Aggregate 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 Fund. 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 Funds to
Customers. The Fund may not pay for shareholder servicing activities under 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 Fund.
Pursuant to the Servicing Plan, the Fund may pay Servicing Agents that have
entered into a Servicing Agreement with Nations Funds for certain shareholder
support services that are provided by the Servicing Agents. Payments under the
Fund's Servicing Plan are calculated daily and paid monthly at a rate or rates
set from time to time by the 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
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.
NON-MONEY MARKET FUNDS: 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 Municipal Income Fund, however, may not pay for
shareholder services under the Investor A Plan. Aggregate payments under the
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
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incurred, by such Servicing Agents. The shareholder services provided by
Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor A Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor A
Shares pursuant
to specific or preauthorized instructions; (iii) processing dividend and
distribution payments from a Fund on behalf of Customers; (iv) providing
information periodically to Customers showing their positions in Investor A
Shares; (v) arranging for bank wires; and (vi) providing general shareholder
liaison services. Nations Short-Term Municipal Income Fund, however, may not pay
for shareholder services under the Investor A Plan. 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 Funds 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.
GENERAL: 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 Funds 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.
In addition, the Trustees have approved a Shareholder Servicing Plan (the
"Servicing Plan") with respect to the Investor A Shares of the Nations
Short-Term Municipal Income Fund. Pursuant to its Servicing Plan, the Nations
Short-Term Municipal Income Fund may pay Servicing Agents that have entered into
a Servicing Agreement with Nations Funds for certain shareholder support
services that are provided by the Servicing Agents. Payments under the Fund's
Servicing Plan may not exceed 0.25% of the average daily net asset value of the
Fund's Investor A Shares. The shareholder services provided by Servicing Agents
include, but are not limited to, those listed above with respect to the Investor
A Plan.
Nations Funds 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 Funds 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
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received by a Selling Agent under its Sales Support Agreement with Stephens or
by a Servicing Agent under its Servicing Agreement with Nations Funds. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Funds 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 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 1:00 p.m.,
Eastern time, 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, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The assets in the Money Market Fund are valued based upon the amortized cost
method. Although Nations Funds 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: Dividends from net investment income are declared
and paid monthly by Nations Capital Growth Fund, Nations Disciplined Equity
Fund, Nations Equity Income Fund, Nations Managed Index Fund, Nations Value Fund
and Nations Small Company Growth Fund. Dividends from net investment income are
declared and paid annually by Nations International Growth Fund. All other
Equity Funds and Index Funds declare and pay dividends from net investment
income each calendar quarter. Dividends from net investment income are declared
daily and paid monthly by the Money Market Fund and the Bond Funds. 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 A Shares will be reduced by the amount of any
dividend or distribution. Accordingly, dividends and distributions on newly
purchased shares represent, in sub-
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stance, a return of capital. However, such dividends and distributions would
nevertheless be taxable. Certain Selling or Servicing Agents may provide for the
reinvestment of dividends in the form of additional Investor A Shares of the
same class 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. 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.
MONEY MARKET FUNDS: Dividends from net investment income of the Fund are
declared daily to shareholders at 1:00 p.m., Eastern time, 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 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.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. These distributions
will not qualify for the dividends received deduction for corporate
shareholders.
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 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 a Fund may be entitled to the dividends-received
deduction on all or a portion of such Fund's dividends to the extent that the
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 a Fund's 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 as long-term capital gains, regardless of how long the shareholders
have held the 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 be subject to state and local taxes, as discussed more
fully below and in the SAI.
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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 Funds to withhold
31% from any dividends (other than exempt-interest dividends) paid by Nations
Funds and/or redemptions (including exchanges and redemptions in-kind) 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 Funds 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 tax on dividends, distributions and
proceeds from the disposition of Fund shares paid to certain foreign
shareholders.
Portions of Nations International Equity Fund's, Nations International Growth
Fund's, 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,
if more than 50% of the value of the total assets of each of those Funds
consists of securities of foreign issuers, it may elect to "pass through" to its
shareholders these foreign taxes, if any. Upon such an election 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 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, these
Funds are permitted to pass through to their shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Funds
intend to satisfy. Distributions from taxable income will be taxable as ordinary
income to shareholders whether such income is received in cash or reinvested in
additional shares. The policy of the Funds is to pay to their shareholders an
amount equal to at least 90% of their exempt-interest income and their
investment company taxable income. 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 SAI under
"Additional Information Concerning Taxes.") Distributions from the Funds will
not qualify for the dividends-received deduction for corporate shareholders.
Distributions of net investment income by Nations Municipal Income Fund, Nations
Short-Term Municipal Income Fund and Nations Intermediate Municipal Bond Fund
may be taxable to investors 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.
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 of such Funds will
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not be subject to Florida's intangibles tax, subject to certain requirements
which the Funds intend to satisfy. See the SAI for further details about state
tax treatment relevant to shareholders of the 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 which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax 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 the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage and non-mortgage-backed securities.
Interests in pools of these assets 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.
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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 of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized Mortgage Obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets. A Fund will only invest in SMBS
whose mortgage assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying
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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 SAI.
The mortgage-backed securities in which the Funds invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the Funds
also may be subject to credit risk. Credit risk is the risk that the issuers of
securities in which a Fund invests may default in the payment of principal
and/or interest. Any such defaults or adverse changes in an issuer's financial
condition or credit rating may adversely affect the value of the Funds'
portfolio investments and, hence, the value of your investment in the
corresponding Fund.
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 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
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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 (except Nations Tax Exempt
Fund and Nations International Growth Fund) will limit its investments in bank
obligations so they do not exceed 25% of each Fund's total assets at the time of
purchase. Nations Small Company Growth Fund will limit its investments in
interest bearing savings deposits of commercial and savings banks to 5% of total
assets.
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. Pursuant to line of credit arrangements, certain of the
Funds may borrow 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 agree-
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ment 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 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 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
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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 income (including interest, distributions and disposition
proceeds), 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.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the
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underlying securities which they represent. Ownership of unsponsored ADRs, ADSs,
GDRs and EDRs may not entitle the Funds to financial or other reports from the
issuer, to which it would be entitled as the owner of sponsored ADRs, ADSs, GDRs
or EDRs. Generally, ADRs and ADSs, in registered form, are designed for use in
the U.S. securities markets; GDRs are designed for use in both the U.S. and
European securities markets. EDRs, in bearer form, are designed for use in
European securities markets. ADRs, ADSs, GDRs and EDRs also involve certain
risks of other investments in foreign securities.
FUTURES, OPTIONS AND OTHER DERIVATIVE
INSTRUMENTS: Certain of the Funds may attempt to reduce the overall level of
investment risk of particular securities and attempt to protect a Fund against
adverse market movements by investing in futures, options and other derivative
instruments. These include the purchase and writing of options on securities
(including index options) and options on foreign currencies, and investing in
futures contracts for the purchase or sale of instruments based on financial
indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the 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 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. In addition, interests in privately arranged
loans acquired by the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds may be subject to this limitation.
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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 under the 1933 Act, or which
were issued under Section 4(a) of 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
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 or
other buyers cease purchasing such restricted securities pursuant to Rule 144A
or otherwise, 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: 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. 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 the Fund to value its portfolio securities, and the
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.
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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."
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
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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 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 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 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 securities with put or demand features 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 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
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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.
Georgia's state government is enjoying very robust fiscal health as evidenced by
the ratings given to General Obligation Bonds issued on April 1, 1997, which
were rated by Moody's as "Aaa," "AA+ with a positive outlook" by Standard &
Poors, and "AAA" by Fitch. The Federal Reserve Bank of Atlanta predicts that
1997 will be a very good year for Georgia in terms of economic growth. However,
a comparison to economic performance for the state in 1996 will be somewhat
distorted because of the estimated $3 billion boost to the state economy from
the 1996 Summer Olympic Games. The Olympic Games served to value-add to the
basic strength of the Georgia economy, which is expected to continue to flourish
in the near term by the expansion of existing business and by the continued
in-migration of new business from around the United States and from around the
world.
Maryland is one of the wealthiest states in the U.S. and has been rated "Aa" by
Moody's, and "AA" by 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 sixth 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 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 and 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,
"AAA" rating by S&P and a "AAA" rating by Fitch, for the state. Combine this
with a conservative plan of finance, and South Carolina
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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).
The mix of job growth in Texas provides a strong base for sustainable growth
because the new jobs are largely in industries with bright prospects for future
growth, such as knowledge-based services and manufacturing.
The state of Virginia has earned its "Aa2" rating by Moody's and "AA" 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 experienced strong
growth in the labor force and benefits from a low unemployment rate. 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 the SAIs.
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.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
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
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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 Funds.
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 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
SHORT-TERM TRUST OBLIGATIONS: Certain of the Funds 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. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority
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of Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, some 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, 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. 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. 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 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-
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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, each of which denotes
that the securities are investment grade.
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.
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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
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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:
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 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
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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 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.
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Prospectus Nations Prime
Fund
INVESTOR B SHARES Nations Treasury
AUGUST 1, 1997 Fund
Nations Government
Money Market Fund
This Prospectus describes the investment portfolios
(each a "Fund" and collectively, the "Money Market Nations Tax
Funds") listed in the column to the right of Exempt Fund
Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the
Nations Funds Family ("Nations Funds" or "Nations
Funds 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 MONEY MARKET 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 Funds at its address or telephone number
shown below. The SAIs dated August 1, 1997 are
incorporated by reference in their entirety into
this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAIs,
material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the term "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, FOR WHICH THEY ARE
COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED For purchase, redemption
WITH NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR and performance information
AND SERVES AS THE DISTRIBUTOR FOR NATIONS FUNDS. call:
THESE SECURITIES HAVE NOT BEEN APPROVED OR 1-800-321-7854
DISAPPROVED BY THE SECURITIES AND EXCHANGE Nations Funds
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR c/o Stephens Inc.
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY One NationsBank Plaza
STATE SECURITIES COMMISSION PASSED UPON THE 33rd Floor
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY Charlotte, NC 28255
REPRESENTATION TO THE CONTRARY IS A CRIMINAL (Nations Fund logo
OFFENSE. appears here)
NF-96138-897
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds
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 How To Buy Shares 16
Investment
How To Redeem Shares 18
How To Exchange Shares 19
Shareholder Servicing And Distribution Plans 20
How The Funds Value Their Shares 21
How Dividends And Distributions Are Made;
Tax Information 21
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 FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
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(This Page Left Blank Intentionally)
<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 52
investment company portfolios in the Nations Funds 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.
<TABLE>
<CAPTION>
INVESTOR B SHARES
<S> <C> <C> <C>
Nations
Nations Prime Nations Treasury Government Money
Fund Fund Market Fund
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None
Deferred Sales Charge None None None
<CAPTION>
Nations
Tax 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>
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .16% .16% .14%
Rule 12b-1 Fees (After Fee Waivers) .00% .00% .00%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses .14% .14% .16%
Total Operating Expenses (After Fee Waivers) .55% .55% .55%
<S> <C>
Management Fees (After Fee Waivers) .16%
Rule 12b-1 Fees (After Fee Waivers) .00%
Shareholder Servicing Fees .20%
Other Expenses .14%
Total Operating Expenses (After Fee Waivers) .50%
</TABLE>
* The Funds and Stephens Inc. have voluntarily agreed to limit the total charges
against each Fund's Investor B Shares 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 any fee waivers and/or reimbursements will continue.
In particular, to the extent other expenses are less than expected, waivers
and/or reimbursements of management fees, if any, may decrease. Shareholders
will be notified of any decrease that materially increases Total Operating
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<PAGE>
Expenses. 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," "Rule 12b-1
Fees," and "Total Operating Expenses" for Investor B Shares of the indicated
Fund would have been as follows: Nations Prime Fund -- .20%, .10% and .69%,
respectively; Nations Treasury Fund -- .20%, .10% and .69%, respectively;
Nations Government Money Market Fund -- .40%, .10% and .91%, respectively.
Absent fee waivers, "Management Fees," "Rule 12b-1 Fees," "Shareholder Servicing
Fees," and "Total Operating Expenses" for Nations Tax Exempt Fund would have
been .40%, .10%, .25% and .89%, 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 financial information on the following pages has been derived from the
audited 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 Fund's independent accountant.
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR B SHARES 03/31/97 03/31/96(a) 05/31/95 05/31/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0495 0.0447 0.0493 0.0015
Dividends from net investment income (0.0495) (0.0447) (0.0493) (0.0015)
Total dividends and distributions (0.0495) (0.0447) (0.0493) (0.0015)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.05% 4.57% 5.03% 0.15%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 381,015 $ 358,646 $ 216,973 $ 2
Ratio of operating expenses to average net assets 0.55% 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 4.96% 5.37%+ 4.97% 2.95%+
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.60% 0.62%+ 0.64% 0.62%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.0491 $ 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 charges.
(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>
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR B SHARES 03/31/97 03/31/96(a) 05/31/95 05/31/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0484 0.0437 0.0468 0.0015
Dividends from net investment income (0.0484) (0.0437) (0.0468) (0.0015)
Distributions from net realized capital gains/(loss) -- (0.0000)# (0.0000)# --
Total dividends and distributions (0.0484) (0.0437) (0.0468) (0.0015)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.96% 4.46% 4.76% 0.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 973,297 $1,525,048 $ 52,564 $ 2
Ratio of operating expenses to average net assets 0.55% 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 4.84% 5.27%+ 4.73% 2.72%+
Ratio of operating expenses to average net assets
without waivers and/or reimbursements 0.60% 0.62%+ 0.61% 0.61%+
Net investment income per share without waivers and/or
reimbursements $ 0.0479 $ 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.
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR B SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0478 0.0165 0.0532 0.0222
Distributions:
Dividends from net investment income (0.0478) (0.0165) (0.0532) (0.0222)
Distributions from net realized capital gains/(loss) -- -- -- (0.0000)#
Total dividends and distributions (0.0478) (0.0165) (0.0532) (0.0222)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.93% 1.66% 5.45% 2.24%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 27,750 $ 62,617 $ 27,079 $ 11,955
Ratio of operating expenses to average net assets 0.55% 0.55%+ 0.55% 0.55%+
Ratio of net investment income to average net assets 4.78% 4.95%+ 5.33% 3.54%+
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.82% 0.84%+ 0.82% 0.84%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.0451 $ 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
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR B SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0307 0.0106 0.0342 0.0141
Dividends from net investment income (0.0307) (0.0106) (0.0342) (0.0141)
Total dividends and distributions (0.0307) (0.0106) (0.0342) (0.0141)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 3.11% 1.06% 3.47% 1.43%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 228,601 $ 132,914 $ 86,374 $ 3
Ratio of operating expenses to average net assets 0.50% 0.50%+ 0.50% 0.47%+
Ratio of net investment income to average net assets 3.05% 3.15%+ 3.42% 2.39%+
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.75% 0.78%+ 0.77% 0.79%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.0281 $ 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.
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.
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 (together, with U.S. Treasury Obligations, "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 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. In addition, the Fund may
lend its portfolio securities to qualified institutional investors. Although the
Fund is permitted to invest a portion of its assets in second tier securities
(as defined below) in accordance with Rule 2a-7 under the Investment Company Act
of 1940 (the "1940 Act"), the Fund invests only in first tier securities (as
defined below). 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 and
repurchase agreements secured by such obligations. The Fund may lend its
portfolio securities to qualified institutional investors. Although the Fund is
permitted to invest a portion of its assets in second tier securities (as
defined below) in accordance with Rule 2a-7 under the 1940 Act, the Fund invests
only in first tier securities (as defined below). 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. Although the Fund may invest in
repurchase agreements it does not currently intend to do so. 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. Although the Fund is permitted to invest a portion of
its assets in second tier securities (as defined below) in accordance with Rule
2a-7 under the 1940 Act, the Fund invests only in first tier securities (as
defined below). 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
8
<PAGE>
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; having a long-term rating of
"A" or higher from D&P, Fitch, S&P, IBCA, BankWatch or Moody's in the case of
certain bonds which are 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."
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 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.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
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
9
<PAGE>
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 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 SAI. 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 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 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 greater maturities, provided such obligations
are subject to demand features or resets which are less than 397 days, 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 Daily 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 Agent (as defined below) or by calling Nations Funds at the toll-free
number indicated on the cover of this Prospectus.
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 Funds 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,
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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 its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-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: .25% of the first $250 million of the combined
average daily net assets of both Nations Prime Fund and Nations Treasury Fund,
plus .20% of the combined average daily net assets of such Funds in excess of
$250 million; and .40% of the average daily net assets of each of Nations
Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided pursuant to sub-advisory agreements, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rate of .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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Government Money Market Fund -- .14% and Nations Tax Exempt
Fund -- .16%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Prime Fund -- .16% and Nations Treasury Fund -- .16%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Goverment Money Market Fund -- .055%, Nations Tax Exempt Fund -- .055%, Nations
Prime Fund -- .055% and Nations Treasury Fund -- .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. Prior to assuming her
position with TradeStreet, she was Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. 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
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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 these 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 Funds and special counsel to
NationsBank, has advised Nations Funds 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 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 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
.10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .09% and Nations Tax Exempt Fund -- .09%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid
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its administrators combined fees at the indicated rates of the following Funds'
average daily net assets: Nations Prime Fund -- .09% and Nations Treasury
Fund -- .09%.
NationsBank serves as sub-administrator for Nations Funds 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. Nations Funds
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. ("NationsBank of Texas") and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of all Nations Funds, except the international portfolios. 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 to the Nations Funds Family, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees at the rate of (i) $300,000
per annum, to be paid monthly in payments of $25,000 for custodian services for
up to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all Nations Funds except the international portfolios, for which BONY is
already serving as Custodian. BONY is located at 90 Washington Street, New York,
New York 10286. In return for providing sub-costodial services, BONY receives,
in addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market 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. Their
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, 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, Stephens or First Data under their respective agreements with Nations
Funds; and any extraordinary expenses. Investor B Shares may bear certain class
specific 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 Funds
Family, which consists of Nations Fund Trust, Nations Fund, Inc., Nations Fund
Portfolios, Inc., Nations Institutional Reserves and Nations LifeGoal Funds,
Inc. The Nations Funds Family currently has more than 52 distinct investment
portfolios and total assets in excess of $27 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 Daily 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 Funds 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, 1997, 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 420,000,000,000 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 Funds at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of
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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, 1997, 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 a shareholder servicing
agreement ("Servicing Agreement") with Nations Funds ("Servicing Agents") and/or
a sales support agreement ("Sales Support Agreement") with Stephens ("Selling
Agents").
There is a minimum initial investment of $25,000 in the Funds; 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 Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("Customers") who own Investor
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B Shares. Selling Agents and Servicing Agents are sometimes referred to
hereafter as "Agents." From time to time the Agents, Stephens, and Nations Funds
may agree to voluntarily reduce the fees payable for shareholder services and
sales support services. See "Shareholder Servicing And Distribution Plans."
Nations Funds and Stephens reserve 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 Agent transmitting the order, and
any funds received will be returned promptly to the sending 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 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 Funds.
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 which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or the last 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 Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
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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
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Funds.
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 Funds 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 Funds 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 an Agent pursuant to
arrangements between the Agent and its Customers. Nations Funds 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 Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CHECKWRITING PRIVILEGES: 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 Funds 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
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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 Funds at any time.
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 Funds 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 Funds 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 Funds 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 Funds and Stephens reserve 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.
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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 B 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 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 Funds 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.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor B 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 B Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor B 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
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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 Funds 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 Funds 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 Funds. The Sales Support Agreements and Servicing Agreements
require Agents to disclose to their Customers any compensation payable to the
Agents by Stephens or Nations Funds 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 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 Funds 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 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
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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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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 tax on dividends, distributions and proceeds from the disposition of
Fund shares paid to certain foreign shareholders.
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 real-
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ized directly, would be exempt from such income taxes.
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 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.
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 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. Nations Treasury Fund and Nations Government Money Market 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
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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. Pursuant to line of credit arrangements, certain of the
Funds may borrow 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, each of
the Funds (except Nations Tax Exempt Fund) 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 ("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,
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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 interest 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 obligations
(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 income (including interest, dividends and disposition proceeds),
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.
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The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
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 under the 1933 Act, or which
are issued under Section 4(2) of 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 or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, 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
obliga-
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tions 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 obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less 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 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 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.
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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 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 securities with put or demand features 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.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
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 Funds.
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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 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
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. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. 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, some 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; 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. 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.
29
<PAGE>
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 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 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.
30
<PAGE>
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.
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:
31
<PAGE>
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 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.
32
<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.
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.
33
<PAGE>
Prospectus
INVESTOR B SHARES
AUGUST 1, 1997
This Prospectus describes NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND, NATIONS SMALL COMPANY 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 Funds Family ("Nations Funds" or "Nations
Funds Family"). This Prospectus describes one class
of shares of the Funds -- Investor B Shares
(formerly Investor N Shares).
This Prospectus sets forth concisely the GROWTH AND
information about the Funds that a prospective INCOME FUNDS:
purchaser of Investor B Shares should consider Nations Value Fund
before investing. Investors should read this Nations Equity
Prospectus and retain it for future reference. Income Fund
Additional information about Nations Fund Trust and Nations Balanced
Nations Fund, Inc. is contained in separate Assets Fund
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and GROWTH FUNDS:
Exchange Commission (the "SEC") and are available Nations Capital
upon request without charge by writing or calling Growth Fund
Nations Funds at its address or telephone number Nations Emerging
shown below. The SAIs for Nations Fund Trust and Growth Fund
Nations Fund, Inc., each dated August 1, 1997, are Nations Small
incorporated by reference in their entirety into Company Growth Fund
this Prospectus. The SEC maintains a Web site Nations Disciplined
(http://www.sec.gov) that contains the SAIs, Equity Fund
material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the term "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
For Fund information call:
1-800-321-7854
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE Nations Funds
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR c/o Setphens Inc.
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY One NationsBank Plaza
STATE SECURITIES COMMISSION PASSED UPON THE 33rd Floor
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY Charlotte, NC 28255
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. (Nations Funds Logo appears here)
NSI-96144-897
<PAGE>
Table Of Contents
About The
Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 7
Objectives 13
How Objectives Are Pursued 14
How Performance Is Shown 21
How The Funds Are Managed 22
Organization And History 26
About Your
Investment
How To Buy Shares 28
How To Redeem Shares 30
How To Exchange Shares 33
Shareholder Servicing And Distribution Plans 34
How The Funds Value Their Shares 35
How Dividends And Distributions Are Made; Tax
Information 36
Appendix A -- Portfolio Securities 37
Appendix B -- Description Of Ratings 45
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 FUNDS OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY NATIONS FUNDS OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
o TYPE OF COMPANIES: Open-end management investment companies.
o INVESTMENT OBJECTIVES AND POLICIES:
o Nations Value Fund's investment objective is to seek growth of capital by
investing in companies that are believed to be undervalued.
o 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.
o Nations Balanced Assets Fund's investment objective is to seek total return
by investing in equity and fixed income securities.
o 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.
o 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.
o Nations Small Company Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity securities.
o 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.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Funds. See
"How The Funds Are Managed."
o DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid monthly by Nations Capital Growth Fund, Nations Disciplined Equity
Fund, Nations Equity Income Fund, Nations Value Fund and Nations Small
Company Growth Fund. Nations Balanced Assets Fund and Nations Emerging Growth
Fund declare and pay dividends from net investment income each calendar
quarter. Each Fund's net realized apital gains, including net short-term
capital gains are distributed at least annually.
o 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. The U.S. stock market tends to be cyclical,
with periods when stock prices generally rise and periods when prices
generally decline. As of the date of this Prospectus, the stock market, as
measured by the S&P 500 Index (as defined below) and other commonly used
indices, was trading at or close to record levels. There can be no guarantee
that these levels will continue. Certain of the Funds may invest in securities
of smaller and newer issuers. Investments in such companies
3
<PAGE>
may present greater opportunities for capital appreciation because of high
potential earnings growth, but also present greater risks than investments in
more established companies with longer operating histories and greater
financial capacity. 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
(as defined below), 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."
o 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 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.
INVESTOR B SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Nations
Nations Nations Small
Nations Equity Balanced Nations Nations Company
Value Income Assets Capital Growth Emerging Growth Growth
Fund Fund Fund Fund Fund Fund
SHAREHOLDER TRANSACTION
EXPENSES
Sales Load Imposed on
Purchases None None None None None None
Maximum Deferred Sales Charge
(as a percentage of the
lower of the original
purchase price or redemption
proceeds)(1) 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of
average net assets)
Management Fees (After Fee
Waivers) .75% .67% .75% .75% %.75 .75%
Rule 12b-1 Fees .75% .75% .75% .75% .75% .75%
Shareholder Servicing Fees .25% .25% .25% .25% .25% .25%
Other Expenses .19% .22% .25% .21% .23% .20%
Total Operating Expenses
(After Fee Waivers) 1.94% 1.89% 2.00% 1.96% 1.98% 1.95%
<CAPTION>
<S> <C>
Nations
Disciplined
Equity
Fund
SHAREHOLDER TRANSACTION
EXPENSES
Sales Load Imposed on
Purchases None
Maximum Deferred Sales Charge
(as a percentage of the
lower of the original
purchase price or redemption
proceeds)(1) 5.00%
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of
average net assets)
Management Fees (After Fee
Waivers) .75%
Rule 12b-1 Fees .75%
Shareholder Servicing Fees .25%
Other Expenses .25%
Total Operating Expenses
(After Fee Waivers) 2.00%
</TABLE>
(1) Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 5.00% in the first year after
purchase, declining to 1.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule see "How to
Redeem Shares -- Contingent Deferred Sales Charge."
5
<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>
<S> <C> <C> <C> <C> <C>
Nations Nations Nations Nations
Nations Equity Balanced Capital Emerging
Value Income Assets Growth Growth
Fund Fund Fund Fund Fund
1 Year $ 70 $ 69 $ 70 $ 70 $ 70
3 Years $ 91 $ 89 $ 93 $ 92 $ 92
5 Years $ 125 $ 122 $ 128 $ 126 $ 127
10 Years $ 226 $ 221 $ 233 $ 229 $ 231
</TABLE>
Nations
Small Nations
Company Disciplined
Growth Equity
Fund Fund
1 Year $ 70 $ 70
3 Years $ 91 $ 93
5 Years $ 125 $ 128
10 Years $ 227 $ 233
An investment of $1,000 would incur the following expenses, assuming a 5% annual
return and no redemption.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations Nations Nations Nations
Nations Equity Balanced Capital Emerging
Value Income Assets Growth Growth
Fund Fund Fund Fund Fund
1 Year $ 20 $ 19 $ 20 $ 20 $ 20
3 Years $ 61 $ 59 $ 63 $ 62 $ 62
5 Years $ 105 $ 102 $ 108 $ 106 $ 107
10 Years $ 226 $ 221 $ 233 $ 229 $ 231
</TABLE>
Nations
Small Nations
Company Disciplined
Growth Equity
Fund Fund
1 Year $ 20 $ 20
3 Years $ 61 $ 63
5 Years $ 105 $ 108
10 Years $ 227 $ 233
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
reimbursements will continue. In particular, to the extent other expenses are
less than expected, waivers and/or reimbursements of management or other fees,
if any, may decrease. Shareholders will be notified of any decrease that
materially increases Total Operating Expenses.
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for
Investor B Shares of Nations Small Company Growth Fund would have been 1.00% and
2.20%, respectively. 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."
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 financial information on the following pages has been derived from the
audited 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.
Information for Investor B Shares of Nations Small Company Growth Fund has been
derived from the audited financial statements dated May 16, 1997 for the Class B
Shares of The Pilot Funds' Pilot Small Capitalization Equity Fund, the
predecessor fund to Nations Small Company Growth Fund. This information has been
audited by Arthur Andersen LLP and is provided to help you understand the
historical performance of the Fund and its predecessor. The reports of Arthur
Andersen LLP accompany the financial statements dated May 16, 1997 and are
incorporated by reference in the related SAI, which is available upon request.
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR PERIOD
INVESTOR B SHARES (FORMERLY INVESTOR ENDED ENDED ENDED ENDED ENDED
N SHARES) 3/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93*
Operating performance:
Net asset value, beginning of period $ 16.55 $ 16.15 $ 12.94 $ 13.71 $ 13.08
Net investment income 0.14 0.03 0.17 0.15 0.11
Net realized and unrealized gain/(loss) on
investments 2.68 1.05 3.89 (0.22) 0.63
Net increase/(decrease) in net asset value from
operations 2.82 1.08 4.06 (0.07) 0.74
Distributions:
Dividends from net investment income (0.14) (0.06) (0.18) (0.16) (0.11)
Distributions from net realized capital gains (1.42) (0.62) (0.67) (0.54) --
Total dividends and distributions (1.56) (0.68) (0.85) (0.70) (0.11)
Net asset value, end of period $ 17.81 $ 16.55 $ 16.15 $ 12.94 $ 13.71
Total return++ 17.21% 6.90% 33.55% (0.69)% 5.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 99,999 $ 88,861 $ 83,699 $ 42,530 $ 10,449
Ratio of operating expenses to average net
assets 1.72%(c) 1.71%+ 1.69% 1.68% 1.71%+
Ratio of net investment income to average net
assets 0.76% 0.55%+ 1.15% 1.10% 1.23%+
Portfolio turnover rate 47% 12% 63% 75% 64%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.72%(c) 1.71%+ 1.69% 1.68% 1.72%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.14(c) $ 0.03 $ 0.17 $ 0.15 $ 0.11
Average commission rate paid (b) $ 0.0649 $ 0.0648 N/A N/A N/A
</TABLE>
* Nations Value Fund Investor B 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
7
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EQUITY INCOME FUND
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR PERIOD
INVESTOR B SHARES (FORMERLY INVESTOR ENDED ENDED ENDED ENDED
N SHARES) 03/31/97 03/31/96(a) 05/31/95 05/31/94*
Operating performance:
Net asset value, beginning of period $ 13.10 $ 11.77 $ 11.40 $ 11.98
Net investment income 0.31 0.22 0.34 0.37
Net realized and unrealized gain on investments 1.57 1.76 1.11 0.22
Net increase in net asset value resulting from
operations 1.88 1.98 1.45 0.59
Distributions:
Dividends from net investment income (0.32) (0.28) (0.35) (0.36)
Distributions from net realized capital gains (2.41) (0.37) (0.73) (0.81)
Total dividends and distributions (2.73) (0.65) (1.08) (1.17)
Net asset value, end of period $ 12.25 $ 13.10 $ 11.77 $ 11.40
Total return++ 14.76% 17.21% 14.03% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 108,055 $ 104,026 $ 75,371 $ 46,043
Ratio of operating expenses to average net
assets 1.66%(c) 1.65%+ 1.67% 1.69%+
Ratio of net investment income to average net
assets 2.34% 2.09%+ 3.00% 2.66%+
Portfolio turnover rate 102% 59% 158% 116%
Ratio of operating expenses to average net
assets without waivers
and/or expense reimbursements 1.66%(c) 1.65%+ 1.68% 1.70%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.31(c) $ 0.22 $ 0.34 $ 0.37
Average commission rate paid (b) $ 0.0609 $ 0.0287 N/A N/A
</TABLE>
* Nations Equity Income Investor B 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
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
8
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
INVESTOR B SHARES (FORMERLY INVESTOR N SHARES) 03/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93*
Operating performance:
Net asset value, beginning of period $ 11.62 $ 12.63 $ 10.40 $ 10.85 $ 10.61
Net investment income 0.29 0.09 0.28 0.17 0.14
Net realized and unrealized gain/(loss) on
investments 1.04 0.45 2.22 (0.44) 0.23
Net increase/(decrease) in net asset value from
operations 1.33 0.54 2.50 (0.27) 0.37
Distributions:
Dividends from net investment income (0.30) (0.14) (0.25) (0.18) (0.13)
Distributions from net realized capital gains (1.54) (1.41) (0.02) -- --
Total dividends and distributions (1.84) (1.55) (0.27) (0.18) (0.13)
Net asset value, end of period $ 11.11 $ 11.62 $ 12.63 $ 10.40 $ 10.85
Total return++ 11.62% 4.69% 24.35% (2.51)% 3.45%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 64,058 $ 65,764 $ 65,275 $ 52,905 $ 27,982
Ratio of operating expenses to average net
assets 1.75%(c) 1.75%+ 1.74% 1.73% 1.65%+
Ratio of net investment income to average net
assets 2.56% 2.16%+ 2.50% 1.56% 2.07%+
Portfolio turnover rate 264% 83% 174% 156% 50%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.75%(c) 1.75%+ 1.74% 1.74% 1.72%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.29(c) $ 0.09 $ 0.28 $ 0.17 $ 0.14
Average commission rate paid (b) $ 0.0563 $ 0.0598 N/A N/A N/A
</TABLE>
* Nations Balanced Assets Fund Investor B 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
9
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
INVESTOR B SHARES (FORMERLY INVESTOR N SHARES) 03/31/97# 03/31/96(a) 11/30/95 11/30/94 11/30/93*
Operating performance:
Net asset value, beginning of period $ 13.31 $ 14.15 $ 11.17 $ 11.05 $ 10.55
Net investment income/(loss) (0.08) (0.02) (0.03) (0.01) (0.01)
Net realized and unrealized gain on investments 1.63 0.37 3.27 0.13 0.53
Net increase in net asset value from operations 1.55 0.35 3.24 0.12 0.52
Distributions:
Dividends from net investment income -- -- -- -- (0.02)
Distributions from net realized capital gains (3.39) (1.19) (0.26) (0.00)(b) --
Total dividends and distributions (3.39) (1.19) (0.26) (0.00)(b) (0.02)
Net asset value, end of period $ 11.47 $ 13.31 $ 14.15 $ 11.17 $ 11.05
Total return++ 10.68% 2.77% 29.80% 1.12% 4.95%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 41,933 $ 41,045 $ 40,868 $ 23,591 $ 9,511
Ratio of operating expenses to average net
assets 1.96%(d) 1.96%+ 1.98% 1.90% 1.80%+
Ratio of net investment income/(loss) to
average net assets (0.61)% (0.62)%+ (0.29)% (0.15)% (0.16)%+
Portfolio turnover rate 75% 25% 80% 56% 81%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.96% 1.96%+ 1.98% 1.91% 1.89%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ (0.08) $ (0.02) $ (0.03) $ (0.01) $ (0.02)
Average commission rate paid (c) $ 0.0604 $ 0.0632 N/A N/A N/A
</TABLE>
* Nations Capital Growth Fund Investor B 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 represents the per share data for the
period since the use of the undistributed income method did not accord with
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.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
10
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
INVESTOR B SHARES (FORMERLY INVESTOR N SHARES) 03/31/97# 03/31/96#(a) 11/30/95 11/30/94# 11/30/93*
Operating performance:
Net asset value, beginning of period $ 13.61 $ 13.93 $ 11.24 $ 10.82 $ 9.88
Net investment income/(loss) (0.18) (0.05) (0.07) (0.14) (0.02)
Net realized and unrealized gain on investments 0.20 1.23 3.16 0.70 0.96
Net increase in net asset value from operations 0.02 1.18 3.09 0.56 0.94
Distributions:
Distributions from net realized capital gains (1.34) (1.50) (0.40) (0.14) --
Total dividends and distributions (1.34) (1.50) (0.40) (0.14) --
Net asset value, end of period $ 12.29 $ 13.61 $ 13.93 $ 11.24 $ 10.82
Total return++ (0.57)% 9.52% 28.75% 5.17% 9.51%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 33,342 $ 34,989 $ 32,349 $ 15,909 $ 3,594
Ratio of operating expenses to average net
assets 1.98%(c) 1.99%+ 1.98% 2.01% 1.80%+
Ratio of net investment income/(loss) to
average net assets (1.26)% (1.06)%+ (0.92)% (1.29)% (1.15)%+
Portfolio turnover rate 93% 39% 139% 129% 159%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.98%(c) 1.99%+ 1.98% 2.01% 2.01%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ (0.18)(c) (0.05) $ (0.07) $ (0.09) $ (0.03)
Average commission rate paid (b) $ 0.0562 $ 0.0599 N/A N/A N/A
</TABLE>
* Nations Emerging Growth Fund Investor B 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
11
<PAGE>
FOR AN INVESTOR B SHARES OUTSTANDING THROUGHOUT THE PERIOD
NATIONS SMALL COMPANY GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD PERIOD
ENDED ENDED
INVESTOR B SHARES* 05/16/97 08/31/96(a)
Operating performance:
Net asset value, beginning of the period $ 10.65 $ 10.00
Net investment income (loss) (0.03) 0.01
Net realized and unrealized gain on investments and futures 1.46 0.65
Total income from investment activities 1.43 0.66
Distributions from net investment income -- (0.01)
Distributions from net realized capital gains (0.05) --
Total dividends and distributions (0.05) (0.01)
Net asset value at the end of the period $ 12.03 $ 10.65
Total return (b) 13.43% 6.65%
Ratios of expenses to average net assets 1.97%(c) 2.01%(c)
Ratio of net investment income to average net assets (0.45)%(c) (0.07)%(c)
Portfolio turnover rate (e) 48% 31%
Net assets at end of period (in 000's) $ 2,635 $ 1,878
Ratio of expenses to average net assets (assuming no waiver or expense reimbursements) 2.41%(c) 2.44%(c)
Ratio of net investment income to average net assets (assuming no waiver or expense
reimbursements) (0.89)%(c) (0.50)%(c)
Average Commission Rate (d) $ 0.0323 $ 0.0340
</TABLE>
* Investor B Shares of Nations Small Company Growth Fund were formerly Class B
Shares of the Pilot Small Capitalization Equity Fund, a predecessor
portfolio.
(a) Share activity commenced December 12, 1995.
(b) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken for Class
B Shares. Total return is not annualized.
(c) Annualized.
(d) The average commission rate represents the total dollar amount of
commissions paid on portfolio transactions divided by the total number of
portfolio shares purchased and sold for which commissions were charged.
Disclosure is not required for prior periods.
(e) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued.
12
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR B SHARES (FORMERLY INVESTOR N SHARES) 03/31/97 03/31/96(a) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 17.00 $ 16.89 $ 13.02 $ 12.77
Net investment income/(loss) (0.05) (0.01) 0.03 (0.02)
Net realized and unrealized gain/(loss) on investments 2.76 0.35 3.87 0.28
Net increase/(decrease) in net asset value from operations 2.71 0.34 3.90 0.26
Distributions:
Dividends from net investment income -- -- (0.03) (0.01)
Distributions from net realized capital gains (1.51) (0.23) -- --
Return of capital -- -- -- (0.00)(b)
Total dividends and distributions (1.51) (0.23) (0.03) (0.01)
Net asset value, end of period $ 18.20 $ 17.00 $ 16.89 $ 13.02
Total return++ 15.86% 2.08% 29.94% 2.02%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 20,257 $ 18,412 $ 16,874 $ 177
Ratio of operating expenses to average net assets 2.04%(d) 2.02%+ 2.30% 2.09%+
Ratio of net investment income/(loss) to average net assets (0.30)% (0.18)%+ (0.15)% (0.84)%+
Portfolio turnover rate 120% 47% 124% 177%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 2.04% 2.02%+ 2.30% 2.52%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.05) (0.01) $ 0.03 $ (0.03)
Average commission rate paid (c) $ 0.0377 $ 0.0627 N/A N/A
</TABLE>
* Nations Disciplined Equity Fund Investor B 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.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
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.
13
<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 SMALL COMPANY GROWTH FUND: Nations Small Company Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities.
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.
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.
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
14
<PAGE>
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 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 and repurchase
agreements. 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 provided by the stocks in the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index")(1) 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:
o are income producing;
o appear undervalued relative to the S&P 500 Index on a risk adjusted basis;
and
o 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 fluc-
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation.
15
<PAGE>
tuate 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 and repurchase
agreements. 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 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 and asset-
backed securities. Most obligations acquired by the Fund will be issued by
companies or governmental entities located within the United States. Debt
obligations acquired by the Fund will be rated investment grade at the time of
purchase by S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc.
(collectively "IBCA"), or Thomson BankWatch, Inc. ("BankWatch") or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
Obligations with the lowest investment grade rating (E.G. rated "BBB" by S&P or
"Baa" by Moody's) have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
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 and repurchase
agreements. 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
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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:
o above-average earnings growth relative to the S&P 500 Index;
o established operating histories, strong balance sheets and favorable
financial characteristics; and
o 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:
o 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;
o companies that own or develop natural resources, such as energy
exploration companies;
o companies that may benefit from changing consumer demands and lifestyles, such
as financial service organizations and telecommunication companies;
o foreign companies, including those in countries with more rapid economic
growth than the U.S.;
o companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
o 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 and repurchase
agreements. 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 equity securities,
consisting of common stocks, preferred stocks and convertible securities, such
as warrants, rights 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 and repurchase agreements. The Fund may invest without limitation in
such instruments pending investment,
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to meet anticipated redemption requests, or as a temporary defensive measure if
market conditions warrant.
The volatility of emerging growth stocks is greater 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, it may invest up to
20% of its total assets in foreign securities.
NATIONS SMALL COMPANY GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in equity securities, consisting of common stocks, preferred stocks and
convertible securities, such as warrants, rights and convertible debt. In
addition, the Fund will invest at least 65% of its total assets in companies
with a market capitalization of $1 billion or less.
In making investment decisions for the Fund, the Adviser, on a quarterly basis,
classifies approximately 6,000 companies by market value and eliminates the
largest 20%. The remaining companies constitute the Fund's small-capitalization
universe and generally represent only one-tenth of the aggregate U.S. equity
market capitalization. Due to the large number of small stocks to choose from,
the Adviser's selection process uses advanced quantitative techniques to
identity, buy and sell candidates in a timely and objective manner. The strategy
is to own those investments offering both attractive fundamental valuation and
relatively good prospects for earnings improvement. Typically, two types of
companies are candidates for purchase: (i) mature companies which may have
fallen from a larger market value due to business difficulties, but which now
exhibit improving prospects; and (ii) smaller or younger companies which are
experiencing strong trends in earnings growth, but remain reasonably valued and
therefore offer premium growth at a discount in comparison to other companies.
The Adviser's internally designed investment approach uses a sophisticated
valuation process which measures changes in current earnings estimates and
longer-term growth trends, compares recent earnings results with market
expectations, and evaluates a company's earnings power relative to its stock
price. Companies become purchase candidates based upon a composite ranking of
these factors, and the top 20% are further evaluated on additional criteria.
Candidates for investment must also possess a sound financial structure and
demonstrate consistent factor rankings before being added to the Fund's
portfolio.
The Fund's weighted median capitalization generally is not expected to exceed
125% of the weighted median capitalization of the Russell 2000 Small Stock Index
(the "Russell 2000") as measured on a quarterly basis, although this may vary
from time to time. Furthermore, a stock may be sold if the composite rank falls
into the bottom 20% of the universe, financial quality weakens significantly, or
if the individual factors demonstrate patterns of deterioration.
The Fund may invest up to 35% of its total assets in securities of issuers with
a market capitalization greater than $1 billion and in debt securities. However,
the Fund will not invest more than 10% of its total assets in debt securities,
unless the Fund assumes a temporary defensive position as discussed below. Debt
securities, if any, purchased by the Fund will be rated AA or above by S&P or Aa
or above by Moody's or, if unrated, determined by the Adviser to be of
comparable quality. For temporary defensive purposes, the Fund may invest up to
100% of its assets in debt securities. Debt securities in which the Fund may
invest include short-term and intermediate-term obligations of corporations, the
U.S. and foreign governments and international organizations (such as the World
Bank), and money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securi-
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ties, securities indexes and foreign currencies, securities lending, forward
foreign exchange contracts and repurchase agreements. The Fund currently intends
to limit any investment in foreign securities to 5% of total assets.
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 the Fund, the Adviser utilizes quantitative analysis and
optimization tools. This approach seeks to identify companies with improving
profit potential through analysis of 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. The quantitative analysis also includes ranking the attractiveness
of equity securities according to a multi-factor valuation model. Both value and
growth factors are considered in the ranking process. Value factors such as book
value, earnings yield and cash flow measure a stock's intrinsic worth versus its
market price, while growth characteristics such as price momentum, earnings
growth and earnings acceleration measure a stock relative to others in the same
industry. The objective is to maintain a broadly diversified portfolio which
ranks in the top quartile on earnings momentum and in the top third on
valuation. This approach generally produces a dividend yield less than the
market average. Although this Fund seeks to invest in attractively priced
securities with increasing earnings, its investment objective focuses on
long-term capital appreciation; income is not an objective of this 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, money
market instruments and repurchase agreements.
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
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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 reverse repurchase agreements and 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 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: Investments by a Fund in common stocks and other equity
securities are subject to stock market risks. The value of the stocks that the
Fund holds, like the broader stock market, may decline over short or even
extended periods. The U.S. stock market tends to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As of the
date of this Prospectus, the stock market, as measured by the S&P 500 Index and
other commonly used indices, was trading at or close to record levels. There can
be no guarantee that these levels will continue.
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 may invest in securities of smaller and newer issuers.
Investments in such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also present greater
risks than investments in more established companies with longer operating
histories and greater financial capacity.
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.)
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<PAGE>
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.
Nations Small Company Growth Fund may not borrow money except as a temporary
measure for extraordinary or emergency purposes or except in connection with
reverse repurchase agreements and mortgage rolls; provided that the Fund will
maintain asset coverage of 300% for all borrowings.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without shareholder approval. Shareholders of Nations Small
Company Growth Fund, however, must receive at least 30 days' prior written
notice in the event an investment objective is changed. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their 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 SAI. 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 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")), assuming the reinvestment of all dividend and
capital gain 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 gain 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 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
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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 B Shares (formerly 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 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' Agent (as defined
below) or by calling Nations Funds at the toll-free number indicated on the
cover of this Prospectus.
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 Funds 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 investment
sub-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.
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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: .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;
1.00% of the average daily net assets of Nations Small Company Growth Fund; and
.75% of the first $100 million of Nations Equity Income Fund's average daily net
assets, plus .70% of the Fund's average daily net assets in excess of $100
million and up to $250 million, plus .60% of the Fund's average daily net assets
in excess of $250 million.
For the services provided pursuant to sub-advisory agreements, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rates of: .20% of Nations Equity Income Fund's average daily net assets and .25%
of Nations Value Fund's, Nations Balanced Assets Fund's, Nations Capital Growth
Fund's, Nations Emerging Growth Fund's, Nations Small Company 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.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Value Fund -- .75%, Nations Capital Growth Fund -- .75%, Nations
Emerging Growth Fund -- .75%, Nations Disciplined Equity Fund -- .75%, and
Nations Balanced Assets Fund -- .75%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the rate of .67% of Nations Equity Income Fund's average daily net
assets.
For the fiscal period from September 1, 1996 to May 16, 1997, after waivers, the
Pilot Funds paid Boatmen's Trust Company, under a previous investment advisory
agreement, advisory fees at the rate of .75% of Nations Small Company Growth
Fund's (formerly the Pilot Small Capitalization Equity Fund) average daily net
assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations Value
Fund -- .25%, Nations Capital Growth Fund -- .25%, Nations Emerging Growth
Fund -- .25%, Nations Disciplined Equity Fund -- .25%, Nations Balanced Assets
Fund -- .25% and Nations Equity Income Fund -- .20%.
Sharon M. Herrmann is a Director of Equity Management for TradeStreet and Senior
Portfolio Manager for Nations Value Fund. Ms. Herrmann has been 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.
Philip J. Sanders 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 anal-
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ysis 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 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
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.
Jeffery C. Moser 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 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 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.
Scott A. Billeadeau is a Senior Portfolio Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Emerging Growth Fund and
Nations Small Company Growth Fund. Mr. Billeaudeau has been Portfolio Manager of
the Funds since June 1997. Previously he was Senior Analyst and Senior Portfolio
Manager for BankAmerica's Pacific Horizon Aggressive Growth Fund at Security
Pacific Corp. since 1991. Mr. Billeadeau has worked in the investment community
since 1986. His past experience also includes quantitative analysis for American
Express Financial Advisors, Inc. Mr. Billeadeau received an AB in Economics from
Princeton University. He holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research, as well
as the Seattle Society of Securities Analysts.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank has advised Nations Funds 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
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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 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 Nations Funds 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 .10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .10%,
Nations Capital Growth Fund -- .10%, Nations Emerging Growth Fund -- .10%,
Nations Disciplined Equity Fund -- .10% and Nations Balanced Assets
Fund -- .10%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Fund's average daily net assets: Nations Equity Income Fund --
.10%.
NationsBank serves as sub-administrator for Nations Funds 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, Nations Funds
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 B Shares of the Funds. See
"Shareholder Servicing and Distribution Plans."
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of all Nations Funds except the international portfolios. NationsBank of
Texas is located at 1401 Elm Street, Dallas, Texas 75202, and is a wholly owned
subsidiary of
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<PAGE>
NationsBank Corporation. In return for providing custodial services to the
Nations Funds Family, NationsBank of Texas is entitled to receive, in addition
to out of pocket expenses, fees at the rate of (i) $300,000 per annum, to be
paid monthly in payments of $25,000 for custodian services for up to and
including 50 Funds; and (ii) $6,000 per annum, to be paid in equal monthly
payments, for custodian services for each additional Fund above 50 Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all the Funds except the international portfolios, for which BONY is already
serving as Custodian. BONY is located at 90 Washington Street, New York, New
York 10286. In return for providing sub-custodial services, BONY receives, in
addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor B Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor B Shares (formerly 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, 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, Stephens or First Data under their respective agreements with
Nations Funds; and any extraordinary expenses. Investor B Shares may bear
certain class specific 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 Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family
currently has more than 52 distinct investment portfolios and total assets in
excess of $27 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 B Shares (formerly Investor N Shares) and Investor C Shares.
This Prospectus relates only to the Investor B Shares of the following funds of
Nations Fund Trust: Nations Capital Growth Fund, Nations Emerging Growth Fund,
Nations Disciplined Equity Fund,
26
<PAGE>
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 Agent (as defined below) or Nations Funds 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, as amended (the "1940 Act") requires voting by
fund.
As of July 15, 1997, 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 420,000,000,000 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 B Shares of Nations Equity Income Fund, and Nations Small Company
Growth 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 Agent
(as defined below) or Nations Funds 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.
27
<PAGE>
As of July 15, 1997, 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.
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 a shareholder servicing
agreement ("Servicing Agreement") with NationsBank ("Servicing Agents") sales
support agreement ("Sales Support Agreement") with Stephens ("Selling Agents").
Certain investors desiring to invest $1 million or more (including current
holdings) in the Nations Funds Family may be eligible to purchase Investor A
Shares. See "How To Redeem Shares."
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
o $500 for IRA investors;
o $250 for non-working spousal IRAs; and
o $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"), Savings Incentives Method Plans for Employees
("SIMPLE IRAs"), salary reduction-Individual Retirement Accounts ("SAR-IRAs") or
similar types of accounts. However, the assets of such plans must reach an asset
value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs, 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 Funds 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 B 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 Servicing Agents will provide various shareholder services for, and the
Selling Agents will
28
<PAGE>
provide sales support assistance to, their respective customers ("Customers")
who own Investor B Shares. Servicing Agents and Selling Agents are sometimes
referred to hereafter as "Agents." From time to time the Agents, Stephens and
Nations Funds may agree to voluntarily reduce the maximum fees payable for sales
support or shareholder services.
Nations Funds and Stephens reserve 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: Purchase orders for Investor B 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 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 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 B
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Funds.
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, shareholders may direct cash to be transferred
automatically from their checking or savings account at any bank which is a
member of the Automated Clearing House to their Fund account. Transfers will
occur on or about the 15th and/or the last day of the applicable month. Subject
to certain exceptions for employees of NationsBank and its affiliates and
pre-existing SIP accounts, the systematic investment amount may be in any amount
from $50 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 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 Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
CONVERSION FEATURE: Except for Investor B Shares held by employee benefit plans,
Investor B Shares purchased after July 31, 1997, that have been outstanding for
the number of years set forth in the schedule below will, at the end of the
month in which the anniversary of such share purchase occurs, automatically
convert to Investor A Shares.
Except for Investor B Shares held by employee benefit plans, Investor B Shares
purchased prior to August 1, 1997, will automatically convert to Investor A
Shares at the end of the month in which the ninth anniversary of such share
purchase occurs.
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<PAGE>
Upon conversion, shareholders will receive Investor A Shares having a total
dollar value equal to the total dollar value of their Investor B Shares, without
the imposition of any sales chage or other charge. The operating expenses
applicable to Investor A Shares, which are lower than those applicable to
Investor B Shares, shall thereafter be applied to such newly converted shares.
Shareholders holding converted shares will benefit from the lower annual
operating expenses of Investor A Shares, which will have a positive effect on
total returns. In each case, shareholders have the right to decline an automatic
conversion by notifying their Agent or the Transfer Agent within 90 days before
a conversion that they do not desire such conversion.
Reinvestments of dividends and distributions in Investor B Shares will be
considered a new purchase for purposes of the conversion schedules set forth
below. If a shareholder effects one or more exchanges among Investor B Shares of
the Non-Money Market Funds of Nations Funds during such period, the holding
period for shares so exchanged will be counted toward such period.
CONVERSION SCHEDULE
<TABLE>
<CAPTION>
<S> <C>
Amount of Purchase Year of Conversion
$0-$249,000 9th
$250,000-$499,999 6th
$500,000-$999,999 5th
</TABLE>
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 Funds. Except for any CDSC which may be applicable upon redemption of
Investor B 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 Funds 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 an Agent
pursuant to arrangements between the Agent and its Customers. Nations Funds 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 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 Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
RIGHTS OF ACCUMULATION: An investor may be entitled to a reduced CDSC or to
purchase Investor A Shares through Rights of Accumulation. To qualify for a
reduced CDSC or to purchase Investor A Shares, an investor must notify the
Servicing Agent through which the Investor B Shares are or would be purchased,
which in turn must
30
<PAGE>
notify Stephens or the Transfer Agent at the time of purchase. Reductions in
CDSCs or the availability of Investor A Shares may be modified or terminated at
any time and are subject to confirmation of an investor's holdings. An investor
who has previously invested in the Nations Funds Family (excluding the Nations
Funds money market and index funds, Nations Short-Term Income Fund and Nations
Short-Term Municipal Income Fund) may aggregate holdings in such shares with
current purchases to determine the applicable CDSC schedule or the availability
of Investor A Shares for current purchases. An investor's aggregate investment
in the Nations Funds Family for this purpose is the total value (based on the
higher of current net asset value or the public offering price originally paid)
of: (a) current purchases, and (b) Investor A Shares, Investor B Shares or
Investor C Shares that are already beneficially owned by the investor (excluding
the Nations Funds money market and index funds, Nations Short-Term Income Fund
and Nations Short-Term Municipal Income Fund).
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor B Shares purchased prior to January 1, 1996 and after July 31, 1997,
may be subject to a CDSC if such shares are redeemed within the years designated
in the applicable CDSC schedule set forth below. No CDSC is imposed on increases
in net asset value above the initial purchase price, or shares acquired by
reinvestment of distributions. Subject to the waivers 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 tables:
CDSC SCHEDULES
SHARES PURCHASED PRIOR TO JANUARY 1, 1996
<TABLE>
<CAPTION>
<S> <C>
CDSC 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>
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $0 -- $249,999
<TABLE>
<CAPTION>
<S> <C>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $250,000 -- $499,999
<TABLE>
<CAPTION>
<S> <C>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 3.0%
Second 2.0%
Third 1.0%
Fourth None
</TABLE>
31
<PAGE>
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $500,000 -- $999,999*
<TABLE>
<CAPTION>
<S> <C>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 2.0%
Second 1.0%
Third None
</TABLE>
* Except as noted below, Investor B Shares are not available to purchasers
desiring to invest $1 million or more, other than employee benefit plans whose
initial investment is less than $1 million. Such employee benefit plans will
continue to be subject to this CDSC schedule even after their aggregate
holdings in the Nations Funds Family as described above reaches $1 million.
In determining whether a CDSC is payable on any redemption, the Funds will first
redeem shares not subject to any charge, and then shares resulting in 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 B 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) payments
made to pay medical expenses which exceed 7.5% of income and distributions to
pay for insurance by an individual who has separated from employment and who has
received unemployment compensation under a federal or state program for at least
12 weeks, (iv) effected pursuant to Nations Funds' right to liquidate a
shareholder's account, including instances where the aggregate net asset value
of the Investor B shares held in the account is less than the minimum account
size, (v) in connection with the combination of Nations Funds with any other
registered investment company by a merger, acquisition of assets or by any other
transaction, and (vi) 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 B Shares in the account. In
addition, the CDSC will be waived on Investor B 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 Funds 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 Selling 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
Selling Agents not to exceed 4.00% of the offering price per share on all sales
of Investor B 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.
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<PAGE>
REINSTATEMENT PRIVILEGE: Within 120 days after a redemption of Investor B Shares
of a Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor B 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 B 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 B Shares in his/her accounts within the Nations Funds Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor B 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 B 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 B 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 Funds 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 B
Shares of a fund offered by Nations Funds to acquire shares of the same class
that are offered by another fund of Nations Funds (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 Funds 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 B Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor B Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996 or
after July 31, 1997) to the original shares purchased will be applied to any
redemption of the acquired shares. If a shareholder exchanges Investor B 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 B 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 Funds 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 redemp-
33
<PAGE>
tion is based upon the total holding period of Investor B Shares of a fund that
charges a CDSC.
The Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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 B Shares exchanged must have a current value of at least $1,000.
Nations Funds and Stephens reserve 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.
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 B 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 B 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 B 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 B
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 B Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and pay-
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ments 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 B 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 B 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 B
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 Funds 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 Funds understands that 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 Funds. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Funds 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, Martin Luther King, Jr. 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: Dividends from net investment income are declared
and paid monthly by Nations Capital Growth Fund, Nations Disciplined Equity
Fund, Nations Equity Income Fund, Nations Value Fund and Nations Small Company
Growth Fund. Nations Balanced Assets Fund and Nations Emerging Growth Fund
distribute any net investment income each calendar quarter. The Funds distribute
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 B Shares will be
reduced by the amount of any dividend or distribution. Accordingly, dividends
and distributions on newly purchased shares represent, in substance, a return of
capital. However, such dividends and distributions would nevertheless be
taxable. Certain Selling Agents may provide for the reinvestment of dividends in
the form of additional Investor B 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 B 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 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.
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Federal law requires Nations Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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 tax on dividends, distributions and proceeds from the disposition of
Fund shares paid to certain foreign shareholders.
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 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.
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. Each Fund will limit its investments in
bank obligations so that it does not exceed 25% of such Fund's total assets at
the time of purchase. Nations Small Company Growth Fund will limit its
investment in inter-
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est bearing savings deposits of commercial savings banks to 5% of total assets.
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. Pursuant to line of credit arrangements, certain of the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be creditworthy. 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'
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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: Each Fund 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
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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 income (including interest, distributions and disposition
proceeds), 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.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
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
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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 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 under the 1933 Act, or which
were issued under Section 4(2) of 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 or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, 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
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"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 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 limi-
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tation 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.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
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 Funds.
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
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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 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Each Fund 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. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. 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, some 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; 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. 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 take
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 business, economic or financial conditions may lead to
increased investment risk.
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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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Prospectus
INVESTOR B SHARES
AUGUST 1, 1997
This Prospectus describes NATIONS SHORT-TERM INCOME Nations Short-Term
FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND, Income Fund
NATIONS GOVERNMENT SECURITIES FUND, NATIONS Nations
STRATEGIC FIXED INCOME FUND, NATIONS DIVERSIFIED Short-Intermediate
INCOME FUND AND NATIONS U.S. GOVERNMENT BOND FUND Government Fund
(the "Funds") of Nations Fund Trust and Nations Nations Government
Fund, Inc., each an open-end management investment Securities Fund
company in the Nations Funds Family ("Nations Nations Strategic
Funds" or "Nations Funds Family"). This Prospectus Fixed Income Fund
describes one class of shares of the Nations Diversified
Funds -- Investor B Shares (formerly Investor N Income Fund
Shares). Nations U.S.
Government Bond Fund
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 Funds at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated August 1, 1997, are
incorporated by reference in their entirety into
this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAIs,
material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds, except Nations
U.S. Government Bond Fund, for which Boatmen's
Capital Management, Inc. ("Boatmen's") is
investment sub-adviser. As used herein the term
"Adviser" shall mean NBAI, TradeStreet and/or
Boatmen's as the context may require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
For Fund information call:
THESE SECURITIES HAVE NOT BEEN APPROVED OR 1-800-321-7854
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR Nations Funds
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY c/o Stephens Inc.
STATE SECURITIES COMMISSION PASSED UPON THE One NationsBank Plaza
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY 33rd Floor
REPRESENTATION TO THE CONTRARY IS A CRIMINAL Charlotte, NC 28255
OFFENSE. (Nations Fund Logo appears here)
NSI-96145-897
<PAGE>
Table Of Contents
About The
Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 12
How Objectives Are Pursued 13
How Performance Is Shown 18
How The Funds Are Managed 19
Organization And History 23
About Your
Investment
How To Buy Shares 25
How To Redeem Shares 27
How To Exchange Shares 31
Shareholder Servicing And Distribution Plans 32
How The Funds Value Their Shares 33
How Dividends And Distributions Are Made;
Tax Information 34
Appendix A -- Portfolio Securities 35
Appendix B -- Description Of Ratings 45
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 FUNDS OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUNDS OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
o TYPE OF COMPANIES: Open-end management investment companies.
o INVESTMENT OBJECTIVES AND POLICIES:
o Nations Short-Term Income Fund's investment objective is to seek high
current income consistent with minimal fluctuation of principal. The Fund
invests in investment grade debt securities.
o Nations Short-Intermediate Government Fund's investment objective is to seek
high current income consistent with modest fluctuation of principal. The
Fund invests primarily in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
o Nations Government Securities Fund's investment objective is to seek high
current income consistent with moderate fluctuation of principal. The Fund
invests primarily in intermediate-term securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
o Nations Strategic Fixed Income Fund's investment objective is to seek total
return by investing in investment grade fixed income securities.
o Nations Diversified Income Fund's investment objective is to seek total
return with an emphasis on current income by investing in a diversified
portfolio of fixed income securities.
o Nations U.S. Government Bond Fund's investment objective is to seek total
return and preservation of capital by investing in U.S. Government
securities and repurchase agreements.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Funds. See
"How The Funds Are Managed."
o 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.
o 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 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 (as defined below), 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>
o 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."
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.
INVESTOR B SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations
Short- Nations
Nations Intermediate Government Nations Nations
Short-Term Government Securities Strategic Fixed Diversified
SHAREHOLDER TRANSACTION EXPENSES Income Fund Fund Fund Income Fund Income Fund
Sales Load Imposed on Purchases 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 3.00% 4.00% 3.00% 4.00%
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee
Waivers) .30% .40% .50% .50% .50%
Rule 12b-1 Fees (After Fee
Waivers) .10% .55% .60% .55% .60%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses .25% .22% .30% .20% .25%
Total Operating Expenses (After
Fee Waivers) .90% 1.42% 1.65% 1.50% 1.60%
</TABLE>
Nations
U.S.
Government
Bond Fund
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 4.00%
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee .40%
Waivers)
Rule 12b-1 Fees (After Fee
Waivers) .60%
Shareholder Servicing Fees .25%
Other Expenses .20%
Total Operating Expenses (After
Fee Waivers) 1.45%
1 Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 4.00% in the first year after
purchase, declining to 1.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule 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>
<S> <C> <C> <C> <C> <C>
Nations
Short- Nations
Nations Intermediate Nations Strategic Nations
Short-Term Government Government Fixed Diversified
Income Fund Fund Securities Fund Income Fund Income Fund
1 Year $ 9 $ 44 $ 57 $ 45 $ 56
3 Years $ 29 $ 55 $ 82 $ 57 $ 80
5 Years $ 50 $ 78 $ 100 $ 82 $ 97
10 Years $ 111 $ 170 $ 195 $ 179 $ 190
<CAPTION>
<S> <C>
Nations
U.S.
Government
Bond Fund
1 Year $ 55
3 Years $ 76
5 Years $ 89
10 Years $ 174
</TABLE>
An investment of $1,000 would incur the following expenses, assuming a 5% annual
return and no redemption.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Short- Nations
Intermediate Nations Strategic Nations
Government Government Fixed Diversified
Fund Securities Fund Income Fund Income Fund
1 Year $ 14 $ 17 $ 15 $ 16
3 Years $ 45 $ 52 $ 47 $ 50
5 Years $ 78 $ 90 $ 82 $ 87
10 Years $ 170 $ 195 $ 179 $ 190
<CAPTION>
<S> <C>
Nations
U.S.
Government
Bond Fund
1 Year $ 15
3 Years $ 46
5 Years $ 79
10 Years $ 174
</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 recent fiscal
year and have been adjusted as necessary to reflect current service provider
fees. There is no assurance that any fee waivers and/or reimbursements will
continue. In particular, to the extent other expenses are less than expected,
waivers and/or reimbursements of management fees, if any, may decrease.
Shareholders will be notified of any decrease that materially increases Total
Operating Expenses. 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, "Management Fees," "Rule 12b-1 Fees" and "Total Operating
Expenses" for the Investor B Shares of 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 1.82%,
respectively; Nations Government Securities Fund -- .64%, .75% and 1.94%,
respectively; Nations Strategic Fixed Income Fund -- .60%, .75% and 1.80%,
respectively; Nations Diversified Income Fund -- .60%, .75% and 1.85%,
respectively; and Nations U.S. Government Bond Fund -- .60%, .75% and 1.80%,
respectively.
5
<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 financial information on the following pages has been derived from the
audited 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.
Information for Investor B Shares of Nations U.S. Government Bond Fund has been
derived from the audited financial statements dated May 16, 1997 for the Class B
Shares of The Pilot Funds' U.S. Government Securities Fund, the predecessor fund
to Nations U.S. Government Bond Fund. This information has been audited by
Arthur Andersen LLP and is provided to help you understand the historical
performance of the Fund and its predecessor. The reports of Arthur Andersen LLP
accompany the financial statements dated May 16, 1997 and are incorporated by
reference in the related SAI, which is available upon request.
6
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
YEAR ENDED ENDED ENDED ENDED ENDED
INVESTOR B SHARES (FORMERLY INVESTOR N SHARES) 03/31/97# 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.76 $ 9.84 $ 9.48 $ 10.01 $ 9.94
Net investment income 0.55 0.19 0.57 0.47 0.22
Net realized and unrealized gain/(loss) on
investments (0.08) (0.08) 0.36 (0.51) 0.07
Net increase/(decrease) in net asset value from
operations $ 0.47 0.11 0.93 (0.04) 0.29
Distributions:
Dividends from net investment income (0.55) (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 (0.55) (0.19) (0.57) (0.49) (0.22)
Net asset value, end of period $ 9.68 $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 4.89% 1.08% 10.10% (0.46)% 2.96%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,536 $ 7,339 $ 8,873 $ 16,550 $ 39,861
Ratio of operating expenses to average net
assets 0.90%(a) 0.90%+ 0.91% 0.85% 0.72%+
Ratio of net investment income to average net
assets 5.62% 5.72%+ 5.97% 4.88% 4.92%+
Portfolio turnover rate 172% 73% 224% 293% 121%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.20% 1.23%+ 1.21% 1.17% 1.14%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.52 $ 0.18 $ 0.54 $ 0.44 $ 0.21
</TABLE>
* Nations Short-Term Income Fund Investor B 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.
(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.
7
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
INVESTOR B SHARES (FORMERLY YEAR ENDED ENDED ENDED ENDED
INVESTOR N SHARES) ENDED 03/31/97# 03/31/96(b)# 11/30/95# 11/30/94 11/30/93*
Operating performance:
Net asset value, beginning of
period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.26
Net investment income 0.20 0.07 0.21 0.20 0.09
Net realized and unrealized
gain/(loss) on investments (0.08) (0.07) 0.21 (0.33) 0.02
Net increase/(decrease) in net
asset value from operations 0.12 0.00 0.42 (0.13) 0.11
Distributions:
Dividends from net investment
income (0.20) (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 (0.20) (0.07) (0.21) (0.22) (0.09)
Net asset value, end of period $ 3.99 $ 4.07 $ 4.14 $ 3.93 $ 4.28
Total return++ 3.10% (0.13)% 11.02% (2.81)% 2.65%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 10,788 $ 13,789 $ 14,893 $ 10,974 $ 8,847
Ratio of operating expenses to
average net assets 1.23%(c)(d) 1.23%+ 1.20% 1.19% 1.15%+
Ratio of net investment income to
average net assets 5.13% 4.72%+ 5.28% 5.16% 4.80%+
Portfolio turnover rate 529% 189% 328% 133% 92%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.43%(d) 1.46%+ 1.40% 1.40% 1.39%+
Net investment income per share
without waivers and/or expense
reimbursements $ 0.19(d) $ 0.06 $ 0.20 $ 0.19 $ 0.09
</TABLE>
* Nations Short-Intermediate Government Fund Investor B 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) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
8
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR PERIOD
INVESTOR B SHARES (FORMERLY YEAR ENDED ENDED ENDED
INVESTOR N SHARES) ENDED 03/31/97# 03/31/96(b)# 05/31/95# 05/31/94*
Operating performance:
Net asset value, beginning of period $ 9.67 $ 9.86 $ 9.80 $ 10.49
Net investment income 0.54 0.47 0.58 0.54
Net realized and unrealized gain/(loss) on investments (0.30) (0.19) 0.06 (0.64)
Net increase/(decrease) in net asset value from
operations 0.24 0.28 0.64 (0.10)
Distributions:
Dividends from net investment income $ (0.52) (0.45) (0.54) (0.49)
Dividends in excess of net investment income -- (0.02) -- (0.01)
Distributions in excess of net realized capital gains -- -- -- (0.05)
Distributions from capital $ (0.00)(a) -- (0.04) (0.04)
Total dividends and distributions $ (0.52) (0.47) (0.58) (0.59)
Net asset value, end of period $ 9.39 $ 9.67 $ 9.86 $ 9.80
Total return++ 2.51% 2.85% 6.86% (1.09)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 38,807 $ 50,958 $ 56,155 $ 56,313
Ratio of operating expenses to average net assets 1.45% 1.45%+ 1.41% 1.38%+
Ratio of net investment income to average net assets 5.63% 5.71%+ 6.04% 5.43%+
Portfolio turnover rate 468% 199% 413% 56%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.59% 1.60%+ 1.59% 1.59%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.53 $ 0.46 $ 0.56 $ 0.52
</TABLE>
* Nations Government Securities Fund Investor B 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 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) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
9
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR B SHARES (FORMERLY INVESTOR N SHARES) 03/31/97# 03/31/96(a) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Net investment income 0.52 0.16 0.53 0.47
Net realized and unrealized gain/(loss) on
investments (0.20) (0.29) 0.90 (0.89)
Net increase/(decrease) in net asset value from
operations 0.32 (0.13) 1.43 (0.42)
Distributions:
Dividends from net investment income (0.52) (0.16) (0.53) (0.45)
Distributions in excess of net investment
income -- -- -- (0.02)
Distributions from net realized capital gains (0.11) -- -- (0.34)
Distributions from capital (0.00)(b) -- -- --
Total dividends and distributions (0.63) (0.16) (0.53) (0.81)
Net asset value, end of period $ 9.62 $ 9.93 $ 10.22 $ 9.32
Total return++ 3.23% (1.26)% 15.70% (4.21)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,109 $ 2,496 $ 2,578 $ 2,145
Ratio of operating expenses to average net
assets 1.36%(c) 1.37%+ 1.36% 1.33%
Ratio of net investment income to average net
assets 5.33% 4.84%+ 5.40% 4.78%
Portfolio turnover rate 368% 133% 228% 307%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.46%(c) 1.48%+ 1.46% 1.41%
Net investment income per share without waivers
and/or expense reimbursements $ 0.51(c) $ 0.16 $ 0.52 $ 0.46
<CAPTION>
<S> <C>
PERIOD
ENDED
INVESTOR B SHARES (FORMERLY INVESTOR N SHARES) 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.39
Net investment income 0.21
Net realized and unrealized gain/(loss) on
investments 0.17
Net increase/(decrease) in net asset value from
operations 0.38
Distributions:
Dividends from net investment income (0.21)
Distributions in excess of net investment
income --
Distributions from net realized capital gains (0.01)
Distributions from capital --
Total dividends and distributions (0.22)
Net asset value, end of period $ 10.55
Total return++ 3.64%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,620
Ratio of operating expenses to average net
assets 1.26%+
Ratio of net investment income to average net
assets 4.75%+
Portfolio turnover rate 161%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.42%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.21
</TABLE>
* Nations Strategic Fixed Income Fund Investor B 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 the use of the undistributed income method did not accord with
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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
10
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
INVESTOR B SHARES (FORMERLY INVESTOR N SHARES) 03/31/97# 03/31/96(b) 11/30/95 11/30/94# 11/30/93#*
Operating performance:
Net asset value, beginning of period $ 10.42 $ 10.82 $ 9.67 $ 10.88 $ 10.59
Net investment income 0.61 0.21 0.66 0.67 0.30
Net realized and unrealized gain/(loss) on
investments (0.18) (0.40) 1.15 (1.06) 0.29
Net increase/(decrease) in net asset value from
operations 0.43 (0.19) 1.81 (0.39) 0.59
Distributions:
Dividends from net investment income (0.61) (0.21) (0.66) (0.67) (0.30)
Distributions in excess of net investment
income -- -- -- (0.00)(a) --
Distributions from net realized capital gains (0.13) -- -- (0.15) --
Total dividends and distributions (0.74) (0.21) (0.66) (0.82) (0.30)
Net asset value, end of period $ 10.11 $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ 4.18% (1.83)% 19.22% (3.77)% 5.58%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 70,631 $ 84,692 $ 90,887 $ 55,058 $ 24,630
Ratio of operating expenses to average net
assets 1.50%(c) 1.52%+ 1.55% 1.49% 1.30%+
Ratio of net investment income to average net
assets 5.98% 5.74%+ 6.28% 6.56% 6.27%+
Portfolio turnover rate 278% 69% 96% 144% 86%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.60%(c) 1.62%+ 1.68% 1.70% 1.70%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.61(c) $ 0.21 $ 0.65 $ 0.65 $ 0.27
</TABLE>
* Nations Diversified Income Fund Investor B 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
11
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS U.S. GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES* 05/16/97 08/31/96 08/31/95(a)
Operating performance:
Net asset value at the beginning of the period $ 10.52 $ 11.19 $ 10.05
Net investment income 0.34 0.51 0.46
Net realized and unrealized gain/(loss) on investments 0.18 (0.22) 1.14
Total income from investment activities 0.52 0.29 1.60
Distributions from net investment income (0.34) (0.51) (0.46)
Distributions from net realized gains (0.51) (0.45) --
Net asset value at the end of the period $ 10.19 $ 10.52 $ 11.19
Total return (b) 4.99% 2.43% 16.19%
Ratio of expenses to average net assets 1.62%(c) 1.65% 1.62%(c)
Ratio of net investment income to average net assets 4.60%(c) 4.60% 5.19%(c)
Portfolio turnover rate (d) 58% 87% 132%
Net assets at end of period (in 000's) $ 1,529 $ 1,237 $ 146
Ratio of expenses to average net assets (assuming no waiver or
expense reimbursements) 1.77%(c) 1.82% 1.87%(c)
Ratio of net investment income to average net assets (assuming no
waiver or expense reimbursements) 4.45%(c) 4.43% 4.94%(c)
</TABLE>
* Investor B Shares of Nations U.S. Government Bond Fund were formerly Class B
Shares of the Pilot U.S. Government Securities Fund, a predecessor
portfolio.
(a) Class B Share activity commenced November 10, 1994.
(b) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken for Class
B Shares. Total return is not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued.
Objectives
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests 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 high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-
12
<PAGE>
term 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 investing in investment grade
fixed income securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
NATIONS U.S. GOVERNMENT BOND FUND: Nations U.S. Government Bond Fund's
investment objective is to seek total return and preservation of capital by
investing in U.S. Government securities and repurchase agreements collateralized
by such securities.
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.
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
dollar-weighted maturity of the Fund will not exceed five years and the 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
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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 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 dollar-weighted maturity of the Fund's portfolio will be between three
and five 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-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.
The Fund also may invest in "high quality" money market instruments, 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, prevailing market or economic circumstances
warrant.
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 dollar-weighted maturity of the Fund's portfolio will be between three
and 10 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-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.
The Fund also may invest in "high quality" money market instruments, 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, prevailing market or economic 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 fixed income securities. It is expected
that the average dollar-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
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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-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. 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.
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, 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
dollar-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; U.S. Government Obligations; dollar-denominated and
non-dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments; 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.
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
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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,
repurchase aggreements 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 U.S. GOVERNMENT BOND FUND: Under normal market conditions, the Fund will
invest at least 65% of its total assets in U.S. Government securities and
repurchase agreements collateralized by such securities. While the maturity of
individual securities will not be restricted, except during temporary defensive
periods or unusual market conditions, the average weighted maturity of the Fund
will be between five and thirty years. The Fund may invest in a variety of U.S.
Government Obligations. The Fund may also invest in interests in the foregoing
securities, including collateralized mortgage obligations issued or guaranteed
by a U.S. Government agency or instrumentality. U.S. Government Obligations have
historically had a very low risk of loss of principal if held to maturity. The
Fund, however, can give no assurance that the U.S. Government would provide
financial support to its agencies or instrumentalities if it were not legally
required to do so.
The Fund may also invest up to 35% of its total assets in debt securities of
U.S. and foreign corporate and foreign government issuers, American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"), zero coupon bonds
and cash equivalents. The Fund will purchase only those non-government
investments which are rated investment grade or better by at least one NRSRO or,
if unrated, are determined by the Adviser to be of comparable quality. If a
portfolio security held by the Fund ceases to be rated investment grade by at
least one NRSRO or if the Adviser determines that an unrated portfolio security
held by the Fund is no longer of comparable quality to an investment grade
security, the security will be sold in an orderly manner as quickly as possible.
Additionally, the Fund may also invest in futures contracts, interest rate swaps
and options.
The value of the Fund's portfolio (and consequently its shares) is expected to
fluctuate inversely in relation to changes in the direction of interest rates.
For more information concerning these and other investments in which the Fund
may invest, see "Appendix A".
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 repurchase
agreements, 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.
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 and partnerships.
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".
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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: 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 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 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. 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 U.S. Government Bond Fund may not borrow money except as a temporary
measure for extraordinary or emergency purposes or except in connection with
reverse repurchase agreements and mortgage rolls; provided that
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the Fund will maintain asset coverage of 300% for all borrowings.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without shareholder approval. Shareholders of Nations U.S.
Government Bond Fund, however, must receive at least 30 days' prior written
notice in the event an investment objective is changed. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their 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 SAI. 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 gain 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 gain 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 conditions, the composition of the Funds' portfolios 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 B 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 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 agent or by calling
Nations Funds at the toll-free number indicated on the cover of this Prospectus.
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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 Funds 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 investment
sub-adviser to all of the Funds, except Nations U.S. Government Bond Fund.
TradeStreet is a wholly owned subsidiary of NationsBank. TradeStreet provides
investment management services to individuals, corporations and institutions.
Boatmen's Capital Management, Inc. serves as investment sub-adviser to Nations
U.S. Government Bond Fund. Its principal offices are located at 100 North
Broadway, St. Louis, Missouri 63178-4737. Boatmen's is an indirect subsidiary of
NationsBank Corporation, a registered bank holding company.
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 rate of: .60% of the average daily net assets of
each of Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
U.S. Government Bond Fund, Nations Strategic Fixed Income Fund and Nations
Short-Intermediate Government Fund; .65% of the first $100 million of Nations
Government Securities Fund's average daily net assets, plus .55% of the Fund's
average daily net assets in excess of $100 million and up to $250 million, plus
.50% of the Fund's average daily net assets in excess of $250 million.
For the services provided pursuant to sub-advisory agreements, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rate of .15% of Nations
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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.
NBAI will pay Boatmen's sub-advisory fees at the rate of .15% of the average
daily net assets of Nations U.S. Government Bond Fund.
From time to time, NBAI (and/or TradeStreet and/or Boatmen's) 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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Short-Intermediate Government Fund -- .40%, Nations Short-Term Income
Fund -- .30%, Nations Diversified Income Fund -- .50% and Nations Strategic
Fixed Income Fund -- .50%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Government Securities Fund -- .50%.
For the fiscal period from September 1, 1996 to May 16, 1997, after waivers, the
Pilot Funds paid Boatmen's Trust Company, under a previous investment advisory
agreement, advisory fees at the rate of .40% of Nations U.S. Government Bond
Fund's (formerly the Pilot U.S. Government Securities Fund) average daily net
assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Short-Intermediate Government Fund -- .15%, Nations Short-Term Income
Fund -- .15%, Nations Diversified Income Fund -- .15% and Nations Strategic
Fixed Income Fund -- .15% and Nations Government Securities Fund -- .15%.
Brad Pope is a Product Manager, Fixed Income Management for TradeStreet and
Portfolio Manager for Nations Short-Term Income Fund. He is a senior member of
the Fixed Income Team. As such, his responsibilities include setting duration
policy for the Nations Funds fixed income funds. Mr. Pope has been the portfolio
manager for Nations Short-Term Income Fund since August 1996. Prior to assuming
this position, he was a manager in the structured products area. He joined the
Investment Management Group at NationsBank, TradeStreet's predecessor
organization, in 1988. Mr. Pope has over nine years of investment experience,
including working on the trading floor of the Chicago Board of Trade. Mr. Pope
received a B.B.A. in Finance from the University of Texas at Austin.
Mark S. Ahnrud 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
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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.
Christopher G. Gunster is a Portfolio Manager, Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Government Securities Fund. Mr.
Gunster has been the lead Portfolio Manager since July 1997. Prior to assuming
his position with TradeStreet, he was Assistant Vice President and Associate
Portfolio Manager for the Investment Management Group at NationsBank since 1993.
Mr. Gunster has worked in the investment community since 1987. His past
experience includes investment marketing for The Boston Company and options
trading for Shatkin Investments, a regional broker/dealer. Mr. Gunster received
a B.A. in Chemistry from Kenyon College and an M.B.A. in Finance from Babson
Graduate 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. Mr. Swaim has been Portfolio Manager for the 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.
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.
The Fixed Income Committee of Boatmen's is responsible for the day-to-day
management of the investment portfolio of Nations U.S. Government Bond Fund.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank has advised NationsBank and Nations Funds 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 pursuant 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
21
<PAGE>
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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Short-Intermediate
Government Fund -- .10%, Nations Short-Term Income Fund -- .10%, Nations
Diversified Income Fund -- .10% and Nations Strategic Fixed Income Fund -- .10%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Fund's average daily net assets: Nations Government Securities
Fund -- .10%.
NationsBank serves as sub-administrator for Nations Funds 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. Nations Funds
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., ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of all the Funds, except the international portfolios. 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 to the Nations Funds Family, NationsBank of Texas is entitled to
receive, in addition to out of pocket expenses, fees at the rate of (i) $300,000
per annum, to be paid monthly in payments of $25,000 for custodian services for
up to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all the Funds except the international portfolios, for which BONY is already
serving as Custodian. BONY is located at 90 Washington Street, New York, New
York 10286. In return for providing sub-custodial services, BONY receives, in
addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor B Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor B 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, 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
22
<PAGE>
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, Stephens or First Data under their
respective agreements with Nations Funds; and any extraordinary expenses.
Investor B Shares may bear certain class specific 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 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 Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family
currently has more than 52 distinct investment portfolios and total assets in
excess of $27 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 B Shares (formerly Investor N Shares) and Investor C Shares.
This Prospectus relates only to the Investor B 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 Agent (as defined below) or Nations Funds
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, as amended (the "1940 Act") requires voting by
fund.
As of July 15, 1997, 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.
23
<PAGE>
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 420,000,000,000 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 B Shares of Nations Government Securities Fund and Nations U.S.
Government Bond 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 Agent (as defined below) or Nations Funds 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, 1997, 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.
PENDING LEGAL PROCEEDINGS: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and Stephens
Inc. (Case No. 94-995-Civ.-T-23E). As relevant to Nations Government Securities
Fund and Nations Short-Intermediate Government Fund, plaintiffs allege that,
among other things, defendants violated the Securities Exchange Act of 1934 and
various state securities fraud statutes by employing a scheme to defraud
plaintiffs into purchasing shares of the funds and making untrue statements of
material fact and omitting to state material facts in connection with sales of
shares of the funds. Plaintiffs further allege that, among other things,
defendants concealed the risks associated with such funds by blurring the
distinctions between banks and non-bank subsidiaries and by obscuring the
differences between traditional, federally insured bank products and uninsured,
non-depository products.
24
<PAGE>
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 a shareholder servicing
agreement ("Servicing Agreement") with Nations Funds ("Servicing Agents") and/or
a sales support agreement ("Sales Support Agreement") with Stephens ("Selling
Agents").
Certain investors desiring to invest $1 million or more (including current
holdings) in the Nations Funds Family may be eligible to purchase Investor A
Shares. See "How To Redeem Shares."
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
o $500 for IRA investors;
o $250 for non-working spousal IRAs; and
o $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") Savings Incentives Method Plans for Employees
("SIMPLE IRAs"), salary reduction-Individual Retirement Accounts ("SAR-IRAs") or
similar types of accounts. However, the assets of such plans must reach an asset
value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs, 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 Funds 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 B 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 Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("Customers") who own Investor B Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Funds may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Funds and Stephens reserve 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: Purchase orders for Investor B 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 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 Agent placing the order. Payment for orders which are not
25
<PAGE>
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor B
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Funds.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
shareholders may automatically purchase Investor B 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 which is a member of the
Automated Clearing House to their Fund account. Transfers will occur on or about
the 15th and/or the last day of the applicable month. Subject to certain
exceptions for employees of NationsBank and its affiliates and pre-existing SIP
accounts, the systematic investment amount may be in any amount from $50 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 Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
CONVERSION FEATURE: Except for Investor B Shares held by employee benefit plans,
Investor B Shares purchased after July 31, 1997, that have been outstanding for
the number of years set forth in the applicable schedule below will, at the end
of the month in which the anniversary of such share purchase occurs,
automatically convert to Investor A Shares.
Except for Investor B Shares held by employee benefit plans, Investor B Shares
of Nations Short-Intermediate Government Fund and Nations Strategic Fixed Income
Fund purchased prior to August 1, 1997, will automatically convert to Investor A
Shares at the end of the month in which the sixth anniversary of such share
purchase occurs.
Except for Investor B Shares held by employee benefit plans, Investor B Shares
of Nations Government Securities Fund, Nations Diversified Income Fund and
Nations U.S. Government Bond Fund purchased prior to August 1, 1997, will
automatically convert to Investor A Shares at the end of the month in which the
ninth anniversary of such share purchase occurs.
Upon conversion, shareholders will receive Investor A Shares having a total
dollar value equal to the total dollar value of their Investor B Shares, without
the imposition of any sales charge or other charge. The operating expenses
applicable to Investor A Shares, which are lower than those applicable to
Investor B Shares, shall thereafter be applied to such newly converted shares.
Shareholders holding converted shares will benefit from the lower annual
operating expenses of Investor A Shares, which will have a positive effect on
total returns. In each case, shareholders have the right to decline an automatic
conversion by notifying their Agent or the Transfer Agent within 90 days before
a conversion that they do not desire such conversion.
Reinvestments of dividends and distributions in Investor B Shares will be
considered a new purchase for purposes of the conversion schedules set forth
below. If a shareholder effects one or
26
<PAGE>
more exchanges among Investor B Shares of the Non-Money Market Funds of Nations
Funds during such period, the holding period for shares so exchanged will be
counted toward such period.
CONVERSION SCHEDULES
This conversion feature applies to Nations Short-Intermediate Government Fund
and Nations Strategic Fixed Income Fund in the manner described by the schedule
below:
<TABLE>
<CAPTION>
<S> <C>
AMOUNT OF PURCHASE YEAR OF CONVERSION
$0 -- $249,999 6th
$250,000 -- $499,999 6th
$500,000 -- $999,999 5th
</TABLE>
This conversion feature also applies to the following Funds in the manner
described by the schedule below: Nations Government Securities Fund, Nations
Diversified Income Fund and Nations U.S. Government Bond Fund:
<TABLE>
<CAPTION>
<S> <C>
AMOUNT OF PURCHASE YEAR OF CONVERSION
$0 -- $249,999 9th
$250,000 -- $499,999 6th
$500,000 -- $999,999 5th
</TABLE>
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 Funds. Except for any CDSC which may be applicable upon the
redemption of Investor B 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 Funds 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 an Agent
pursuant to arrangements between the Agent and its Customers. Nations Funds 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 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 Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
RIGHTS OF ACCUMULATION: An investor may be entitled to a reduced CDSC or to
purchase Investor A Shares through Rights of Accumulation. To qualify for a
reduced CDSC or to purchase Investor A Shares, an investor must notify the
Servicing Agent through which the Investor B Shares are or would be purchased,
which in turn must
27
<PAGE>
notify Stephens or the Transfer Agent at the time of purchase. Reductions in
CDSCs or the availability of Investor A Shares may be modified or terminated at
any time and are subject to confirmation of an investor's holdings. An investor
who has previously invested in the Nations Funds Family (excluding the Nations
Funds money market and index funds, Nations Short-Term Income Fund and Nations
Short-Term Municipal Income Fund) may aggregate holdings in such shares with
current purchases to determine the applicable CDSC schedule or the availability
of Investor A Shares for current purchases. An investor's aggregate investment
in the Nations Funds Family for this purpose is the total value (based on the
higher of current net asset value or the public offering price originally paid)
of: (a) current purchases, and (b) Investor A Shares, Investor B Shares or
Investor C Shares that are already beneficially owned by the investor (excluding
the Nations Funds money market and index funds, Nations Short-Term Income Fund
and Nations Short-Term Municipal Income Fund).
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997, may
be subject to a CDSC if such shares are redeemed within the years designated in
the applicable CDSC schedule set forth below. No CDSC is imposed on increases in
net asset value above the initial purchase price, or shares acquired by
reinvestment of distributions. Subject to the waivers 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:
CDSC SCHEDULES
A CDSC is imposed at the following declining rates on Investor B Shares of
Nations Short-Intermediate Government Fund and Nations Strategic Fixed Income
Fund:
SHARES PURCHASED PRIOR TO JANUARY 1, 1996
<TABLE>
<CAPTION>
<S> <C>
CDSC 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>
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $0 -- $249,999
<TABLE>
<CAPTION>
<S> <C>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
</TABLE>
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $250,000 -- $499,999
<TABLE>
<CAPTION>
<S> <C>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
</TABLE>
28
<PAGE>
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $500,000 -- $999,999*
<TABLE>
<CAPTION>
<S> <C>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 2.0%
Second 1.0%
Third and thereafter None
</TABLE>
* Except as noted below, Investor B Shares are not available to purchasers
desiring to invest $1 million or more, other than employee benefit plans whose
initial investment is less than $1 million. Such employee benefit plans will
continue to be subject to this CDSC schedule even after their aggregate holdings
in the Nations Funds Family as described above reaches $1 million.
A CDSC is imposed at the following declining rates on Investor B Shares of
Nations Government Securities Fund, Nations Diversified Income Fund and Nations
U.S. Government Bond Fund:
SHARES PURCHASED PRIOR TO JANUARY 1, 1996
<TABLE>
<CAPTION>
<S> <C>
CDSC 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>
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $0 -- $249,999
<TABLE>
<CAPTION>
<S> <C>
CDSC 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 1.0%
Sixth and thereafter None
</TABLE>
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $250,000 -- $499,999
<TABLE>
<CAPTION>
<S> <C>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
</TABLE>
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $500,000 -- $999,999*
<TABLE>
<CAPTION>
<S> <C>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 2.0%
Second 1.0%
Third and thereafter None
</TABLE>
*Except as noted below, Investor B Shares are not available to purchasers
desiring to invest $1 million or more, other than employee benefit plans whose
initial investment is less than $1 million. Such employee benefit plans will
continue to be subject to this CDSC schedule even after their aggregate holdings
in the Nations Funds Family as described above reaches $1 million.
In determining whether a CDSC is payable on any redemption, the Fund will first
redeem shares not subject to any charge, and then shares resulting in the lowest
possible CDSC. Solely for purposes of determining the number of years from the
date of purchase of shares, all
29
<PAGE>
purchases are deemed to have been made on the trade date of the transaction.
The CDSC will be waived on redemptions of Investor B 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) payments
made to pay medical expenses which exceed 7.5% of income and distributions to
pay for insurance by an individual who has separated from employment and who has
received unemployment compensation under a federal or state program for at least
12 weeks, (iv) effected pursuant to Nations Funds' right to liquidate a
shareholder's account, including instances where the aggregate net asset value
of the Investor B Shares held in the account is less than the minimum account
size, (v) in connection with the combination of Nations Funds with any other
registered investment company by a merger, acquisition of assets or by any other
transaction, and (vi) 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 B Shares in the account. In
addition, the CDSC will be waived on Investor B 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 Funds 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 Selling 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
Selling Agents not to exceed 4.00% of the offering price per share on all sales
of Investor B 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.
REINSTATEMENT PRIVILEGE: Within 120 days after a redemption of Investor B Shares
of a Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor B 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 B 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 B Shares in his/her accounts within the Nations Funds Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor B Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an
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annual basis, 12% of the net asset value of the Investor B 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 B 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 Funds 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 B
Shares of a fund offered by Nations Funds to acquire shares of the same class
that are offered by another fund of Nations Funds (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 Funds money market fund. Additionally, the
exchange feature enables a shareholder of Investor B Shares of Nations
Short-Term Income Fund to exchange such shares for Investor B 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 B Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor B Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996 or
after July 31, 1997) to the original shares purchased will be applied to any
redemption of the acquired shares. If a shareholder exchanges Investor B 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 B 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 Funds 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 B Shares of a fund that charges a CDSC.
The Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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
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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 B Shares exchanged must have a current value of at least $1,000.
Nations Funds and Stephens reserve 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.
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 B 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 B 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 B 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 B
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 B Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Funds 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 B 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 B 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 B 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 pay-
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ments 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 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 Funds 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 Funds understands that Agents may charge fees to their Customers who own
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 Funds. The Sales Support Agreements
and Servicing Agreements require Agents to disclose to their Customers any
compensation payable to the Agent by Stephens or Nations Funds 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, Martin Luther King, Jr. 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: 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 B Shares will be reduced by the amount of any
dividend or distribution. Accordingly, dividends and distributions on newly
purchased shares represent, in substance, a return of capital. However, such
dividends and distributions would nevertheless be taxable. Certain Selling
Agents may provide for the reinvestment of dividends in the form of additional
Investor B 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
B 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. 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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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
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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 tax on dividends,
distributions and proceeds from the disposition of Fund shares paid to certain
foreign shareholders.
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 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 the Government National Mortgage
Association, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. Such Certifi-
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cates are mortgage-backed securities which represent a partial ownership
interest in a pool of mortgage loans issued by lenders such as mortgage bankers,
commercial banks and savings and loan associations. Such mortgage loans may have
fixed or adjustable rates of interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs," are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets. A Fund will only invest in SMBS
whose mortgage assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securi-
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ties 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.
The mortgage-backed securities in which the Funds invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the Funds
also may be subject to credit risk. Credit risk is the risk that the issuers of
securities in which a Fund invests may default in the payment of principal
and/or interest. Any such defaults or adverse changes in an issuers financial
condition or credit rating may adversely affect the value of the Funds'
portfolio investments and, hence, the value of your investment in the
corresponding Fund.
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 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 receiv-
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ables 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. Pursuant to line of credit arrangements, certain of the
Funds may borrow 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
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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
creditworthy. 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: Each Fund 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: Each Fund 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
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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.
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 income (including interest, distributions and disposition
proceeds), 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.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs
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and ADSs in registered form, are designed for use in the U.S. securities
markets. GDRs are designed for use in both the U.S. and European securities
markets. EDRs, in bearer form, are designed for use in European securities
markets. ADRs, ADSs, GDRs and EDRs also involve certain risks of other
investments in foreign securities.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Each Fund 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 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 under the 1933 Act, or which
were issued under Section 4(2) of 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 or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, 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
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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 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 pro-
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ceeds 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. 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.
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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.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
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 Funds.
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 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
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. U.S. Treasury
obligations differ only in their interest rates, maturities and
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time of issuance. 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, some 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; 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. 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. 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 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-
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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
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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
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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.
48
<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 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.
49
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
Prospectus
INVESTOR B SHARES
AUGUST 1, 1997
This Prospectus describes four equity
portfolios -- NATIONS INTERNATIONAL EQUITY FUND,
NATIONS INTERNATIONAL GROWTH 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 Funds Family
("Nations Funds" or "Nations Funds Family"). This
Prospectus describes one class of shares of each
Fund -- Investor B Shares (formerly Investor N
Shares).
This Prospectus sets forth concisely the Nations
information about each Fund that a prospective International
purchaser of Investor B Shares should consider Equity Fund
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 Nations International
Statements of Additional Information (the "SAIs"), Growth Fund
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Funds at its address or telephone number Nations Emerging
shown below. The SAIs for Nations Fund, Inc. and Markets Fund
Nations Portfolios, each dated August 1, 1997, are
incorporated by reference in their entirety into Nations Pacific
this Prospectus. The SEC maintains a Web site Growth Fund
(http://www.sec.gov) that contains the SAIs,
material incorporated by reference in this
Prospectus and other information regarding Nations Global
registrants that file electronically with the SEC. Government Income Fund
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. Gartmore Global
Partners ("Gartmore") is investment sub-adviser to
the Funds. As used herein the term "Adviser" shall
mean NBAI and/or Gartmore as the context may
require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
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.
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Funds Logo appears here)
NSI-96147-897
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 10
How Objectives Are Pursued 11
How Performance Is Shown 17
How The Funds Are Managed 20
Organization And History 23
About Your Investment
How To Buy Shares 25
How To Redeem Shares 27
How To Exchange Shares 30
Shareholder Servicing And Distribution Plans 31
How The Funds Value Their Shares 32
How Dividends And Distributions Are Made;
Tax Information 32
Appendix A -- Portfolio Securities 34
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 FUNDS OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING BY NATIONS FUNDS 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 regions, including
developing countries.
(Bullet) Nations International Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of companies domiciled in countries outside the
United States and listed on major stock exchanges primarily in
Europe and the Pacific Basin.
(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 market 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 seek 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 52
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. Dividends from net investment income are declared and
paid annually by Nations International Growth Fund. 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 B Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR B SHARES
<TABLE>
<CAPTION>
Nations Nations
International International Nations Nations
Equity Growth Emerging Markets Pacific Growth
Fund Fund Fund Fund
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Sales Load Imposed on Purchases None None None None
Maximum Deferred Sales Charge (as a
percentage of the lower of the
original purchase price or redemption P
proceeds)(1) 5.00% 5.00% 5.00% 5.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90% .90% 1.10% .90%
Rule 12b-1 Fees (After Fee Waivers) .75% .75% .75% .75%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses .26% .22% .64% .52%
Total Operating Expenses (After Fee
Waivers) 2.16% 2.12% 2.74% 2.42%
<CAPTION>
Nations Global
Government
Income Fund
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Sales Load Imposed on Purchases None
Maximum Deferred Sales Charge (as a
percentage of the lower of the
original purchase price or redemption
proceeds)(1) 4.00%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .70%
Rule 12b-1 Fees (After Fee Waivers) .60%
Shareholder Servicing Fees .25%
Other Expenses .56%
Total Operating Expenses (After Fee
Waivers) 2.11%
</TABLE>
(1) Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 5.00% in the first year after
purchase, declining to 1.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule 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 Nations
International International Emerging Pacific
Equity Growth Markets Growth
Fund Fund Fund Fund
<S> <C>
1 Year $ 72 $ 72 $ 78 $ 75
3 Years $ 98 $ 96 $ 115 $ 105
5 Years $ 136 $ 134 $ 165 $ 149
10 Years $ 249 $ 245 $ 307 $ 276
<CAPTION>
Nations Global
Government
Income Fund
<S> <C>
1 Year $ 61
3 Years $ 96
5 Years $ 123
10 Years $ 244
</TABLE>
4
<PAGE>
An investment of $1,000 would incur the following expenses assuming (1) a 5%
annual return and (2) no redemption.
<TABLE>
<CAPTION>
Nations Nations Nations Nations
International International Emerging Pacific
Equity Growth Markets Growth
Fund Fund Fund Fund
<S> <C>
1 Year $ 22 $ 22 $ 28 $ 25
3 Years $ 68 $ 66 $ 85 $ 75
5 Years $ 116 $ 114 $ 145 $ 129
10 Years $ 249 $ 245 $ 307 $ 276
<CAPTION>
Nations Global
Government
Income Fund
<S> <C>
1 Year $ 21
3 Years $ 66
5 Years $ 113
10 Years $ 244
</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 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."
Absent fee waivers, "Rule 12b-1 Fees" and "Total Operating Expenses" for
Investor B Shares of Nations Global Government Income Fund would have been .75%
and 2.26%.
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 financial information on the following pages has been derived from the
audited 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.
Information for Investor B Shares of Nations International Growth Fund has been
derived from the audited financial statements dated May 16, 1997 for the Class B
Shares of The Pilot Funds' Pilot International Equity Fund, the predecessor fund
to Nations International Growth Fund. This information has been audited by
Arthur Andersen LLP and is provided to help you understand the historical
performance of the Fund and its predecessor. The reports of Arthur Andersen LLP
accompany the financial statements dated May 16, 1997 and are incorporated by
reference in the related SAI, which is available upon request.
5
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR B SHARES (FORMERLY INVESTOR N SHARES) 03/31/97# 03/31/96(a)# 05/31/95# 05/31/94*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 13.27 $ 11.56 $ 11.96 $ 10.51
Net investment income/(loss) (0.05) (0.02) 0.05 (0.00)**
Net realized and unrealized gain/(loss) on investments 0.10 1.78 (0.22) 1.51
Net increase/(decrease) in net asset value from
operation 0.05 1.76 (0.17) 1.51
Distributions:
Dividends from net investment income (0.04) -- (0.01) (0.04)
Distributions in excess of net investment income (0.00)** (0.03) -- --
Distributions from net realized capital gains (0.42) (0.02) (0.12) (0.02)
Distributions in excess of net realized capital gains (0.03) -- (0.10) --
Total dividends and distributions (0.49) (0.05) (0.23) (0.06)
Net asset value, end of period $ 12.83 $ 13.27 $ 11.56 $ 11.96
Total return++ 0.28% 15.25% (1.30)% 14.32%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $ 36,698 $ 40,426 $ 31,372 $ 17,349
Ratio of operating expenses to average net assets 2.16% 1.99%+ 1.78% 1.92%+
Ratio of net investment income/(loss) to average net
assets (0.38)% (0.17)%+ 0.42% (0.00)%+**
Portfolio turnover rate 36% 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) $ 0.0279 $ 0.0272 -- --
</TABLE>
* Nations International Equity Fund Investor B 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 B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS INTERNATIONAL GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
05/16/97 08/31/96(b)
INVESTOR B SHARES*
<S> <C>
Operating performance:
Net asset value at the beginning of the period $ 17.04 $ 17.54
Net investment income (loss) (0.05) --
Net realized and unrealized gain/(loss) on investments 2.71 $ (0.65)
Net realized and unrealized gain/(loss) on foreign currency related transactions (0.92) $ 0.15
Total income (loss) from investment activities 1.74 $ (0.50)
Distributions from net investment income (0.12) --
Distributions from net realized gain on investments and foreign currency related
transactions (0.34) --
Net asset value at the end of the period $ 18.32 $ 17.04
Total return (a) 10.37% (2.85)%
Portfolio turnover rate (d) 33.68% 22.31%
Ratio of expenses to average net assets 2.18%(c) 2.06%(c)
Ratio of net investment income (loss) to average net assets (0.61)%(c) (0.32)%(c)
Net assets at end of period (in 000's) $ 560 $ 184
Average Commission Rate (e) $ 0.0107 $ 0.0160
</TABLE>
* Investor B Shares of Nations International Growth Fund were formerly
Class B Shares of the Pilot International Equity Fund, a predecessor
portfolio.
(a) Assumes investment at net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return is not annualized.
(b) Class B Shares were initially issued on July 1, 1996.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the portfolio as a whole
without distinguishing between the classes of shares issued and is not
annualized.
(e) The average commission rate represents the total dollar amount of
commissions paid on portfolio transactions, divided by the total number of
portfolio shares purchased and sold for which commissions were charged.
Disclosure is not required for prior periods.
7
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
INVESTOR B SHARES (FORMERLY INVESTOR N SHARES) 03/31/97# 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.26 $ 10.00
Net investment income/(loss) (0.09) (0.11)
Net realized and unrealized gain on investments 1.20 0.37
Net increase in net asset value from operations 1.11 0.26
Dividends from net investment income -- --
Distributions in excess of net investment income -- --
Distributions from net realized capital gains (0.06) --
Total dividends and distributions (0.06) --
Net asset value, end of period $ 11.31 $ 10.26
Total return++ 10.88% 2.60%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $ 1,499 $ 1,209
Ratio of operating expenses to average net assets 2.74% 3.13%+
Ratio of net investment loss to average net assets (0.87)% (1.38)%+
Portfolio turnover rate 31% 17%
Average commission rate paid (a) $ 0.0003 $ 0.0004
</TABLE>
* Nations Emerging Markets Fund Investor B 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.
8
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
INVESTOR B SHARES (FORMERLY INVESTOR N SHARES) 03/31/97 03/31/96*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.18 $ 10.00
Net investment income/(loss) (0.05) (0.10)
Net realized and unrealized gain/(loss) on investments 0.19 0.29
Net increase/(decrease) in net asset value from operations 0.14 0.19
Dividends from net investment income (0.01) --
Distributions in excess of net investment income (0.01) (0.01)
Distributions from net realized capital gains -- --
Distributions in excess of net realized capital gains -- --
Total dividends and distributions (0.02) (0.01)
Net asset value, end of period $ 10.30 $ 10.18
Total return++ 1.18% 1.88%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $ 2,367 $ 2,324
Ratio of operating expenses to average net assets 2.42% 2.76%+
Ratio of net investment income/(loss) to average net assets (0.61)% (1.27)%+
Portfolio turnover rate 78% 23%
Average commission rate paid (b) $ 0.0126 $ 0.0178
</TABLE>
* Nations Pacific Growth Fund Investor B 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.
9
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
INVESTOR B SHARES (FORMERLY INVESTOR N SHARES) 03/31/97# 03/31/96*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.07 $10.00
Net investment income 0.36 0.32
Net realized and unrealized gain/(loss) on investments (0.02) 0.11
Net increase in net asset value from operations 0.34 0.43
Distributions:
Dividends from net investment income (0.38) (0.30)
Distributions in excess of net investment income (0.08) (0.02)
Distributions from net realized capital gains (0.16) (0.04)
Total dividends and distributions (0.62) (0.36)
Net asset value, end of period $ 9.79 $10.07
Total return++ 3.22% 4.27%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 193 $ 193
Ratio of operating expenses to average net assets 2.26% 2.32%+
Ratio of net investment income to average net assets 3.60% 4.17%+
Portfolio turnover rate 100% 213%
</TABLE>
* Nations Global Government Income Fund Investor B 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 regions, including developing countries.
NATIONS INTERNATIONAL GROWTH FUND: Nations International Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of companies domiciled in countries outside the United
States and listed on major stock exchanges primarily in Europe and the Pacific
Basin.
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 market 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 seek 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
10
<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"), Global
Depositary Receipts ("GDRs"), 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 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, repurchase
agreements, and 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" for additional information concerning the investment practices of
the Fund.
NATIONS INTERNATIONAL GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in foreign equity securities listed on major exchanges, consisting of common
stocks, preferred stocks and convertible securities, such as warrants, rights
and convertible debt. The Fund may purchase the stock of small-, mid- and
large-capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Directors, the former Soviet Union and the
Middle East. Debt securities, if any, purchased by the Fund will be rated in the
top two categories by a nationally recognized statistical rating organization
("NRSRO") or, if unrated, determined by the Adviser to be of comparable quality.
For temporary defensive purposes, the Fund may invest up to 100% of its assets
in debt and equity securities of U.S. issuers. Debt securities in which the Fund
may invest include short-term and intermediate-term obligations of corporations,
foreign governments and international organizations (such as the International
Bank for Reconstruction and Development (the "World Bank")), including money
market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securi-
ties, securities indexes and foreign currencies, securities lending and
repurchase agreements.
11
<PAGE>
The 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. The Fund also may lend its
portfolio securities to qualified institutional investors and may invest in
restricted, private placement and other illiquid securities. Additionally, the
Fund may invest in ADRs, GDRs, EDRs and ADSs, as well as purchase 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" 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 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 market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the 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.
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, 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.
12
<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 to enhance return 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, repurchase agreements, and 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" 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 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 to enhance return 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
13
<PAGE>
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, repurchase agreements, and 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" 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 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 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, 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 approved by the CFTC and options
thereon for market expo-
14
<PAGE>
sure 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, repurchase agreements, and 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" 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 of which investors
should be aware.
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.
The above risk considerations are relevant to an investment in Nations
International Growth Fund.
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;
15
<PAGE>
(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. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate will not exceed 100% for Nations International Growth
Fund.
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.
3.Nations International Equity Fund, Nations International Growth 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.
Nations International Growth Fund may not borrow money except as a temporary
measure and then only in amounts not exceeding 5% of the value of the Fund's
total assets or from banks or in connection with reverse repurchase agreements
provided that immediately after such borrowing, all borrowings of the Fund do
not exceed one-third of the Fund's total assets and no purchases of portfolio
instruments will be made while the Fund has borrowings outstanding in an amount
exceeding 5% of its total assets.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without shareholder approval. Shareholders of Nations
International Growth Fund, however, must receive at least 30 days' prior written
notice in the event an investment objective is changed. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current position and
needs.
16
<PAGE>
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 SAI. 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 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 gain 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 gain 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.
Set forth below is certain performance data for the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite,
reflecting the performance of private accounts, including U.K. authorized unit
trusts, managed by Gartmore plc, as defined below. The performance data for
these accounts is deemed relevant because the Pacific Ex-Japan Composite, the
Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite have
investment objectives, policies and restrictions that are substantially similar
to those of Nations Pacific Growth Fund, Nations Emerging Markets Fund and
Nations Global Government Income Fund, respectively. There is substantial
continuity between the portfolio managers of Gartmore plc who were responsible
for managing those accounts and the portfolio managers of Gartmore who are
responsible for managing Nations Pacific Growth Fund, Nations Emerging Markets
Fund and Nations Global Government Income Fund, respectively. THIS PERFORMANCE
DATA REPRESENTS PAST PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF THE FUTURE
PERFORMANCE OF GARTMORE OR THE FUNDS.
PACIFIC EX-JAPAN COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
One Year Two Years Three Years Four Years
Pacific Ex-Japan
Composite 3.95% 8.44% 7.79% 17.11%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Index1 -2.44% 8.58% 7.08% 15.62%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
Inception
Five Years Six Years Seven Years (1/1/88)
Pacific Ex-Japan
Composite 18.84% 18.08% 14.79% 20.42%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Index1 16.69% 16.61% 15.77% 19.02%
</TABLE>
17
<PAGE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Morgan Stanley
Capital
International
Pacific Combined Far East
Ex-Japan (Ex-Japan)
Composite Free Indexl
1988 11.9% 30.0%
1989 58.40% 32.1%
1990 0.0% -6.5%
1991 22.1% 31.0%
1992 22.9% 21.8%
1993 110.0% 103.4%
1994 -13.9% -17.5%
1995 4.0% 8.8%
1996 13.5 11.1
</TABLE>
* The average annual total returns and annual total returns are net of fees.
The fees for these accounts were 1% per annum until September 30, 1988, and
1.5% per annum thereafter. The accounts are not subject to certain investment
limitations, diversification requirements, and other restrictions imposed by
the 1940 Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results of the accounts.
1 The Morgan Stanley Capital International Combined Far East (Ex-Japan) Free
Index is a capitalization-weighted index that tracks 7 countries and
represents only those securities that are available for investment by
international investors; many issues are still restricted to domestic
investors in certain Pacific Basin countries.
EMERGING MARKETS COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Four Years
Since
Inception
One Year Two Years Three Years 1/1/93
Emerging Markets
Composite 16.2% 11.1% -1.8% 10.2%
IFC Investables
Index1 11.4% 13.4% 3.1% 13.39%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Emerging
Markets IFC Investables
Composite Indexl
1993 76.5% 79.6%
1994 -19.0% -12.0%
1995 -11.3% -8.5%
1996 13.0% 9.4%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (1/1/93) and are net of fees. The fees for these
accounts were 1.5% per annum. The accounts are not subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable,
may have adversely affected the performance results of the accounts.
1 The IFC Investables Index includes over 1,100 stocks representing 27 stock
markets in developing countries, and reflects the accessibility of markets and
individual stocks for foreign ownership.
GLOBAL GOVERNMENT BOND
EX-U.K. COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
One Year Two Years Three Years
Global
Government
Bond Ex-U.K.
Composite** -1.2% 4.4% 6.1%
J.P. Morgan
Global
Government
Bonds Index1 1.0% 3.9% 6.5%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Since
Inception
Four Years Five Years 10/1/90
Global Government
Bond Ex-U.K.
Composite** 6.2% 8.4% 10.31%
J.P. Morgan
Global
Government Bonds
Index1 6.5% 7.9% 8.97%
</TABLE>
18
<PAGE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Global J.P. Morgan
Government Global
Bond Ex-U.K. Government
Composite Bonds Indexl
1991 20.8% 16.0%
1992 4.8% 5.2%
1993 15.0% 11.6%
1994 -0.9% 1.5%
1995 22.8% 19.6%
1996 0.6% 3.5%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (10/1/90) and are net of fees. The fees on these
accounts varied by contractual agreement and have been assumed to be 1.5% per
annum. The accounts are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results of the accounts.
** The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J.P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
1 The J.P. Morgan Global Government Bonds Index is a capitalization-weighted
index that tracks government bonds issued in 13 countries located in the
United States, Europe and the Far East.
Set forth below is the average annual total return and annual total return for
Nations International Equity Fund for the periods ending March 31, 1997:
NATIONS INTERNATIONAL
EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
INDICATED THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
Inception
One Year Three Years Five Years on 12/2/91
Nations
International
Equity Fund 1.32% 6.23% 8.24% 7.10%
Morgan
Stanley
Capital
International
EAFE Index1 1.46% 6.53% 10.57% 6.01%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C>
Morgan Stanley
Nations Capital
International International
Equity Fund EAFE Indexl
1992 -8.6% -12.2%
1993 27.21% 32.6%
1994 2.6% 7.8%
1995 8.5% 11.2%
1996 8.5% 6.1%
</TABLE>
1 The Morgan Stanley Capital International EAFE Index represents an unmanaged
index used to portray the pattern of common stock price movement in Europe,
Australia and the Far East.
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 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 B 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 or by calling Nations Funds at the
toll-free number indicated on the cover of this Prospectus.
19
<PAGE>
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 Funds 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 investment sub-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.
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: .90% of each of Nations International
Equity Fund's, Nations International Growth 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 .70% of the average daily net assets of
Nations Global Government Income Fund.
For services provided pursuant to sub-advisory agreements, NBAI will pay
Gartmore sub-advisory fees, computed daily and paid monthly, at the annual rates
of: .70% of Nations International Equity Fund's average daily net assets; .85%
of Nations Emerging Markets Fund's average daily net assets; .70% of Nations
Pacific Growth Fund's average daily net assets and .54% of Nations Global
Government Income Fund's average daily net assets. For services provided and
expenses assumed, Gartmore is entitled to receive from NBAI sub-advisory fees,
computed daily and paid monthly, at the annual rate of .40% of Nations
International Growth Fund's average daily net assets up to and including
$325,000,000 in assets and .25% on assets in excess of $325,000,000. As of the
date of this Prospectus, the Board of Directors has approved, and recommended to
shareholders that they approve, an increase in the fees to be paid by
20
<PAGE>
NBAI to Gartmore to .70% of the Nations International Growth Fund's average
daily net assets. This increase will be implemented as soon as practicable
following receipt of shareholder approval.
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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Fund's average daily net assets:
Nations International Equity Fund -- .90%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Emerging Markets Fund -- 1.10%, Nations Pacific Growth Fund -- .90% and
Nations Global Government Income Fund -- .70%.
For the fiscal period from September 1, 1996 to May 16, 1997, after waivers, the
Pilot Funds paid Boatmen's Trust Company, under a previous investment advisory
agreement, advisory fees at the rate of .48% of Nations International Growth
Fund's (formerly the Pilot International Equity Fund) average daily net assets.
During the same period, after waivers, the Pilot Funds paid Kleinwort Benson
Investment Management Americas Inc., under a previous sub-advisory agreement,
sub-advisory fees at the rate of .32% of Nations International Growth Fund's
average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid Gartmore under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Emerging Markets Fund -- .85%, Nations Pacific Growth Fund -- .70%, Nations
Global Government Income Fund -- .54% and Nations International Equity
Fund -- .70%.
Philip Ehrmann is Principal Portfolio Manager of Nations Emerging Markets Fund
and is the Head of the Gartmore Emerging Markets Team. He has been the Portfolio
Manager for the Fund since 1995. Prior to joining Gartmore in 1995, Mr. Ehrmann
was the Director of Emerging Markets for Invesco in London. He began his career
in 1981 as an institutional stockbroker with Rowe & Pitman Inc. and also spent a
brief period with Prudential Bache Securities as an institutional salesman
before joining Invesco in 1984. Mr. Ehrmann graduated from the London School of
Economics with a degree in Economics, Industry and Trade.
Mark Rimmer is Principal Portfolio Manager of the Nations Global Government
Income Fund and has been the Portfolio Manager since the Fund's inception. He
has been associated with Gartmore since 1990 as an International Fixed Income
Fund Manager. Previously, Mr. Rimmer managed multi-currency funds for
institutional clients at Gulf International Bank in Bahrain, and prior to that
he was a senior trader for Sumitomo Finance International, London. He graduated
from Cambridge University with a degree in Economics.
Seok Teoh is Principal Portfolio Manager of Nations Pacific Growth Fund and has
been the Portfolio Manager since the Fund's inception. She has been associated
with Gartmore since 1990 as the London based manager on its Far East Team.
Previously, Ms. Teoh managed Far East equities for Rothschild Asset Management
in Tokyo and in Singapore. She was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh,
who is a native of Singapore, is fluent in Mandarin and Cantonese and received
an Economics degree from the University of Durham.
Stephen Watson is Principal Portfolio Manager of Nations International Equity
Fund and has been the Portfolio Manager since February, 1995. He joined Gartmore
as a Global Fund Manager in 1993 and currently holds the position of Head of the
International and Global Portfolio Team. Previously, Mr. Watson was a director
and global fund manager with James Capel Fund Managers, London, as well as
Client Services Manager for international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their Portfolio Management Division. He
began his career in 1976 when he joined the investment division at Samuel
Montagu. Mr. Watson is a member of the Securities Institute.
21
<PAGE>
Brian O'Neill is the Principal Senior Investment Manager of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Fund since July, 1997. Mr. O'Neill joined Gartmore as a Senior Investment
Manager on the Global Portfolio Team in 1981 with responsibility for a variety
of specialized global funds, including resource funds. Mr. O'Neill began his
career with Royal Insurance in 1970 as an investment analyst specializing in
United Kingdom research. He then expanded his field of expertise to include
management of global equities, and in 1978 he moved to Antony Gibbs & Sons where
he was appointed as a fund manager, specializing in global equities. Mr. O'Neill
graduated from Glasgow University in 1969 with a MA Honours degree in Political
Economy.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank has advised Nations Funds 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 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 Nations Funds 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 .10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Fund's average daily net assets: Nations International Equity
Fund -- .10%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Emerging Markets
Fund -- .10%, Nations Pacific Growth Fund -- .10% and Nations Global Government
Income Fund -- .10%.
NationsBank serves as sub-administrator for Nations Funds 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
22
<PAGE>
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. Nations Funds
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 B Shares of the Funds. See
"Shareholder Servicing And Distribution Plans."
The Bank of New York (the "Custodian"), located at 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 B Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor B 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, 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, Stephens or First Data under their respective agreements with Nations
Funds; and any extraordinary expenses. Investor B Shares may bear certain class
specific expenses and also bear certain additional shareholder 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 Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Portfolios, Nations Institutional
Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family currently has
more than 52 distinct investment portfolios and total assets in excess of $27
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 420,000,000,000 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 B Shares of Nations International Equity Fund and Nations International
Growth 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 Agent
(as defined below) or Nations Funds 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
23
<PAGE>
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, 1997, 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 B 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
Agent (as defined below) or Nations Funds 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, 1997, 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.
24
<PAGE>
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 a shareholder servicing
agreement ("Servicing Agreement") with Nations Funds ("Servicing Agents") and/or
a sale support agreement ("Sales Support Agreement") with Stephens ("Selling
Agents").
Certain investors desiring to invest $1 million or more (including current
holdings) in the Nations Funds Family may be eligible to purchase Investor A
Shares. See "How To Redeem Shares."
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"), Savings Incentives Method Plans for Employees
("SIMPLE IRAs"), salary reduction-Individual Retirement Accounts ("SAR-IRAs") or
similar types of accounts. However, the assets of such plans must reach an asset
value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs, 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 Funds 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 B 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 Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("Customers") who own Investor B Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Funds may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Funds and Stephens reserve 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: Purchase orders for Investor B 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 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 Agent placing the order. Payment for orders which are not
25
<PAGE>
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor B
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Funds.
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, shareholders may direct cash to be transferred
automatically from their checking or savings account at any bank which is a
member of the Automated Clearing House to their Fund account. Transfers will
occur on or about the 15th and/or the last day of the applicable month. Subject
to certain exceptions for employees of NationsBank and its affiliates and
pre-existing SIP accounts, the systematic investment amount may be in any amount
from $50 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 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 Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
CONVERSION FEATURE: Except for Investor B Shares held by employee benefit plans,
Investor B Shares purchased after July 31, 1997, that have been outstanding for
the number of years set forth in the schedule below will, at the end of the
month in which the anniversary of such share purchase occurs, automatically
convert to Investor A Shares.
Except for Investor B Shares held by employee benefit plans, Investor B Shares
purchased prior to August 1, 1997, will automatically convert to Investor A
Shares at the end of the month in which the ninth anniversary of such share
purchase occurs.
Upon conversion, shareholders will receive Investor A Shares having a total
dollar value equal to the total dollar value of their Investor B Shares, without
the imposition of any sales charge or other charge. The operating expenses
applicable to Investor A Shares, which are lower than those applicable to
Investor B Shares, shall thereafter be applied to such newly converted shares.
Shareholders holding converted shares will benefit from the lower annual
operating expenses of Investor A Shares, which will have a positive effect on
total returns. In each case, shareholders have the right to decline an automatic
conversion by notifying their Agent or the Transfer Agent within 90 days before
a conversion that they do not desire such conversion.
Reinvestments of dividends and distributions in Investor B Shares will be
considered a new purchase for purposes of the conversion schedules set forth
below. If a shareholder effects one or more exchanges among Investor B Shares of
the
26
<PAGE>
Non-Money Market Funds of Nations Funds during such period, the holding period
for shares so exchanged will be counted toward such period.
CONVERSION SCHEDULE
<TABLE>
<CAPTION>
<S> <C>
Amount of
Purchase Year of Conversion
$0-$249,999 9th
$250,000-$499,999 6th
$500,000-$999,999 5th
</TABLE>
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 Funds. Except for any CDSC which may be applicable upon redemption of
Investor B 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 Funds 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 an Agent
pursuant to arrangements between the Agent and its Customers. Nations Funds 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 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 Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
RIGHTS OF ACCUMULATION: An investor may be entitled to a reduced CDSC or to
purchase Investor A Shares through Rights of Accumulation. To qualify for a
reduced CDSC or to purchase Investor A Shares, an investor must notify the
Servicing Agent through which the Investor B Shares are or would be purchased,
which in turn must notify Stephens or the Transfer Agent at the time of
purchase. Reductions in CDSCs or the availability of Investor A Shares may be
modified or terminated at any time and are subject to confirmation of an
investor's holdings. An investor who has previously invested in the Nations
Funds Family (excluding the Nations Funds money market and index funds, Nations
Short-Term Income Fund and Nations Short-Term Municipal Income Fund) may
aggregate holdings in such shares with current purchases to determine the
applicable CDSC schedule or the availability of Investor A Shares for current
purchases. An investor's aggregate investment in the Nations Funds Family for
this purpose is the total value (based on the higher of current
27
<PAGE>
net asset value or the public offering price originally paid) of: (a) current
purchases, and (b) Investor A Shares, Investor B Shares or Investor C Shares
that are already beneficially owned by the investor (excluding the Nations Funds
money market and index funds, Nations Short-Term Income Fund and Nations Short-
Term Municipal Income Fund).
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor B Shares purchased prior to January 1, 1996 and after July 31, 1997,
may be subject to a CDSC if such shares are redeemed within the years designated
in the applicable CDSC schedule set forth below. No CDSC is imposed on increases
in net asset value above the initial purchase price or shares acquired by
reinvestment of distributions. Subject to waivers 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:
CDSC SCHEDULES
SHARES PURCHASED PRIOR TO
JANUARY 1, 1996
<TABLE>
<CAPTION>
<S> <C>
CDSC 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>
A CDSC is imposed at the following declining rates on Investor B Shares of
Nations International Equity Fund, Nations International Growth Fund, Nations
Emerging Markets Fund and Nations Pacific Growth Fund:
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $0-$249,999
<TABLE>
<CAPTION>
<S> <C>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $250,000-$499,999
<TABLE>
<CAPTION>
<S> <C>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
</TABLE>
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $500,000-$999,999*
<TABLE>
<CAPTION>
<S> <C>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 2.0%
Second 1.0%
Third and thereafter None
</TABLE>
* Except as noted below, Investor B Shares are not available to purchasers
desiring to invest $1 million or more, other than employee benefit plans whose
initial investment is less than $1 million. Such employee benefit plans will
continue to be subject to this CDSC schedule even after their
28
<PAGE>
aggregate holdings in the Nations Funds Family as described above reaches $1
million.
A CDSC is imposed at the following declining rates on Investor B Shares of
Nations Global Government Income Fund:
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $0 -- $249,999
<TABLE>
<CAPTION>
<S> <C>
CDSC 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 1.0%
Sixth and thereafter None
</TABLE>
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $250,000 -- $499,999
<TABLE>
<CAPTION>
<S> <C>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
</TABLE>
SHARES PURCHASED AFTER JULY 31, 1997 IN AMOUNT OF $500,000 -- $999,999*
<TABLE>
<CAPTION>
<S> <C>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 2.0%
Second 1.0%
Third and thereafter None
</TABLE>
*Except as noted below, Investor B Shares are not available to purchasers
desiring to invest $1 million or more, other than employee benefit plans whose
initial investment is less than $1 million. Such employee benefit plans will
continue to be subject to this CDSC schedule even after their aggregate holdings
in the Nations Funds Family as described above reaches $1 million.
In determining whether a CDSC is payable on any redemption, the Funds will first
redeem shares not subject to any charge, and then shares resulting in 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 B 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) payments
made to pay medical expenses which exceed 7.5% of income and distributions to
pay for insurance by an individual who has separated from employment and who has
received unemployment compensation under a federal or state program for at least
12 weeks, (iv) effected pursuant to Nations Funds' right to liquidate a
shareholder's account, including instances where the aggregate net asset value
of the Investor B shares held in the account is less than the minimum account
size, (v) in connection with the combination of Nations Funds with any other
registered investment company by a merger, acquisition of assets or by any other
transaction, and (vi) 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 B Shares in the account. In
addition, the CDSC will be waived on Investor B Shares purchased before
September 30, 1994 by current or retired employees of NationsBank
29
<PAGE>
and its affiliates or by current or former Trustees or Directors of Nations
Funds 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 Selling 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
Selling Agents not to exceed 4.00% of the offering price per share on all sales
of Investor B 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.
REINSTATEMENT PRIVILEGE: Within 120 days after a redemption of Investor B Shares
of a Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor B 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 B 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 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. Investor B 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 B 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 B 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 Funds 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 B
Shares of a fund offered by Nations Funds to acquire shares of the same class
that are offered by another fund of Nations Funds
30
<PAGE>
(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 Funds 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 B Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor B Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996 or
after July 31, 1997) to the original shares purchased will be applied to any
redemption of the acquired shares. If a shareholder exchanges Investor B 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 B 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 Funds 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 B Shares of a fund that charges a CDSC.
The Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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 B Shares exchanged must have a current value of at least $1,000.
Nations Funds and Stephens reserve 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.
31
<PAGE>
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 B 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 B 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 B 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 B
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 B Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Funds 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 B 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 B 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 B 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 Funds 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.
32
<PAGE>
Nations Funds understands that 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 Funds. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Funds 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, Martin Luther King, Jr. 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. Dividends from net
investment income are declared and paid annually by Nations International Growth
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 B Shares will be reduced by the amount of any
dividend or distribution. A dividend or distribution on newly purchased shares
would therefore represent, in substance, a return of capital. However, such
dividend or distribution would nevertheless be taxable. Certain Selling Agents
may provide for the reinvestment of dividends in the form of additional Investor
B 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. 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 B 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.
33
<PAGE>
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.
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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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 tax on dividends, distributions and proceeds from the disposition of
Fund shares paid to certain foreign shareholders.
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, if more than 50% of
the value of the total assets of each of those Funds consists of securities of
foreign issuers, it may elect to "pass through" to its shareholders these
foreign taxes, if any. Upon such an election, 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 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.
34
<PAGE>
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. Each Fund (except Nations International
Growth Fund) will limit its 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. Pursuant to line of credit arrangements, each Fund may
borrow 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 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
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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.
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 income (including interest, distributions and disposition
proceeds), 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
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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.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both U.S. and European securities markets. EDRs, in bearer form, are designed
for use in European securities markets. ADRs, ADSs, GDRs and EDRs also involve
certain risks of other investments in foreign securities.
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 under the 1933 Act, or which
were issued under Section 4(2) of 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
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time, qualified institutional or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, 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: 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 the Fund to value its portfolio securities, and the
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
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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.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
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 Funds.
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 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
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
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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. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. 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, some 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; 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. 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 take
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
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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.
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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 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.
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.
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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.
44
<PAGE>
Prospectus
INVESTOR C SHARES
AUGUST 1, 1997
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 Funds Family
("Nations Funds" or
"Nations Funds 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 Funds at its address or
telephone number shown below. The SAIs dated August
1, 1997 are incorporated by reference in their
entirety into this Prospectus. The SEC maintains a
Web site (http://www.sec.gov) that contains the
SAIs, material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the term "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
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.
NF-96139-897
Nations Prime
Fund
Nations Treasury
Fund
Nations Government
Money Market
Fund
Nations Tax
Exempt Fund
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Funds Logo Appears Here)
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds
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 How To Buy Shares 16
Investment
How To Redeem Shares 17
How To Exchange Shares 18
Shareholder Servicing Plan 19
How The Funds Value Their Shares 20
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 FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS 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 52
investment company portfolios in the Nations Funds 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
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
<S> <C> <C> <C> <C>
Nations
Government Nations Tax
Nations Nations Money Exempt
SHAREHOLDER TRANSACTION EXPENSES Prime Fund Treasury Fund Market Fund Fund
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) .16% .16% .14% .16%
Rule 12b-1 Fees None None None None
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses .14% .14% .16% .14%
Total Operating Expenses (After Fee Waivers) .55% .55% .55% .55%
</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>
<S> <C> <C> <C>
Nations
Nations Prime Nations Treasury Government 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 $ 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. 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/or reimbursements will continue.
In particular, to the extent other expenses are less than expected, waivers
and/or reimbursements of management fees, if any, may decrease. Shareholders
will be notified of any decrease that materially increases Total Operating
Expenses. 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, "Management Fees" and "Total Operating Expenses" for
Investor C Shares of the indicated Fund would have been as follows: Nations
Prime Fund -- .20% and .59%, respectively; Nations Treasury Fund -- .20% and
.59%, respectively; Nations Government Money Market Fund -- .40% and .81%,
respectively; and Nations Tax Exempt Fund -- .40% and .79%, 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 financial information on the following pages has been derived from the
audited 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>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97 03/31/96(a) 05/31/95 05/31/94*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0495 0.0447 0.0493 0.0155
Dividends from net investment income (0.0495) (0.0447) (0.0493) (0.0155)
Total dividends and distributions (0.0495) (0.0447) (0.0493) (0.0155)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 5.05% 4.57% 5.03% 1.58%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 93,678 $ 74,822 $ 53,451 $ 1,481
Ratio of operating expenses to average net
assets 0.55% 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net
assets 4.96% 5.37%+ 4.97% 2.95%+
Ratio of operating expenses to average net
assets without waivers and/or reimbursements 0.60% 0.62%+ 0.64% 0.62%+
Net investment income per share without waivers
and/or reimbursements $ 0.0491 $ 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>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97 03/31/96(a) 05/31/95 05/31/94*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0484 0.0437 0.0468 0.0019
Dividends from net investment income (0.0484) (0.0437) (0.0468) (0.0019)
Distributions from net realized capital gains -- (0.0000)# (0.0000)# --
Total dividends and distributions (0.0484) (0.0437) (0.0468) (0.0019)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.96% 4.46% 4.76% 0.19%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,868 $ 8,783 $ 6,373 $ 191
Ratio of operating expenses to average net assets 0.55% 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 4.84% 5.27%+ 4.73% 2.72%+
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.60% 0.62%+ 0.61% 0.61%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0479 $ 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 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.
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0478 0.0165 0.0532 0.0290
Distributions:
Dividends from net investment income (0.0478) (0.0165) (0.0532) (0.0290)
Distributions from net realized capital gains -- -- -- (0.0000)#
Total dividends and distributions (0.0478) (0.0165) (0.0532) (0.0290)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.93% 1.66% 5.44% 2.94%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,142 $ 1,731 $ 4,414 $ 476
Ratio of operating expenses to average net assets 0.55% 0.55%+ 0.55% 0.55%+
Ratio of net investment income to average net assets 4.78% 4.95%+ 5.33% 3.54%+
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.82% 0.84%+ 0.82% 0.84%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0451 $ 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>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0311 0.0107 0.0346 0.0203
Dividends from net investment income (0.0311) (0.0107) (0.0346) (0.0203)
Total dividends and distributions (0.0311) (0.0107) (0.0346) (0.0203)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 3.15% 1.07% 3.52% 2.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 62,761 $ 66,743 $ 41,409 $ 25,704
Ratio of operating expenses to average net
assets 0.45% 0.45%+ 0.45% 0.42%+
Ratio of net investment income to average net
assets 3.10% 3.20%+ 3.47% 2.44%+
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.70% 0.73%+ 0.72% 0.74%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.0285 $ 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.
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.
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 (together, with U.S. Treasury Obligations, "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 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. In addition, the Fund may
lend its portfolio securities to qualified institutional investors. Although the
Fund is permitted to invest a portion of its assets in second tier securities
(as defined below) in accordance with Rule 2a-7 under the Investment Company Act
of 1940, as amended (the "1940 Act"), the Fund invests only in first tier
securities (as defined below). 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 and
repurchase agreements secured by such obligations. The Fund may lend its
portfolio securities to qualified institutional investors. Although the Fund is
permitted to invest a portion of its assets in second tier securities (as
defined below) in accordance with Rule 2a-7 under the 1940 Act, the Fund invests
only in first tier securities (as defined below). 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. Although the Fund may invest in
repurchase agreements it does not currently intend to do so. 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. Although the Fund is permitted to invest a portion of
its assets in second tier securities (as defined below) in accordance with Rule
2a-7 under the 1940 Act, the Fund invests only in first tier securities (as
defined below). 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
8
<PAGE>
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; having a long-term rating of
"A" or higher from D&P, Fitch, S&P, IBCA, BankWatch or Moody's in the case of
certain bonds which are 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."
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 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.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
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.
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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 SAI. 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 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 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 greater maturities, provided such obligations
are subject to demand features or resets which are less than 397 days, 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.
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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.
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 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 Daily 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 (as defined below) or by calling Nations Funds at the
toll-free number indicated on the cover of this Prospectus.
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 Funds 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,
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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 investment
sub-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 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: .25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus .20% of the combined average daily net assets of such Funds
in excess of $250 million; and .40% of the average daily net assets of each of
Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided pursuant to sub-advisory agreements, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rate of .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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of thre following Funds' average daily net assets:
Nations Government Money Market Fund -- .14% and Nations Tax Exempt
Fund -- .16%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Prime Fund -- .16% and Nations Treasury Fund -- .16%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- .055%, Nations Tax Exempt Fund -- .055%, Nations
Prime Fund -- .055% and Nations Treasury Fund -- .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. Prior to assuming her
position with TradeStreet, she was Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. 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
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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 Funds and special counsel to
NationsBank, has advised Nations Funds 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 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 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
.10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .09% and Nations Tax Exempt Fund -- .09%.
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For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .09% and
Nations Treasury Fund -- .09%.
NationsBank serves as sub-administrator for Nations Funds 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 is 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. Nations Funds
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. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of all Nations Funds, except the international portfolios. 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 to the Nations Funds Family, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees at the rate of (i) $300,000
per annum, to be paid monthly in payments of $25,000 for custodian services for
up to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all Nations Funds except the international portfolios, for which BONY is
already serving as Custodian. BONY is located at 90 Washington Street, New York,
New York 10286. In return for providing sub-custodial services, BONY receives,
in addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market 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. Their
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, 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, Stephens or First Data under their respective agreements with Nations
Funds; and any extraordinary expenses. Investor C Shares may bear certain class
specific expenses and also bear certain additional shareholder service costs.
Any general expenses of
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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 Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family
currently has more than 52 distinct investment portfolios and total assets in
excess of $27 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 Daily 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 Funds 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 of shares. See the SAI for examples
of instances where the 1940 Act requires voting by fund.
As of July 15, 1997, 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 420,000,000,000 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
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Investor C 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 Funds 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, 1997, 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 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").
There is a minimum initial investment of $1,000 for each recordholder.
Investors exchanging Investor B Shares of a non-money market fund of the Nations
Funds 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
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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 Funds and Stephens reserve 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 Funds.
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 requests in writing only. A shareholder may bear
the risk of any resulting losses from a telephone transaction. Nations Funds
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
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
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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 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 Servicing Agents. Nations Funds 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 Funds 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 Funds 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 Funds have previously been
made. Nations Funds 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 Funds.
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 B 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 B Shares of any non-money market fund of
Nations Funds (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 B Shares purchased.
The holding period (for the purpose of determining the applicable rate of the
CDSC) does not 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
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a result, the CDSC that is ultimately charged upon redemption is based upon the
total holding period of Investor B Shares of a non-money market fund that
charges a CDSC.
The Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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 90 days after the shares are purchased.
Nations Funds and Stephens reserve 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.
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 Funds 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 .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; 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 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 Funds understands that Servicing Agents may charge fees to their
Customers who are the owners of Investor C Shares for addi-
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tional 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 Funds. The Servicing Agreements
require Servicing Agents to disclose to their Customers any compensation payable
to the Servicing Agents by Nations Funds 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 Funds 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 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 Funds 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 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.
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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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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 tax on dividends, distributions and proceeds from the disposition of
Fund shares paid to certain foreign shareholders.
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 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.
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 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.
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. 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. Nations Treasury Fund and Nations Government Money Market 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
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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. Pursuant to line of credit arrangements, certain of the
Funds may borrow 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, each of the Funds (except Nations Tax Exempt
Fund) 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.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-
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denominated obligations issued by domestic corporations or foreign corporations
and domestic and foreign commercial banks. 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 obligations
(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 income (including interest, distributions and disposition proceeds),
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.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both the U.S. and European securities markets. EDRs, in bearer form, are
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designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
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 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
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 under the 1933 Act, or which
were issued under Section 4(2) of 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 or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, 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-
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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 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less 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 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 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
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"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 securities with put or demand features 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.
Pursuant to an exemptive order, the Nations' Non-Money Market Funds may purchase
shares of Nations' Money Market Funds.
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 Funds.
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 33% of the value of its total assets.
Cash collateral received by a Nations Fund may be invested in a Nations' Money
Market Fund.
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. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. 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, some 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; 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. 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 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
30
<PAGE>
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.
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.
31
<PAGE>
Prospectus
INVESTOR C SHARES
AUGUST 1, 1997
This Prospectus describes NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND, NATIONS SMALL COMPANY 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 Funds Family ("Nations Funds" or "Nations
Funds 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 Funds at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated August 1, 1997, are
incorporated by reference in their entirety into
this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAIs,
material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the term "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
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.
NF-96140-897
<PAGE>
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 Small Company
Growth Fund
Nations Disciplined Equity
Fund
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Funds logo appears here)
NF-96140-897
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds
Expenses Summary 5
Financial Highlights 6
Objectives 12
How Objectives Are Pursued 13
How Performance Is Shown 20
How The Funds Are Managed 21
Organization And History 25
About Your How To Buy Shares 27
Investment
How To Redeem Shares 29
How To Exchange Shares 30
Shareholder Servicing And Distribution Plans 32
How The Funds Value Their Shares 33
How Dividends And Distributions Are Made;
Tax Information 33
Appendix A -- Portfolio Securities 35
Appendix B -- Description Of Ratings 43
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 FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS 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 Small Company Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities.
(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 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are
declared and paid monthly by Nations Capital Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Income Fund, Nations Value Fund
and Nations Small Company Growth Fund. Nations Balanced Assets Fund and
Nations Emerging Growth Fund 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.
The U.S. stock market tends to be cyclical, with periods when stock
prices generally rise and periods when prices generally decline. As of
the date of this Prospectus, the stock market, as measured by the S&P
500 Index (as defined below) and other commonly used indices, was
trading at or close to record levels. There can be no guarantee that
these levels will continue. Certain of the Funds may invest in
securities of smaller and newer issuers. Investments in such companies
3
<PAGE>
may present greater opportunities for capital appreciation because of
high potential earnings growth, but also present greater risks than
investments in more established companies with longer operating
histories and greater financial capacity. 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 (as defined
below), 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."
(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
Nations Equity Balanced Capital Emerging Growth
INVESTOR C SHARES Value Fund Income Fund Assets Fund Growth Fund Fund
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C> <C>
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 (After Fee
Waivers) .75% .67% .75% .75% .75%
Rule 12b-1 Fees .75% .75% .75% .75% .75%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses .19% .22% .25% .21% .23%
Total Operating Expenses (After
Fee Waivers) 1.94% 1.89% 2.00% 1.96% 1.98%
</TABLE>
Nations Small Nations
Company Growth Disciplined
INVESTOR C SHARES Fund Equity Fund
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None
Deferred Sales Charge (as a
percentage of the lower of the
original purchase price or
redemption proceeds)(1) None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .75% .75%
Rule 12b-1 Fees .75% .75%
Shareholder Servicing Fees .25% .25%
Other Expenses .20% .25%
Total Operating Expenses (After
Fee Waivers) 1.95% 2.00%
(1)Investor C Shares purchased prior to August 1, 1997 will continue to be
subject to the .50% Deferred Sales Charge 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 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 $ 61 $ 59 $ 63 $ 62 $ 62
5 Years $ 105 $ 102 $ 108 $ 106 $ 107
10 Years $ 226 $ 221 $ 233 $ 229 $ 231
Nations Small Nations
Company Growth Disciplined
Fund Equity Fund
1 Year $ 20 $ 20
3 Years $ 61 $ 63
5 Years $ 105 $ 108
10 Years $ 227 $ 233
</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. 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. There is no assurance that any fee waivers and/or
reimbursements will continue. In particular, to the extent other expenses are
less than expected, waivers and/or reimbursements of management fees, if any,
may decrease. Shareholders will be notified of any decrease that materially
increases Total Operating Expenses. 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, "Management Fees" and "Total Operating Expenses," for
Investor C Shares of Nations Small Company Growth Fund would have been 1.00% and
2.20%, 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 financial information on the following pages has been derived from the
audited 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. Financial Highlights for Investor C Shares of
Nations Small Company Growth Fund are not provided below because such Fund's
share class had not yet commenced operation during the period indicated below.
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS VALUE FUND
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.50 $ 16.09 $ 12.90 $ 13.64 $ 12.41
Net investment income 0.17 0.04 0.13 0.12 0.13
Net realized and unrealized
gain/(loss) on investments 2.68 1.05 3.88 (0.22) 1.32
Net increase/(decrease) in net asset
value from operations 2.85 1.09 4.01 (0.10) 1.45
Distributions:
Dividends from net investment income (0.18) (0.06) (0.15) (0.10) (0.13)
Distributions from net realized
capital gains (1.42) (0.62) (0.67) (0.54) (0.09)
Total dividends and distributions (1.60) (0.68) (0.82) (0.64) (0.22)
Net asset value, end of period $ 17.75 $ 16.50 $ 16.09 $ 12.90 $ 13.64
Total return++ 17.51% 6.99% 33.15% (0.92)% 11.85%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 6,519 $ 4,633 $ 4,185 $ 2,983 $ 2,997
Ratio of operating expenses to
average net assets 1.47%(c) 1.58%+ 1.94% 1.93% 1.96%
Ratio of net investment income to
average net assets 1.01% 0.68%+ 0.90% 0.85% 0.98%
Portfolio turnover rate 47% 12% 63% 75% 64%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.47%(c) 1.58%+ 1.94% 1.93% 1.97%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.17(c) $ 0.04 $ 0.13 $ 0.12 $ 0.13
Average commission rate paid (b) $ 0.0649 $ 0.0648 N/A N/A N/A
</TABLE>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
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
* 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
7
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97 03/31/96(a) 05/31/95 05/31/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.19 $ 11.83 $ 11.47 $ 12.04
Net investment income 0.33 0.21 0.32 0.28
Net realized and unrealized gain on
investments 1.59 1.78 1.08 0.21
Net increase in net asset value from
operations 1.92 1.99 1.40 0.49
Distributions:
Dividends from net investment income (0.35) (0.26) (0.31) (0.25)
Distributions from net realized capital
gains (2.41) (0.37) (0.73) (0.81)
Total dividends and distributions (2.76) (0.63) (1.04) (1.06)
Net asset value, end of period $ 12.35 $ 13.19 $ 11.83 $ 11.47
Total return++ 15.01% 17.20% 13.49% 3.96%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 5,007 $ 4,612 $ 4,278 $ 4,221
Ratio of operating expenses to average net
assets 1.41%(c) 1.75%+ 1.92% 1.94%
Ratio of net investment income to average
net assets 2.59% 1.99%+ 2.75% 2.41%
Portfolio turnover rate 102% 59% 158% 116%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.41%(c) 1.75%+ 1.93% 1.95%
Net investment income per share without
waivers and/or expense reimbursements $ 0.33(c) $ 0.21 $ 0.32 $ 0.28
Average commission rate paid (b) $ 0.0609 $ 0.0287 N/A N/A
</TABLE>
PERIOD
ENDED
INVESTOR C SHARES 05/31/93*
Operating performance:
Net asset value, beginning of period $ 11.13
Net investment income 0.32
Net realized and unrealized gain on
investments 1.32
Net increase in net asset value from
operations 1.64
Distributions:
Dividends from net investment income (0.28)
Distributions from net realized capital
gains (0.45)
Total dividends and distributions (0.73)
Net asset value, end of period $ 12.04
Total return++ 15.31%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 4,377
Ratio of operating expenses to average net
assets 1.92%+
Ratio of net investment income to average
net assets 2.37%+
Portfolio turnover rate 55%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.04%+
Net investment income per share without
waivers and/or expense reimbursements $ 0.31
Average commission rate paid (b) N/A
* 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 charges.
(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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
8
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.60 $ 12.61 $ 10.38 $ 10.82 $ 10.23
Net investment income 0.33 0.09 0.26 0.14 0.23
Net realized and unrealized
gain/(loss) on investments 1.02 0.45 2.21 (0.43) 0.59
Net increase/(decrease) in net asset
value from operations 1.35 0.54 2.47 (0.29) 0.82
Distributions:
Dividends from net investment income (0.33) (0.14) (0.22) (0.15) (0.23)
Distributions from net realized
capital gains (1.54) (1.41) (0.02) -- --
Total dividends and distributions (1.87) (1.55) (0.24) (0.15) (0.23)
Net asset value, end of period $ 11.08 $ 11.60 $ 12.61 $ 10.38 $ 10.82
Total return++ 11.85% 4.71% 24.03% (2.72)% 8.06%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 1,396 $ 1,187 $ 992 $ 951 $ 1,196
Ratio of operating expenses to
average net assets 1.50%(c) 1.62%+ 1.99% 1.98% 1.90%
Ratio of net investment income to
average net assets 2.81% 2.29%+ 2.25% 1.31% 1.82%
Portfolio turnover rate 264% 83% 174% 156% 50%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.50%(c) 1.62%+ 1.99% 1.99% 1.97%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.33(c) $ 0.09 $ 0.26 $ 0.14 $ 0.22
Average commission rate paid (b) $ 0.0563 $ 0.0598 N/A N/A N/A
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.01
Net realized and unrealized
gain/(loss) on investments 0.22#
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
* 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
9
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
</TABLE>
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97## 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.26 $ 14.09 $ 11.14 $ 11.01 $ 10.67
Net investment income/(loss) (0.01) 0.00(b) (0.03) (0.02) (0.00)(b)
Net realized and unrealized gain on
investments 1.64 0.36 3.24 0.15 0.38
Net increase in net asset value from
operations 1.63 0.36 3.21 0.13 0.38
Distributions:
Dividends from net investment income -- -- -- -- (0.03)
Distributions from net realized
capital gains (3.39) (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (3.39) (1.19) (0.26) (0.00)(b) (0.04)
Net asset value, end of period $ 11.50 $ 13.26 $ 14.09 $ 11.14 $ 11.01
Total return++ 11.39% 2.86% 29.61% 1.22% 3.61%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 5,752 $ 3,655 $ 3,322 $ 2,394 $ 2,919
Ratio of operating expenses to
average net assets 1.46%(d) 1.58%+ 1.98% 1.90% 1.80%
Ratio of net investment
income/(loss) to average net
assets (0.11)% (0.24)%+ (0.29)% (0.15)% (0.16)%
Portfolio turnover rate 75% 25% 80% 56% 81%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.46% 1.58%+ 1.98% 1.91% 1.89%
Net investment income/(loss) per
share without waivers and/or
expense reimbursements $ (0.01) $ 0.00(b) $ (0.03) $ (0.02) $ 0.00(b)
Average commission rate paid (c) $ 0.0604 $ 0.0632 N/A N/A N/A
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
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
* 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.
## Per share numbers have been calculated using the average share method, which
more appropriately represents the per share data for the period, since the
use of the undistributed income method did not accord with 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.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
10
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
</TABLE>
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97## 03/31/96##(a) 11/30/95 11/30/94##
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.56 $ 13.87 $ 11.20 $ 10.78
Net investment income/(loss) (0.10) (0.03) (0.08) (0.14)
Net realized and unrealized gain on
investments 0.19 1.22 3.15 0.70
Net increase in net asset value from
operations 0.09 1.19 3.07 0.56
Distributions:
Distributions from net realized capital
gains (1.34) (1.50) (0.40) (0.14)
Total dividends and distributions (1.34) (1.50) (0.40) (0.14)
Net asset value, end of period $ 12.31 $ 13.56 $ 13.87 $ 11.20
Total return++ (0.04)% 9.64% 28.67% 5.19%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 1,437 $ 936 $ 805 $ 542
Ratio of operating expenses to average net
assets 1.48%(d) 1.61%+ 1.98% 2.01%
Ratio of net investment income/(loss) to
average net assets (0.76)% (0.68)%+ (0.92)% (1.29)%
Portfolio turnover rate 93% 39% 139% 129%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.48%(d) 1.61%+ 1.98% 2.01%
Net investment income/(loss) per share
without waivers and/or expense
reimbursements $ (0.10)(d) $ (0.03) $ (0.08) $ (0.12)
Average commission rate paid (b) $ 0.0562 $ 0.0599 N/A N/A
PERIOD
ENDED
INVESTOR C SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.89
Net investment income/(loss) (0.09)
Net realized and unrealized gain on
investments 0.98
Net increase in net asset value from
operations 0.89
Distributions:
Distributions from net realized capital
gains --
Total dividends and distributions --
Net asset value, end of period $ 10.78
Total return++ 9.00%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 469
Ratio of operating expenses to average net
assets 1.80%+
Ratio of net investment income/(loss) to
average net assets (1.15)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.01%+
Net investment income/(loss) per share
without waivers and/or expense
reimbursements $ (0.11)
Average commission rate paid (b) N/A
* 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.
## 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 income method did not accord with
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.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
11
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
</TABLE>
<TABLE>
<CAPTION>
YEAR PERIOD PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97 03/31/96(a) 11/30/95*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.10 $ 16.97 $ 14.08
Net investment income/(loss) 0.04 0.01 (0.00)(b)
Net realized and unrealized gain on investments 2.79 0.35 2.92
Net increase in net asset value from operations 2.83 0.36 2.92
Distributions:
Dividends from net investment income (0.01) -- (0.03)
Distributions from net realized capital gains (1.51) (0.23) --
Return of capital -- -- --
Total dividends and distributions (1.52) (0.23) (0.03)
Net asset value, end of period $ 18.41 $ 17.10 $ 16.97
Total return++ 16.45% 2.19% 20.78%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 446 $ 283 $ 322
Ratio of operating expenses to average net assets 1.54%(d) 1.65%+ 2.30%+
Ratio of net investment income/(loss) to average net assets 0.20% 0.19%+ (0.15)%+
Portfolio turnover rate 120% 47% 124%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.54% 1.65%+ 2.30%+
Net investment income/(loss) per share without waivers and/or expense
reimbursements $ 0.04 $ 0.01 $ (0.00)(b)
Average commission rate paid (c) $ 0.0377 $ 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.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
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 SMALL COMPANY GROWTH FUND: Nations Small Company Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities.
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.
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.
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
13
<PAGE>
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 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 and repurchase
agreements. 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 provided by the stocks in the
Standard & Poor's 500 Composite Stock Price Index (1) ("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
(1) "Standard & Poor's 500" is a registered service mark of S&P.
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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 and repurchase
agreements. 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 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 and asset-
backed securities. Most obligations acquired by the Fund will be issued by
companies or governmental entities located within the United States. Debt
obligations acquired by the Fund will be rated investment grade at the time of
purchase by S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch
Investors Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc.
(collectively "IBCA"), or Thomson BankWatch, Inc. ("BankWatch") or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
Obligations with the lowest investment grade rating (E.G. rated "BBB" by S&P or
"Baa" by Moody's) have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
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 and repurchase
agreements. 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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GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above-average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
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 and repurchase
agreements. 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 equity securities,
consisting of common stocks, preferred stocks and convertible securities, such
as warrants, rights 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.
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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 and repurchase agreements. 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 greater 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, it may invest up to
20% of its total assets in foreign securities.
NATIONS SMALL COMPANY GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in equity securities, consisting of common stocks, preferred stocks and
convertible securities, such as warrants, rights and convertible debt. In
addition, the Fund will invest at least 65% of its total assets in companies
with a market capitalization of $1 billion or less.
In making investment decisions for the Fund, the Adviser, on a quarterly basis,
classifies approximately 6,000 companies by market value and eliminates the
largest 20%. The remaining companies constitute the Fund's small-capitalization
universe and generally represent only one-tenth of the aggregate U.S. equity
market capitalization. Due to the large number of small stocks to choose from,
the Adviser's selection process uses advanced quantitative techniques to
identify, buy and sell candidates in a timely and objective manner. The strategy
is to own those investments offering both attractive fundamental valuation and
relatively good prospects for earnings improvement. Typically, two types of
companies are candidates for purchase: (i) mature companies which may have
fallen from a larger market due to business difficulties, but which now exhibit
improving prospects; and (ii) smaller or younger companies which are
experiencing strong trends in earnings growth, but remain reasonably valued and
therefore offer premium growth at a discount in comparison to other companies.
The Adviser's internally designed investment approach uses a sophisticated
valuation process which measures changes in current earnings estimates and
longer-term growth trends, compares recent earnings results with market
expectations, and evaluates a company's earnings power relative to its stock
price. Companies become purchase candidates based upon a composite ranking of
these factors, and the top 20% are further evaluated on additional criteria.
Candidates for investment must also possess a sound financial structure and
demonstrate consistent factor rankings before being added to the Fund's
portfolio.
The Fund's weighted median capitalization generally is not expected to exceed
125% of the weighted median capitalization of the Russell 2000 Small Stock Index
(the "Russell 2000") as measured on a quarterly basis, although this may vary
from time to time. Furthermore, a stock may be sold if the composite rank falls
into the bottom 20% of the universe, financial quality weakens significantly, or
if individual factors demonstrate patterns of deterioration.
The Fund may invest up to 35% of its total assets in securities of issuers with
a market capitalization greater than $1 billion and in debt securities. However,
the Fund will not invest more than 10% of its total assets in debt securities,
unless the Fund assumes a temporary defensive position as discussed below. Debt
securities, if any, purchased by the Fund will be rated AA or above by S&P or Aa
or above by Moody's or, if unrated, determined by the Adviser to be of
comparable quality. For temporary defensive purposes, the Fund may invest up to
100% of its assets in debt securities. Debt securities in which the Fund may
invest include short-term and intermediate-term obligations of corporations, the
U.S. and foreign governments
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and international organizations (such as the World Bank), and money market
instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements. The Fund currently intends to limit any investment in foreign
securities to 5% of total assets.
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 the Fund, the Adviser utilizes quantitative analysis and
optimization tools. This approach seeks to identify companies with improving
profit potential through analysis of 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. The quantitative analysis also includes ranking the attractiveness
of equity securities according to a multi-factor valuation model. Both value and
growth factors are considered in the ranking process. Value factors such as book
value, earnings yield and cash flow measure a stock's intrinsic worth versus its
market price, while growth characteristics such as price momentum, earnings
growth and earnings acceleration measure a stock relative to others in the same
industry. The objective is to maintain a broadly diversified portfolio which
ranks in the top quartile on earnings momentum and in the top third on
valuation. This approach generally produces a dividend yield less than the
market average. Although this Fund seeks to invest in attractively priced
securities with increasing earnings, its investment objective focuses on
long-term capital appreciation; income is not an objective of this 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, money
market instruments and repurchase agreements.
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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
reverse repurchase agreements and dollar roll transactions. Each Fund may lend
its portfolio securities to qualified institutional investors and may invest in
repurchase agreements. 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' 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: Investments by a Fund in common stocks and other equity
securities are subject to stock market risks. The value of the stocks that the
Fund holds, like the broader stock market, may decline over short or even
extended periods. The U.S. stock market tends to be cyclical, with periods when
stock prices generally rise and periods when prices generally decline. As of the
date of this Prospectus, the stock market, as measured by the S&P 500 Index and
other commonly used indices, was trading at or close to record levels. There can
be no guarantee that these levels will continue.
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 may invest in securities of smaller and newer issuers.
Investments in such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also present greater
risks than investments in more established companies with longer operating
histories and greater financial capacity.
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 a 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.
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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. (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.
4. Nations Small Company Growth Fund may not borrow money except as a temporary
measure for extraordinary or emergency purposes or except in connection with
reverse repurchase agreements and mortgage rolls; provided that the Fund will
maintain asset coverage of 300% for all borrowings.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without shareholder approval. Shareholders of Nations Small
Company Growth Fund, however, must receive at least 30 days' prior written
notice in the event an investment objective is changed. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their 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 SAI. 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 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 gain 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 gain
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
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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 B Shares (formerly Investor N 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. 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 Agent (as defined
below) or by calling Nations Funds at the toll-free number indicated on the
cover of this Prospectus.
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 Funds 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 investment
sub-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
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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: .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;
1.00% of the average daily net assets of Nations Small Company Growth Fund; and
.75% of the first $100 million of the Nations Equity Income Fund's average daily
net assets, plus .70% of the Fund's average daily net assets in excess of $100
million and up to $250 million, plus .60% of the Fund's average daily net assets
in excess of $250 million.
For the services provided pursuant to sub-advisory agreements, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rates of: .25% of Nations Value Fund's, Nations Balanced Assets Fund's, Nations
Capital Growth Fund's, Nations Emerging Growth Fund's, Nations Small Company
Growth Fund's and Nations Disciplined Equity Fund's average daily net assets;
and .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.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Value Fund -- .75%, Nations Capital Growth Fund -- .75%, Nations
Emerging Growth Fund -- .75%, Nations Disciplined Equity Fund -- .75% and
Nations Balanced Assets Fund -- .75%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at .67% of Nations Equity Income Fund's average daily net assets.
For the fiscal period from September 1, 1996 to May 16, 1997, after waivers, the
Pilot Funds paid Boatmen's Trust Company, under a previous investment advisory
agreement, advisory fees at the rate of .75% of Nations Small Company Growth
Fund's (formerly the Pilot Small Capitalization Equity Fund) average daily net
assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations Value
Fund -- .25%, Nations Capital Growth Fund -- .25%, Nations Emerging Growth
Fund -- .25%, Nations Disciplined Equity Fund -- .25%, Nations Balanced Assets
Fund -- .25% and Nations Equity Income Fund -- .20%.
Sharon M. Herrmann 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 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
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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 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.
Scott A. Billeadeau is a Senior Portfolio Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Emerging Growth Fund and
Nations Small Company Growth Fund. Mr. Billeadeau has been Portfolio Manager of
the Funds since June 1997. Previously he was Senior Analyst and Senior Portfolio
Manager for BankAmerica's Pacific Horizon Aggressive Growth Fund at Security
Pacific Corp. since 1991. Mr. Billeadeau has worked in the investment community
since 1986. His past experience also includes quantitative analysis for American
Express Financial Advisors, Inc. Mr. Billeadeau received an AB in Economics from
Princeton University. He holds the Chartered Financial Analyst designation and
is member of the Association for Investment Management and Research, as well as
the Seattle Society of Securities Analysts.
Jeffery C. Moser 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 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 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.
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Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds 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 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 Nations Funds 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 .10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .10%,
Nations Capital Growth Fund -- .10%, Nations Emerging Growth Fund -- .10%,
Nations Disciplined Equity Fund -- .10% and Nations Balanced Assets
Fund -- .10%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Equity Income Fund --
.10%.
NationsBank serves as sub-administrator for Nations Funds 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. Nations Funds
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."
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NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as custodian for the
assets of all Nations Funds, except the international portfolios. 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 to the Nations Funds Family, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees at the rate of (i) $300,000
per annum, to be paid monthly in payments of $25,000 for custodian services for
up to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all the Funds. BONY is located at 90 Washington Street, New York, New York
10286. In return for providing sub-custodial services, BONY receives, in
addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market 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 Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, 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, Stephens or First Data under their respective agreements with Nations
Funds; and any extraordinary expenses. Investor C Shares may bear certain class
specific 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 Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves and Nations Life Goal Funds, Inc. The Nations Funds
Family currently has more than 52 distinct investment portfolios and total
assets in excess of $27 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 B Shares (formerly Investor N Shares) and Investor C Shares.
This Prospectus relates only to the Investor C Shares of Nations
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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 Agent (as defined below) or Nations
Funds 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, 1997, 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 420,000,000,000 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 to the Investor
C Shares of Nations Equity Income Fund and Nations Small Company Growth 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 Agent (as defined
below) or Nations Funds 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
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shares. Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of July 15, 1997, 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 shareholder servicing agreement ("Servicing Agreement") with Nations
Funds ("Servicing Agents") and/or a sales support agreement ("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"), Savings Incentives Method Plans for Employees
("SIMPLE IRAs"), salary reduction-Individual Retirement Account ("SAR-IRAs"), or
similar types of accounts. However, the assets of such plans must reach an asset
value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs 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 Funds 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").
The Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("Customers") who own Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents."
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From time to time the Agents, Stephens and Nations Funds may agree to
voluntarily reduce the maximum fees payable for sales support or shareholder
services.
Nations Funds and Stephens reserve 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 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 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 Funds.
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 which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or the last day of the applicable month. Subject
to certain exceptions for employees of NationsBank and its affiliates and pre-
existing SIP accounts, the systematic investment amount may be in any amount
from $50 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 Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
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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 Funds. 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 Funds 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 Funds 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 Funds have previously been
made. Nations Funds 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 C Shares purchased prior to August 1, 1997 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 if such shares are redeemed within one year 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.
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) payments made to pay medical expenses which
exceed 7.5% of income and distributions to pay for insurance
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by an individual who has separated from employment and who has received
unemployment compensation under a federal or state program for at least 12
weeks, (iv) effected pursuant to Nations Funds' 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, (v) in connection with the combination of Nations Funds with any other
registered investment company by merger, acquisition of assets or by any other
transaction, and (vi) 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 Funds 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.
REINSTATEMENT PRIVILEGE: 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 the Funds if the value of the
Investor C Shares in his/her accounts within the Nations Funds 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 Funds at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Funds non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Funds or Daily Shares of any Nations
Funds 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 Funds non-money market fund or Daily Shares of a
Nations Funds money market fund
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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 Funds non-money market fund
for shares of the same class of another non-money market fund or Daily Shares of
any money market fund of Nations Funds, 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.
The Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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 Automatic Exchange Feature, which is described
below). Nations Funds and Stephens reserve 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.
AUTOMATIC EXCHANGE FEATURE: Under the Fund's 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 Funds
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 or Nations Funds.
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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 Funds 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 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 Funds 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 Funds 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
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received by a Selling Agent under its Sales Support Agreement with Stephens or
by a Servicing Agent under its Servicing Agreement with Nations Funds. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Funds 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 .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, Martin Luther King, Jr. 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
and paid monthly by Nations Capital Growth Fund, Nations Disciplined Equity
Fund, Nations Equity Income Fund, Nations Value Fund and Nations Small Company
Growth Fund. Nations Balanced Assets Fund and Nations Emerging Growth Fund
distribute any net investment income each calendar quarter. The Funds distribute
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 eligi-
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ble 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. A dividend or distribution on newly purchased shares
would therefore represent, in substance, a return of capital. However, such
dividend or distribution would nevertheless be taxable. 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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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 tax on dividends, distributions and proceeds from the disposition of
Fund shares paid to certain foreign shareholders.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the
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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 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.
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
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 Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements, certain of the
Funds may borrow 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 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.
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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 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: Each Fund 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 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
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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 income (including interest,
distributions and disposition proceeds), 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.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
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
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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 under the 1933 Act, or which
were issued under Section 4(2) of 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 or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, 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
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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 the Fund
to value its portfolio securities, and the 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 that municipal participation interests are
consid-
40
<PAGE>
ered 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.
Pursuant to an exemptive order, the Nations' Non-Money Market Funds may purchase
shares of Nations' Money Market Funds.
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 Funds.
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-
41
<PAGE>
standing loans of a Fund may not exceed 33% of the value of its total assets.
Cash collateral received by a Nations Fund may be invested in a Nations' Money
Market Fund.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Each Fund 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. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. 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, some 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; 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. 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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<PAGE>
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
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<PAGE>
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
44
<PAGE>
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
45
<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 very high.
AA -- The second highest category; indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the 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-
46
<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 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.
47
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<PAGE>
Prospectus
INVESTOR C SHARES
AUGUST 1, 1997
This Prospectus describes NATIONS SHORT-TERM INCOME
FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND,
NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND, NATIONS DIVERSIFIED
INCOME FUND AND NATIONS U.S. GOVERNMENT BOND FUND
(the "Funds") of Nations Fund Trust and Nations
Fund, Inc., each an open-end management investment
company in the Nations Funds Family ("Nations
Funds" or "Nations Funds 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 Funds at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated August 1, 1997, are
incorporated by reference in their entirety into
this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAIs,
material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to all of the Funds except
Nations U.S. Government Bond Fund for which
Boatmen's Capital Management, Inc. ("Boatmen's") is
investment sub-adviser. As used herein the term
"Adviser" shall mean NBAI and/or TradeStreet and/or
Boatmen's as the context may require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Short-Term Income
Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations Strategic Fixed
Income Fund
Nations Diversified Income
Fund
Nations U.S. Government
Bond Fund
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS
FUNDS
NF-96142-897
<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 17
How the Funds Are Managed 18
Organization And History 22
About Your Investment
How To Buy Shares 24
How To Redeem Shares 25
How To Exchange Shares 27
Shareholder Servicing And Distribution Plans 28
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 42
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 FUNDS OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUNDS 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 high current income consistent with minimal fluctuation
of principal. The Fund invests in investment grade debt
securities.
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek high current income consistent with
modest fluctuation of principal. The Fund invests 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 high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in
intermediate-term 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 in investment grade fixed
income securities.
(Bullet) Nations Diversified Income Fund's investment objective is to
seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income
securities.
(Bullet) Nations U.S. Government Bond Fund's investment objective is to
seek total return and preservation of capital by investing in
U.S. Government securities and repurchase agreements.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 52
investment company portfolios in the Nations Funds 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 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 (as defined below), 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."
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor C Shares of the
indicated Fund over specified periods.
INVESTOR C SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations Short- Nations Nations
Nations Short- Intermediate Government Nations Strategic Diversified
SHAREHOLDER TRANSACTION EXPENSES Term Income Fund Government Fund Securities Fund Fixed Income Fund Income Fund
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
<CAPTION>
Nations
U.S. Government
SHAREHOLDER TRANSACTION EXPENSES Bond Fund
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>
<S> <C> <C> <C> <C> <C>
Management Fees (After Fee
Waivers) .30% .40% .50% .50% .50%
Rule 12b-1 Fees (After Fee
Waivers) .10% .55% .60% .55% .60%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses .25% .22% .30% .20% .25%
Total Operating Expenses (After
Fee Waivers) .90% 1.42% 1.65% 1.50% 1.60%
<CAPTION>
Management Fees (After Fee
Rule 12b-1 Fees (After Fee
Waivers) .60%
Shareholder Servicing Fees .25%
Other Expenses .20%
Total Operating Expenses (After
Fee Waivers) 1.45%
<CAPTION>
Waivers) .40%
</TABLE>
1 Investor C Shares purchased prior to August 1, 1997 will continue to be
subject to the .50% Deferred Sales Charge applicable at the time of purchase.
See "How To Redeem Shares -- Contingent Deferred Sales Charge."
4
<PAGE>
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>
<S> <C> <C> <C> <C> <C>
Nations Short- Nations Nations
Nations Short- Intermediate Government Nations Strategic Diversified
Term Income Fund Government Fund Securities Fund Fixed Income Fund Income Fund
1 Year $ 9 $ 14 $ 17 $ 15 $ 16
3 Years $ 29 $ 45 $ 52 $ 47 $ 50
5 Years $ 50 $ 78 $ 90 $ 82 $ 87
10 Years $ 111 $ 170 $ 195 $ 179 $ 190
<CAPTION>
Nations
U.S. Government
Bond Fund
1 Year $ 15
3 Years $ 46
5 Years $ 79
10 Years $ 174
</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/or
reimbursements will continue. In particular, to the extent other expenses are
less than expected, waivers and/or reimbursements of management fees, if any,
may decrease. Shareholders will be notified of any decrease that materially
increases Total Operating Expenses. 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, "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 1.82%,
respectively; Nations Strategic Fixed Income Fund -- .60%, .75% and 1.80%;
Nations Government Securities Fund -- .64%, .75% and 1.94%, respectively; and
Nations Diversified Income Fund -- .60%, .75% and 1.85%, respectively; and
Nations U.S. Government Bond Fund -- .60%, .75% and 1.80%.
5
<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 financial information on the following pages has been derived from the
audited 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. Financial Highlights for Investor C shares of Nations
U.S. Government Bond Fund are not provided below because such Fund's share class
had not yet commenced operation during the period indicated below.
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97# 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of
period $ 9.76 $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.55 0.19 0.57 0.46 0.48
Net realized and unrealized
gain/(loss) on investments (0.08) (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net
asset value from operations $ 0.47 0.11 0.93 (0.05) 0.74
Distributions:
Dividends from net investment
income (0.55) (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 (0.55) (0.19) (0.57) (0.48) (0.48)
Net asset value, end of period $ 9.68 $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 4.89% 1.07% 10.08% (0.51)% 7.73%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 4,063 $ 6,121 $ 6,056 $ 8,102 $ 19,851
Ratio of operating expenses to
average net assets 0.90%(a) 0.90%+ 0.91% 0.89% 0.87%
Ratio of net investment income to
average net assets 5.62% 5.72%+ 5.97% 4.84% 4.77%
Portfolio turnover rate 172% 73% 224% 293% 121%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.20% 1.23%+ 1.21% 1.21% 1.29%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.52 $ 0.18 $ 0.54 $ 0.43 $ 0.45
<CAPTION>
PERIOD
ENDED
INVESTOR C 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++ (1.82)%+++
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 income method did not accord with the
results of operations.
(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.
7
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97# 03/31/96(b)# 11/30/95# 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of
period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16
Net investment income 0.21 0.07 0.22 0.20 0.20
Net realized and unrealized
gain/(loss) on investments (0.08) (0.07) 0.21 (0.33) 0.14
Net increase/(decrease) in net
asset value from operations 0.13 0.00 0.43 (0.13) 0.34
Distributions:
Dividends from net investment
income (0.21) (0.07) (0.22) (0.20) (0.20)
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 (0.21) (0.07) (0.22) (0.22) (0.22)
Net asset value, end of period $ 3.99 $ 4.07 $ 4.14 $ 3.93 $ 4.28
Total return++ 3.21% (0.10)% 11.15% (2.80)% 8.20%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 8,334 $ 11,820 $ 13,206 $ 16,725 $ 31,440
Ratio of operating expenses to
average net assets 1.13%(c)(d) 1.13%+ 1.10% 1.17% 1.30%
Ratio of net investment income to
average net assets 5.23% 4.82%+ 5.38% 5.18% 4.65%
Portfolio turnover rate 529% 189% 328% 133% 92%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.33%(d) 1.36%+ 1.30% 1.38% 1.54%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.20(d) $ 0.06 $ 0.21 $ 0.19 $ 0.19
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of
period $ 4.19
Net investment income 0.10
Net realized and unrealized
gain/(loss) on investments (0.03)
Net increase/(decrease) in net
asset value from operations 0.07
Distributions:
Dividends from net investment
income (0.10)
Distributions in excess of net
investment income --
Distributions from net realized
capital gains --
Total dividends and distributions (0.10)
Net asset value, end of period $ 4.16
Total return++ 1.64%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 24,352
Ratio of operating expenses to
average net assets 1.18%+
Ratio of net investment income to
average net assets 4.80%+
Portfolio turnover rate 25%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.44%+
Net investment income per share
without waivers and/or expense
reimbursements $ 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.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
8
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97# 03/31/96(b)# 05/31/95# 05/31/94
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Net investment income 0.55 0.47 0.57 0.55
Net realized and unrealized gain/(loss)
on investments (0.30) (0.19) 0.06 (0.61)
Net increase/(decrease) in net asset
value from operations 0.25 0.28 0.63 (0.06)
Distributions:
Dividends from net investment income (0.53) (0.45) (0.53) (0.50)
Dividends in excess of net investment
income -- (0.02) -- (0.01)
Distributions in excess of net realized
capital gains -- -- -- (0.05)
Distributions from capital (0.00)(a) -- (0.04) (0.04)
Total dividends and distributions (0.53) (0.47) (0.57) (0.60)
Net asset value, end of period $ 9.39 $ 9.67 $ 9.86 $ 9.80
Total return++ 2.67% 2.83% 6.76% (0.69)%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 1,835 $ 2,558 $ 2,945 $ 5,265
Ratio of operating expenses to average
net assets 1.30% 1.48%+ 1.51% 1.48%
Ratio of net investment income to
average net assets 5.78% 5.68%+ 5.94% 5.33%
Portfolio turnover rate 468% 199% 413% 56%
Ratio of operating expenses to average
net assets without waivers and/or
expense reimbursements 1.44% 1.63%+ 1.69% 1.69%
Net investment income per share without
waivers and/or expense reimbursements $ 0.54 $ 0.46 $ 0.55 $ 0.53
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 05/31/93*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.52
Net investment income 0.59
Net realized and unrealized gain/(loss)
on investments 0.02
Net increase/(decrease) in net asset
value from operations 0.61
Distributions:
Dividends from net investment income (0.63)
Dividends in excess of net investment
income --
Distributions in excess of net realized
capital gains (0.04)
Distributions from capital --
Total dividends and distributions (0.67)
Net asset value, end of period $ 10.46
Total return++ 5.37%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 5,998
Ratio of operating expenses to average
net assets 1.60%+
Ratio of net investment income to
average net assets 5.92%+
Portfolio turnover rate 103%
Ratio of operating expenses to average
net assets without waivers and/or
expense reimbursements 1.75%+
Net investment income per share without
waivers and/or expense reimbursements $ 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 charges.
# 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.
(a) Amount represents less than 0.01%.
(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>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97# 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of
period $ 9.93 $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.53 0.17 0.54 0.47 0.48
Net realized and unrealized
gain/(loss) on investments (0.20) (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net
asset value from operations 0.33 (0.12) 1.44 (0.42) 1.10
Distributions:
Dividends from net investment
income (0.53) (0.17) (0.54) (0.45) (0.48)
Distributions in excess of net
investment income -- -- -- (0.02) --
Distributions from net realized
capital gains (0.11) -- -- (0.34) (0.01)
Distributions from capital $ (0.00)(b) -- -- -- --
Total dividends and distributions (0.64) (0.17) (0.54) (0.81) (0.49)
Net asset value, end of period $ 9.62 $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ 3.38% (1.22)% 15.87% (4.14)% 11.20%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 1,068 $ 299 $ 227 $ 41 $ 65
Ratio of operating expenses to
average net assets 1.21%(c) 1.22%+ 1.21% 1.43% 1.36%
Ratio of net investment income to
average net assets 5.48% 4.99%+ 5.55% 4.68% 4.65%
Portfolio turnover rate 368% 133% 228% 307% 161%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.31%(c) 1.33%+ 1.31% 1.51% 1.52%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.52(c) $ 0.17 $ 0.53 $ 0.46 $ 0.47
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
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 --
Distributions from capital --
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.
# 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 income method did not accord with
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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
10
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97# 03/31/96(b) 11/30/95 11/30/94# 11/30/93#
Operating performance:
Net asset value, beginning of
period $ 10.42 $ 10.82 $ 9.67 $ 10.88 $ 9.96
Net investment income 0.63 0.21 0.66 0.67 0.70
Net realized and unrealized
gain/(loss) on investments (0.18) (0.40) 1.15 (1.06) 0.92
Net increase/(decrease) in net
asset value from operations 0.45 (0.19) 1.81 (0.39) 1.62
Distributions:
Dividends from net investment
income (0.63) (0.21) (0.66) (0.67) (0.70)
Distributions in excess of net
investment income -- -- -- (0.00)(a) --
Distributions from net realized
capital gains (0.13) -- -- (0.15) --
Total dividends and distributions (0.76) (0.21) (0.66) (0.82) (0.70)
Net asset value, end of period $ 10.11 $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ 4.44% (1.77)% 19.22% (3.77)% 16.65%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 3,343 $ 3,454 $ 3,582 $ 2,636 $ 3,633
Ratio of operating expenses to
average net assets 1.25%(c) 1.33%+ 1.55% 1.49% 1.30%
Ratio of net investment income to
average net assets 6.23% 5.93%+ 6.28% 6.56% 6.27%
Portfolio turnover rate 278% 69% 96% 144% 86%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.35%(c) 1.43%+ 1.68% 1.70% 1.70%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.63(c) $ 0.21 $ 0.65 $ 0.65 $ 0.64
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
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 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.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements and net investment income per share was less than 0.01% and
$0.01, respectively.
Objectives
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income consistent
with modest fluctuation of principal. The Fund invests primarily in
11
<PAGE>
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 high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-term
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 investing in investment grade
fixed income securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
NATIONS U.S. GOVERNMENT BOND FUND: Nations U.S. Government Bond Fund's
investment objective is to seek total return and preservation of capital by
investing in U.S. Government securities and repurchase agreements collateralized
by such securities.
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.
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
dollar-weighted maturity of the Fund will not exceed five years and the 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
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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 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 dollar-weighted maturity of the Fund's portfolio will be between three
and five 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-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.
The Fund also may invest in "high quality" money market instruments, 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, prevailing market or economic circumstances
warrant.
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 dollar-weighted maturity of the Fund's portfolio will be between three
and 10 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-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.
The Fund also may invest in "high quality" money market instruments, 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, prevailing market economic 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 fixed income securities. It is expected
that the average dollar-weighted maturity of the
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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-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. 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.
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,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 invest at least 65% of the total value of its assets in investment grade
debt obligations. It is expected that the average dollar-weighted maturity of
the Fund's portfolio will greater than five years.
The Fund may invest in corporate convertible and non-convertible debt
obligations; U.S. Government Obligations; dollar-denominated and
non-dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments; 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.
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
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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,
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 U.S. GOVERNMENT BOND FUND: Under normal market conditions, the Fund will
invest at least 65% of its total assets in U.S. Government securities and
repurchase agreements collateralized by such securities. While the maturity of
individual securities will not be restricted, except during temporary defensive
periods or unusual market conditions, the average weighted maturity of the Fund
will be between five and thirty years. The Fund may invest in a variety of U.S.
Government Obligations. The Fund may also invest in interests in the foregoing
securities, including collateralized mortgage obligations issued or guaranteed
by a U.S. Government agency or instrumentality. U.S. Government Obligations have
historically had a very low risk of loss of principal if held to maturity. The
Fund, however, can give no assurance that the U.S. Government would provide
financial support to its agencies or instrumentalities if it were not legally
required to do so.
The Fund may also invest up to 35% of its total assets in debt securities of
U.S. and foreign corporate and foreign government issuers, American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"), zero coupon bonds
and cash equivalents. The Fund will purchase only those non-government
investments which are rated investment grade or better by at least one NRSRO or,
if unrated, are determined by the Adviser to be of comparable quality. If a
portfolio security held by the Fund ceases to be rated investment grade by at
least one NRSRO or if the Adviser determines that an unrated portfolio security
held by the Fund is no longer of comparable quality to an investment grade
security, the security will be sold in an orderly manner as quickly as possible.
Additionally, the Fund may also invest in futures contracts, interest rate swaps
and options.
The value of the Fund's portfolio (and consequently its shares) is expected to
fluctuate inversely in relation to changes in the direction of interest rates.
For more information concerning these and other investments in which the Fund
may invest, see "Appendix A".
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.
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 and partnerships.
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
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purposes of determining the average weighted maturity and duration of the Funds.
For more information concerning these and other instruments in which the Funds
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: 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.
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 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 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. 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.
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Nations U.S. Government Bond Fund may not borrow money except as a temporary
measure for extraordinary or emergency purposes or except in connection with
reverse repurchase agreements and mortgage rolls; provided that the Fund will
maintain asset coverage of 300% for all borrowings.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without shareholder approval. Shareholders of Nations U.S.
Government Bond Fund, however, must receive at least 30 days' prior written
notice in the event an investment objective is changed. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their 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 SAI. 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. 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 gain 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 gain 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 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 B Shares (formerly Investor N 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. 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
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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 or by calling Nations Funds at
the toll-free number indicated on the cover of this Prospectus.
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 Funds 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 investment
sub-adviser to all of the Funds except Nations U.S. Government Bond Fund.
TradeStreet is a wholly owned subsidiary of NationsBank. TradeStreet provides
investment management services to individuals, corporations and institutions.
Boatmen's Capital Management, Inc. serves as investment sub-adviser to Nations
U.S. Government Bond Fund. Its principal offices are located at 100 North
Broadway, St. Louis, Missouri 63178-4737. Boatmen's is an independent subsidiary
of NationsBank Corporation, a registered bank holding company.
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 the Investment
Advisory Agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rate of .60% of the average daily net assets of
each of Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund, Nations Short-Intermediate Government Fund and
Nations U.S.
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Government Bond Fund; and .65% of the first $100 million of the Nations
Government Securities Fund's average daily net assets, plus .55% of the Fund's
average daily net assets in excess of $100 million and up to $250 million, plus
.50% of the Fund's average daily net assets in excess of $250 million.
For the services provided pursuant to sub-advisory agreements, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rate of .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.
NBAI will pay Boatmen's sub-advisory fees at the rate of .15% of the average net
assets of Nations U.S. Government Bond Fund.
From time to time, NBAI and/or TradeStreet and/or Boatmen's 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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Short-Intermediate Government Fund -- .40%, Nations Short-Term Income
Fund -- .30%, Nations Diversified Income Fund -- .50% and Nations Strategic
Fixed Income Fund -- .50%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Fund's average daily net assets:
Nations Government Securities Fund -- .50%.
For the fiscal period from September 1, 1996 to May 16, 1997, after waivers, the
Pilot Funds paid Boatmen's Trust Company, under a previous investment advisory
agreement, advisory fees at the rate of .40% of Nations U.S. Government Bond
Fund's (formerly the Pilot U.S. Government Securities Fund) average daily net
assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Short-Intermediate Government Fund -- .15%, Nations Short-Term Income
Fund -- .15%, Nations Diversified Income Fund -- .15% and Nations Strategic
Fixed Income Fund -- .15% and Nations Government Securities Fund -- .15%.
Brad Pope is a Product Manager, Fixed Income Management for TradeStreet and
Portfolio Manager for Nations Short-Term Income Fund. He is a senior member of
the Fixed Income Team. As such, his responsibilities include setting duration
policy for the Nations Funds fixed income funds. Mr. Pope has been the portfolio
manager for Nations Short-Term Income Fund since August 1996. Prior to assuming
this position, he was a manager in the structured products area. He joined the
Investment Management Group at NationsBank, TradeStreet's predecessor
organization, in 1988. Mr. Pope has over nine years of investment experience,
including working on the trading floor of the Chicago Board of Trade. Mr. Pope
received a B.B.A. in Finance from the University of Texas at Austin.
Mark S. Ahnrud 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 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
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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.
Christopher G. Gunster is a Portfolio Manager, Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Government Securities Fund. Mr.
Gunster has been the lead Portfolio Manager since July 1997. Prior to assuming
his position with TradeStreet, he was Assistant Vice President and Associate
Portfolio Manager for the Investment Management Group at NationsBank since 1993.
Mr. Gunster has worked in the investment community since 1987. His past
experience includes investment marketing for The Boston Company and options
trading for Shatkin Investments, a regional broker/dealer. Mr. Gunster received
a B.A. in Chemistry from Kenyon College and an M.B.A. in Finance from Babson
Graduate 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. Mr. Swaim has been Portfolio Manager for the 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.
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.
The Fixed Income Committee of Boatmen's is responsible for the day-to-day
management of the investment portfolio of Nations U.S. Government Bond Fund.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds 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 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
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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.
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 .10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Short-Intermediate
Government Fund -- .10%, Nations Short-Term Income Fund -- .10%, Nations
Diversified Income Fund -- .10% and Nations Strategic Fixed Income Fund -- .10%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Fund's average daily net assets: Nations Government Securities
Fund -- .10%.
NationsBank serves as sub-administrator for Nations Funds 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. Nations Funds
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 C Shares. See "Shareholder Servicing And Distribution
Plans."
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") 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 to the Nations Funds Family, NationsBank
of Texas is entitled to receive, in addition to out-of-pocket expenses, fees at
the rate of (i) $300,000 per annum, to be paid monthly in payments of $25,000
for custodian services for up to and including 50 Funds; and (ii) $6,000 per
annum, to be paid in equal monthly payments, for custodian services for each
additional Fund above 50 Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all the Funds. BONY is located at 90 Washington Street, New York, New York
10286. In return for providing sub-custodial services, BONY receives, in
addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market 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 Funds. Their
address is 160 Federal Street, Boston, Massachuetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. Each Fund's
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expenses include, but are not limited to: fees paid to the Adviser, 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, Stephens or First Data under their respective
agreements with Nations Funds; and any extraordinary expenses. Investor C Shares
may bear certain class specific 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.
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family
currently has more than 52 distinct investment portfolios and total assets in
excess of $27 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 B (formerly Investor N
Shares), Investor C, 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 Funds 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, 1997, 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
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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 420,000,000,000 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 to the Investor
C Shares of Nations Government Securities Fund and Nations U.S. Government Bond
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 Funds 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, 1997, 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.
PENDING LEGAL PROCEEDINGS: A purported class action lawsuit against, among
others, Nations Government Securities Fund and Nations Short-Intermediate
Government Fund was filed by Lawrence Bergelt on May 21, 1996. The complaint was
amended and consolidated on July 11, 1996 in the United States District Court
for the Middle District of Florida, Tampa Division by Mr. Bergelt and others in
an action against the two funds, NationsBank Corporation and certain of its
affiliates, Dean Witter Distributors and certain of its affiliates, and Stephens
Inc. (Case No. 94-995-Civ.-T-23E). As relevant to
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Nations Government Securities Fund and Nations Short-Intermediate Government
Fund, plaintiffs allege that, among other things, defendants violated the
Securities Exchange Act of 1934 and various state securities fraud statutes by
employing a scheme to defraud plaintiffs into purchasing shares of the funds and
making untrue statements of material fact and omitting to state material facts
in connection with sales of shares of the funds. Plaintiffs further allege that,
among other things, defendants concealed the risks associated with such funds by
blurring the distinctions between banks and non-bank subsidiaries and by
obscuring the differences between traditional, federally insured bank products
and uninsured, non-depository products.
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 servicing agreement ("Servicing Agreement") with NationsBank ("Servicing
Agents") and/or a sales support agreement ("Sales Support Agreement" with
Stephens ("Selling Agents").
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"), Savings Incentives Method Plans for Employees
("SIMPLE IRAs"), salary reduction-Individual Retirement Accounts ("SAR-IRAs"),
or similar types of accounts. However, the assets of such plans must reach an
asset value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs 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 Funds 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").
The Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("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 Funds may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Funds and Stephens reserve 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.
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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 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 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 Funds.
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 which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or the last day of the applicable month. Subject
to certain exceptions for employees of NationsBank and its affiliates and pre-
existing SIP accounts, the systematic investment amount may be in any amount
from $50 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 Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
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 Funds. 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
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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 Funds 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 Funds 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 Funds have previously been
made. Nations Funds 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 C Shares purchased prior to August 1, 1997 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 if such shares are redeemed within one year 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.
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) payments made to
pay medical expenses which exceed 7.5% of income and distributions to pay for
insurance by an individual who has separated from employment and who has
received unemployment compensation under a federal or state program for at least
12 weeks; (iv) effected pursuant to Nations Funds' 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, (v) in connection with the combination of Nations Funds with any other
registered investment company by merger, acquisition of assets or by any other
transaction, and (vi) 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 Funds 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.
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REINSTATEMENT PRIVILEGE: 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 the Funds if the value of the
Investor C Shares in his/her accounts within the Nations Funds 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 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 Funds at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Funds non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Funds or Daily Shares of any Nations
Funds 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 Funds non-money market fund or Daily Shares of a
Nations Funds 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, which will be subject to the CDSC schedule applicable
to the acquired Fund). Additionally, when an investor exchanges Investor C
Shares of a Nations Funds non-money market fund for shares of the same class of
another non-money market fund or Daily Shares of any money market fund of
Nations Funds, 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.
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The Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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 Automatic Exchange Feature, which is described
below). Nations Funds and Stephens reserve 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.
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 Funds to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or the last 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 or Nations Funds.
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
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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 Funds 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 Funds 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 Funds 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 Funds. The Sales Support
Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Funds 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.
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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, Martin Luther King, Jr. 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. Accordingly, dividends and distributions on newly
purchased shares represent, in substance, a return of capital. However, such
dividends and distributions would nevertheless be taxable. Certain Selling and
Servicing Agents may provide for the reinvestment of dividends in the form of
additional Investor Shares of the same class in the same Fund. Dividends and
distributions are paid in cash within five Business Days of the end of the month
or quarter to which the dividend relates. Dividends and distributions payable to
a shareholder are paid in cash within five Business Days after a shareholder's
complete redemption of his/her Investor C Shares.
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 rein-
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vested 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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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 withold tax on dividends, distributions and proceeds from the disposition of
Fund shares paid to certain foreign shareholders.
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 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 mar-
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ket 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 the Government National Mortgage
Association, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. Such Certificates are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage loans issued by
lenders such as mortgage bankers, commercial banks and savings and loan
associations. Such mortgage loans may have fixed or adjustable rates of
interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities
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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. For additional information concerning
mortgage-backed securities, see the related SAI.
Mortgage-backed securities in which the Funds invest are subject to extension
risk. This is the risk that when interest rates rise, prepayments of the
underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the Funds
also may be subject to credit risk. Credit risk is the risk that the issuers of
securities in which a Fund invests may default in the payment of principal
and/or interest. Any such defaults or adverse changes in an issuer's financial
condition or credit rating may adversely affect the value of the Funds'
portfolio investments and, hence, the value of your investment in the
corresponding Fund.
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 obliga-
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tions 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 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. Pursuant to line of credit arrangements, certain of the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.
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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 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
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interest rate, and variable- and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Each Fund 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: Each Fund 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.
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 income (including interest, distributions and disposition
proceeds), 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
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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.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Each Fund 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
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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 under the 1933 Act, or which
were issued under Section 4(2) of 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 or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, 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
down-
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turn 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 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
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<PAGE>
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.
Pursuant to an exemptive order, the Nations' Non-Money Market Funds may purchase
shares of Nations' Money Market Funds.
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 Funds.
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 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase
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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. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. 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, some 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; 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. 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.
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 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 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-
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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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Prospectus
INVESTOR C SHARES
AUGUST 1, 1997
This Prospectus describes four equity
portfolios -- NATIONS INTERNATIONAL EQUITY FUND,
NATIONS INTERNATIONAL GROWTH 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 Funds Family
("Nations Funds" or "Nations Funds 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 Funds at its address or telephone number
shown below. The SAIs for Nations Fund, Inc. and
Nations Portfolios, each dated August 1, 1997, are
incorporated by reference in their entirety into
this Prospectus. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAIs,
material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. Gartmore Global
Partners ("Gartmore") is investment sub-adviser to
the Funds. As used herein the term "Adviser" shall
mean NBAI and/or Gartmore as the context may
require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
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.
NF-96143-897
Nations International
Equity Fund
Nations International
Growth Fund
Nations Emerging
Markets Fund
Nations Pacific
Growth Fund
Nations Global
Government Income Fund
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Funds logo
appears here)
<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 16
How The Funds Are Managed 19
Organization And History 23
About Your Investment
How To Buy Shares 24
How To Redeem Shares 26
How To Exchange Shares 27
Shareholder Servicing And Distribution Plans 28
How The Funds Value Their Shares 30
How Dividends And Distributions Are Made;
Tax Information 30
Appendix A -- Portfolio Securities 32
Appendix B -- Description Of Ratings 37
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY NATIONS FUNDS OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY NATIONS FUNDS 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 regions, including
developing countries.
(Bullet) Nations International Growth Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of companies domiciled in countries outside the
United States and listed on major stock exchanges primarily in
Europe and the Pacific Basin.
(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 market 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 seek 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 52
investment company portfolios in the Nations Funds 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. Dividends from net investment income are declared and paid
annually by Nations International Growth Fund. 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>
<S> <C> <C> <C> <C>
Nations Nations
International International Nations Emerging Nations Pacific
Equity Fund Growth Fund Markets Fund Growth Fund
SHAREHOLDER TRANSACTION EXPENSES
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
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .90% .90% 1.10% .90%
Rule 12b-1 Fees (After Fee Waivers) .75% .75% .75% .75%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses .26% .22% .64% .52%
Total Operating Expenses (After Fee Waivers) 2.16% 2.12% 2.74% 2.42%
<CAPTION>
Nations Global
Government
Income Fund
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 (After Fee Waivers) .60%
Shareholder Servicing Fees .25%
Other Expenses .56%
Total Operating Expenses (After Fee Waivers) 2.11%
</TABLE>
(1) Investor C Shares purchased prior to August 1, 1997 will continue to be
subject to the .50% Deferred Sales Charge 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 C Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
International International Emerging Markets Pacific Growth
Equity Fund Growth Fund Fund Fund
1 Year $ 22 $ 22 $ 28 $ 25
3 Years $ 68 $ 66 $ 85 $ 75
5 Years $ 116 $ 114 $ 145 $ 129
10 Years $ 249 $ 245 $ 307 $ 276
<CAPTION>
Nations Global
Government
Income Fund
1 Year $ 21
3 Years $ 66
5 Years $ 113
10 Years $ 244
</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 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. 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, "Rule 12b-1 Fees" and "Total Operating Expenses" for
Investor C Shares of Nations Global Government Income Fund would have been .75%
and 2.26%, 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 financial information on the following pages has been derived from the
audited 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. Financial Highlights for Investor C Shares of
Nations International Growth Fund are not provided below because such Fund's
share class had not yet commenced operation during the period indicated below.
5
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/97# 03/31/96(a)# 05/31/95# 05/31/94#
Operating performance:
Net asset value, beginning of
period $ 13.13 $ 11.45 $ 11.86 $ 10.49
Net investment income/(loss) 0.02 (0.03) 0.02 (0.03)
Net realized and unrealized
gain/(loss) on investments 0.10 1.75 (0.21) 1.43
Net increase/(decrease) in net
asset value from operations 0.12 1.72 (0.19) 1.40
Distributions:
Dividends from net investment
income (0.06) -- -- (0.01)
Distributions in excess of net
investment income (0.00)** (0.02) -- --
Distributions from net realized
capital gains (0.42) (0.02) (0.12) (0.02)
Distributions in excess of net
realized capital gains (0.03) -- (0.10) --
Total dividends and distributions (0.51) (0.04) (0.22) (0.03)
Net asset value, end of period $ 12.74 $ 13.13 $ 11.45 $ 11.86
Total return++ 0.77% 15.09% (1.56)% 13.21%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 988 $ 652 $ 495 $ 339
Ratio of operating expenses to
average net assets 1.66% 2.09%+ 2.03% 2.17%
Ratio of net investment
income/(loss) to average net
assets 0.12% (0.27)%+ 0.17% (0.25)%
Portfolio turnover rate 36% 26% 92% 39%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements -- 2.10%+ 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) $ 0.0279 $ 0.0272 -- --
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 05/31/93*#
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>
<S> <C> <C>
YEAR PERIOD
ENDED ENDED
INVESTOR C SHARES 03/31/97# 03/31/96*#
Operating Performance:
Net asset value, beginning of period $ 10.27 $ 10.00
Net investment income/(loss) (0.04) (0.10)
Net realized and unrealized gain/(loss) on investments 1.20 0.37
Net increase/(decrease) in net asset value from operations 1.16 0.27
Dividends from net investment income (0.01) --
Distributions in excess of net investment income (0.02) --
Distributions from net realized capital gains (0.06) --
Total dividends and distributions (0.09) --
Net asset value, end of period $ 11.34 $ 10.27
Total return++ 11.34% 2.70%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 226 $ 23
Ratio of operating expenses to average net assets 2.24% 3.02%+
Ratio of net investment income to average net assets (0.37)% (1.27)%+
Portfolio turnover rate 31% 17%
Average commission rate paid (a) $ 0.0003 $ 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>
<S> <C> <C>
YEAR PERIOD
ENDED ENDED
INVESTOR C SHARES 03/31/97 03/31/96*#
Operating Performance:
Net asset value, beginning of period $ 10.20 $ 10.00
Net investment income/(loss) 0.00** (0.09)
Net realized and unrealized gain/(loss) on investments 0.14 0.29
Net increase/(decrease) in net asset value from operation 0.14 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 $ 10.34 $ 10.20
Total return++ 1.57% 2.00%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 102 $ 60
Ratio of operating expenses to average net assets 1.92% 2.65%+
Ratio of net investment income/(loss) to average net assets (0.11)% (1.16)%+
Portfolio turnover rate 78% 23%
Average commission rate paid (b) $ 0.0126 $ 0.0178
</TABLE>
* Nations Pacific Growth Fund Investor C Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect 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>
<S> <C> <C>
YEAR PERIOD
ENDED ENDED
INVESTOR C SHARES 03/31/97# 03/31/96*
Operating Performance:
Net asset value, beginning of period $ 10.07 $ 10.00
Net investment income 0.42 0.33
Net realized and unrealized gain/(loss) on investments (0.03) 0.11
Net increase in net asset value from operations 0.39 0.44
Distributions:
Dividends from net investment income (0.42) (0.31)
Distributions in excess of net investment income (0.09) (0.02)
Distributions from net realized capital gains (0.16) (0.04)
Total dividends and distributions (0.67) (0.37)
Net asset value, end of period $ 9.79 $ 10.07
Total return++ 3.73% 4.40%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 9 $ 9
Ratio of operating expenses to average net assets 1.76% 2.16%+
Ratio of net investment income to average net assets 4.10% 4.33%+
Portfolio turnover rate 100% 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 regions, including developing countries.
NATIONS INTERNATIONAL GROWTH FUND: Nations International Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of companies domiciled in countries outside the United
States and listed on major stock exchanges primarily in Europe and the Pacific
Basin.
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 market 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 seek 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
9
<PAGE>
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"), Global
Depositary Receipts ("GDRs"), 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 approved by the Commodity Futures Trading Commission (the "CFTC") and
options thereon for market 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, repurchase
agreements, and securities issued by other investment companies, consistent with
the Fund's investment objective and policies. See "Appendix A" for additional
information concerning the investment practices of the Fund.
NATIONS INTERNATIONAL GROWTH FUND: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in foreign equity securities listed on major exchanges, consisting of common
stocks, preferred stocks and convertible securities, such as warrants, rights
and convertible debt. The Fund may purchase the stock of small-, mid- and
large-capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Directors, the former Soviet Union and the
Middle East. Debt securities, if any, purchased by the Fund will be rated in the
top two categories by a nationally recognized statistical rating organization
("NRSRO"), or, if unrated, determined by the Adviser to be of comparable
quality. For temporary defensive purposes, the Fund may invest up to 100% of its
assets in debt and equity securities of U.S. issuers. Debt securities in which
the Fund may invest include short-term and intermediate-term obligations of
corporations, foreign governments and international organizations (such as the
International Bank for Reconstruction and Development (the "World Bank")), and
money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
10
<PAGE>
securities lending, forward foreign exchange contracts and repurchase
agreements. For more information concerning these and other permissible Fund
investments, see "Appendix A".
The 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. The Fund also may lend its
portfolio securities to qualified institutional investors and may invest in
restricted, private placement and other illiquid securities. Additionally, the
Fund may invest in ADRs, GDRs, EDRs and ADSs, as well as purchase 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" 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 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 market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the 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, 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
11
<PAGE>
"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 to enhance return 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, repurchase agreements, and 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" 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 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 speci-
12
<PAGE>
fied 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 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, repurchase
agreements, and 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" 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 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 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
13
<PAGE>
pay principal and interest on their debt obligations.
The Fund also may invest in money market instruments and 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 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, repurchase
agreements, and 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" 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 of which investors
should be aware.
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 well
capitalized and thus securities of issuers based in such countries may be less
liquid.
The above risk considerations are also relevant to an investment in Nations
International Growth Fund.
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,
14
<PAGE>
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. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate will not exceed 100% for Nations International Growth
Fund.
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.
3. Nations International Equity Fund, Nations International Growth 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.
4. Nations International Growth Fund may not borrow money except as a temporary
measure and then only in amounts not exceeding 5% of
15
<PAGE>
the value of the Fund's total assets or from banks or in connection with reverse
repurchase agreements provided that immediately after such borrowing, all
borrowings of the Fund do not exceed one-third of the Fund's total assets and no
purchases of portfolio instruments will be made while such Fund has borrowings
outstanding in an amount exceeding 5% of its total assets.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without shareholder approval. Shareholders of Nations
International Growth Fund, however, must receive at least 30 days' prior written
notice in the event an investment objective is changed. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current 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 SAI. 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 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 gain 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 gain 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.
Set forth below is certain performance data for the Pacific Ex-Japan Composite,
the Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite,
reflecting the performance of private accounts, including U.K. authorized unit
trusts, managed by Gartmore plc, as defined below. The performance data for
these accounts is deemed relevant because the Pacific Ex-Japan Composite, the
Emerging Markets Composite and the Global Government Bond Ex-U.K. Composite have
investment objectives, policies and restrictions that are substantially similar
to those of Nations Pacific Growth Fund, Nations Emerging Markets Fund and
Nations Global Government Income Fund, respectively. There is substantial
continuity between the portfolio managers of Gartmore plc who were responsible
for managing those accounts and the portfolio managers of Gartmore who are
responsible for managing Nations Pacific Growth Fund, Nations Emerging Markets
Fund and Nations Global Government Income Fund, respectively. THIS PERFORMANCE
DATA REPRESENTS PAST PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF THE FUTURE
PERFORMANCE OF GARTMORE OR THE FUNDS.
16
<PAGE>
PACIFIC EX-JAPAN COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
One Year Two Years Three Years Four Years
Pacific Ex-Japan
Composite 3.95% 8.44% 7.79% 17.11%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Index(diamond) -2.44% 8.58% 7.08% 15.62%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
Inception
Five Years Six Years Seven Years (1/1/88)
Pacific Ex-Japan
Composite 18.84% 18.08% 14.79% 20.42%
Morgan Stanley
Capital Int'l.
Combined
Far East
(Ex-Japan)
Free Index(diamond) 16.69% 16.61% 15.77% 19.02%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Morgan Stanley
Capital
International
Pacific Combined Far East
Ex-Japan (Ex-Japan)
Composite Free Index(diamond)
1988 11.9% 30.0%
1989 58.40% 32.1%
1990 0.0% -6.5%
1991 22.1% 31.0%
1992 22.9% 21.8%
1993 110.0% 103.4%
1994 -13.9% -17.5%
1995 4.0% 8.8%
1996 13.5 11.1
</TABLE>
* The average annual total returns and annual total returns are net of fees.
The fees for these accounts were 1% per annum until September 30, 1988, and
1.5% per annum thereafter. The accounts are not subject to certain investment
limitations, diversification requirements, and other restrictions imposed by
the 1940 Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance results of the accounts.
(diamond) The Morgan Stanley Capital International Combined Far East (Ex-Japan)
Free Index is a capitalization-weighted index that tracks 7 countries
and represents only those securities that are available for investment
by international investors; many issues are still restricted to
domestic investors in certain Pacific Basin countries.
EMERGING MARKETS COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Four Years
Since
Inception
One Year Two Years Three Years 1/1/93
Emerging Markets
Composite 16.2% 11.1% -1.8% 10.2%
IFC Investables
Index(diamond) 11.4% 13.4% 3.1% 13.39%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Emerging
Markets IFC Investables
Composite Index(diamond)
1993 76.5% 79.6%
1994 -19.0% -12.0%
1995 -11.3% -8.5%
1996 13.0% 9.4%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (1/1/93) and are net of fees. The fees for these
accounts were 1.5% per annum. The accounts are not subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the 1940 Act and the Internal Revenue Code, which, if applicable,
may have adversely affected the performance results of the accounts.
(diamond) The IFC Investables Index includes over 1,100 stocks representing 27
stock markets in developing countries, and reflects the accessibility
of markets and individual stocks for foreign ownership.
17
<PAGE>
GLOBAL GOVERNMENT BOND
EX-U.K. COMPOSITE
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
One Year Two Years Three Years
Global
Government
Bond
Ex-U.K.
Composite** -1.2% 4.4% 6.1%
J.P. Morgan
Global
Government
Bonds Index(diamond) 1.0% 3.9% 6.5%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS INDICATED THROUGH MARCH 31, 1997*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Since
Inception
Four Years Five Years 10/1/90
Global Government
Bond Ex-U.K.
Composite** 6.2% 8.4% 10.31%
J.P. Morgan
Global
Government Bonds
Index(diamond) 6.5% 7.9% 8.97%
</TABLE>
ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
<S> <C> <C>
Global J.P. Morgan
Government Global
Bond Ex-U.K. Government
Composite Bonds Index(diamond)
1991 20.8% 16.0%
1992 4.8% 5.2%
1993 15.0% 11.6%
1994 -0.9% 1.5%
1995 22.8% 19.6%
1996 0.6% 3.5%
</TABLE>
* The average annual total returns and annual total returns have been
calculated since inception (10/1/90) and are net of fees. The fees on these
accounts varied by contractual agreement and have been assumed to be 1.5% per
annum. The accounts are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act
and the Internal Revenue Code, which, if applicable, may have adversely
affected the performance results of the accounts.
** The accounts of the Global Government Bond Ex-U.K. Composite do not invest in
securities of U.K. issuers, which are permissible investments for Nations
Global Government Income Fund. However, inclusion of such securities, to the
extent of their representation in the J.P. Morgan Global Government Bond
Index, would not have materially affected their total returns.
(diamond) The J.P. Morgan Global Government Bonds Index is a
capitalization-weighted index that tracks government bonds issued
in 13 countries located in the United States, Europe and the Far East.
Set forth below is the average annual total return and annual total return for
Nations International Equity Fund for the periods ending March 31, 1997:
NATIONS INTERNATIONAL
EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
INDICATED THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Since
Inception
One Year Three Years Five Years on 12/2/91
Nations
International
Equity Fund 1.32% 6.23% 8.24% 7.10%
Morgan Stanley
Capital
International
EAFE Index(diamond) 1.46% 6.53% 10.57% 6.01%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C>
Morgan Stanley
Nations Capital
International International
Equity Fund EAFE Index(diamond)
1992 -8.6% -12.2%
1993 27.21% 32.6%
1994 2.6% 7.8%
1995 8.5% 11.2%
1996 8.5% 6.1%
</TABLE>
(diamond) The Morgan Stanley Capital International EAFE Index represents an
unmanaged index used to portray the pattern of common stock price
movement in Europe, Australia and the Far East.
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
18
<PAGE>
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 B Shares (formerly Investor N 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. 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 or by calling Nations
Funds at the toll-free number indicated on the cover of this Prospectus.
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 Funds 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 investment sub-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.
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 commis-
19
<PAGE>
sion 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: .90% of each of Nations International
Equity Fund's, Nations International Growth 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 .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 .70% of Nations International Equity Fund's
average daily net assets; .85% of Nations Emerging Markets Fund's average daily
net assets; .70% of Nations Pacific Growth Fund's average daily net assets; and
.54% of Nations Global Government Income Fund's average daily net assets. For
services provided and expenses assumed, Gartmore is entitled to receive from
NBAI sub-advisory fees, computed daily and paid monthly, at the annual rate of
.40% of Nations International Growth Fund's average daily net assets up to and
including $325,000,000 in assets and .25% on assets in excess of $325,000,000.
As of the date of this prospectus, the Board of Directors has approved, and
recommended to shareholders that they approve, an increase in the fees to be
paid by NBAI to Gartmore to .70% of Nations International Growth Fund's average
daily net assets. This increase will be implemented as soon as practicable
following receipt of shareholder approval.
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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Fund's average daily net assets:
Nations International Equity Fund -- .90%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Fund's average daily net assets:
Nations Emerging Markets Fund -- 1.10%, Nations Pacific Growth Fund -- .90% and
Nations Global Government Income Fund -- .70%.
For the fiscal period from September 1, 1996 to May 16, 1997, after waivers, the
Pilot Funds paid Boatmen's Trust Company, under a previous investment advisory
agreement, advisory fees at the rate of .48% of Nations International Growth
Fund's (formerly the Pilot International Equity Fund) average daily net assets.
During the same period, after waivers, the Pilot Funds paid Kleinwort Benson
Investment Management Americas Inc., under a previous sub-advisory agreement,
sub-advisory fees at the rate of .32% of Nations International Growth Fund's
average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid Gartmore under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Emerging Markets Fund -- .85%, Nations Pacific Growth Fund -- .70%, Nations
Global Government Income Fund -- .54% and Nations International Equity
Fund -- .70%.
Philip Ehrmann is Principal Portfolio Manager of Nations Emerging Markets Fund
and is the Head of the Gartmore Emerging Markets Team. He has been the Portfolio
Manager for the Fund since 1995. Prior to joining Gartmore in 1995, Mr. Ehrmann
was the Director of Emerging Markets for Invesco in London. He began his career
in 1981 as an institutional stockbroker with Rowe & Pitman Inc. and also spent a
brief period with Prudential Bache Securities as an institutional salesman
before joining Invesco in 1984. Mr. Ehrmann graduated from the London School of
Economics with a degree in Economics, Industry and Trade.
Mark Rimmer is Principal Portfolio Manager of the Nations Global Government
Income Fund
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and has been the Portfolio Manager since the Fund's inception. He has been
associated with Gartmore since 1990 as an International Fixed Income Fund
Manager. Previously, Mr. Rimmer managed multi-currency funds for institutional
clients at Gulf International Bank in Bahrain, and prior to that he was a senior
trader for Sumitomo Finance International, London. He graduated from Cambridge
University with a degree in Economics.
Seok Teoh is Principal Portfolio Manager of Nations Pacific Growth Fund and has
been the Portfolio Manager since the Fund's inception. She has been associated
with Gartmore since 1990 as the London based manager on its Far East Team.
Previously, Ms. Teoh managed Far East equities for Rothschild Asset Management
in Tokyo and in Singapore. She was also responsible for Singaporean and
Malaysian equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh,
who is a native of Singapore, is fluent in Mandarin and Cantonese and received
an Economics degree from the University of Durham.
Stephen Watson is Principal Portfolio Manager of Nations International Equity
Fund and has been the Portfolio Manager since February, 1995. He joined Gartmore
as a Global Fund Manager in 1993 and currently holds the position of Head of the
International and Global Portfolio Team. Previously, Mr. Watson was a director
and global fund manager with James Capel Fund Managers, London, as well as
Client Services Manager for international clients. From 1980 to 1987 he was
associated with Capel-Cure Myers in their Portfolio Management Division. He
began his career in 1976 when he joined the investment division at Samuel
Montagu. Mr. Watson is a member of the Securities Institute.
Brian O'Neill is the Principal Senior Investment Manager of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Fund since July, 1997. Mr. O'Neill joined Gartmore as a Senior Investment
Manager on the Global Portfolio Team in 1981 with responsibility for a variety
of specialized global funds, including resource funds. Mr. O'Neill began his
career with Royal Insurance in 1970 as an investment analyst specializing in
United Kingdom research. He then expanded his field of expertise to include
management of global equities, and in 1978 he moved to Antony Gibbs & Sons where
he was appointed as a fund manager, specializing in global equities. Mr. O'Neill
graduated from Glasgow University in 1969 with a MA Honours degree in Political
Economy.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds 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 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 Nations Funds pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First
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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 .10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Fund's average daily net assets: Nations International Equity
Fund -- .10%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Portfolios paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Emerging Markets
Fund -- .10%, Nations Pacific Growth Fund -- .10% and Nations Global Government
Income Fund -- .10%.
NationsBank serves as sub-administrator for Nations Funds 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. Nations Funds
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 Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. Each Fund's expenses include, but are not limited to:
fees paid to the Adviser, 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, Stephens or First Data under their respective agreements with Nations
Funds; and any extraordinary expenses. Investor C Shares may bear certain class
specific 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 Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Portfolios, Nations Institutional
Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family currently has
more than 52 distinct investment portfolios and total assets in excess of $27
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 420,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of Nations International Equity Fund and Nations International
Growth 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 Agent
(as defined below) or Nations Funds 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, 1997, 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 Funds 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 cred-
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itors, (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, 1997, 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 shareholder servicing agreement ("Servicing Agreement") with Nations
Funds ("Servicing Agents") and/or a sales support agreement ("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"), Savings Incentives Method Plans for Employees
("SIMPLE IRAs"), salary reduction-Individual Retirement Account ("SAR-IRAs"), or
similar types of accounts. However, the assets of such plans must reach an asset
value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs 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 Funds reserves the right to redeem
the shares held by such plans on 60 days' written notice.
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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").
The Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("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 Funds may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Funds and Stephens reserve 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 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 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 Funds.
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 which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or the last day of the applicable month. Subject
to certain exceptions for employees of NationsBank and its affiliates and pre-
existing SIP accounts, the systematic investment amount may be in any amount
from $50 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 Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
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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 Funds. 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 Funds 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 Funds 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 Funds have previously been
made. Nations Funds 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 C Shares purchased prior to August 1, 1997 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 if such shares are redeemed within one year 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.
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) payments made to pay medical expenses which
exceed 7.5% of income and distributions to pay for insurance
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by an individual who has separated from employment and who has received
unemployment compensation under a federal or state program for at least 12
weeks, (iv) effected pursuant to Nations Funds' 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, (v) in connection with the combination of Nations Funds with any other
registered investment company by merger, acquisition of assets or by any other
transaction, and (vi) 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.
REINSTATEMENT PRIVILEGE: 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 the Funds if the value of the
Investor C Shares in his/her accounts within the Nations Funds 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 Funds at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Funds non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Funds or Daily Shares of any Nations
Funds 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 Funds non-money market fund or Daily Shares of a
Nations Funds 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
Funds non-money market
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fund for shares of the same class of another non-money market fund or Daily
Shares of any money market fund of Nations Funds, 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.
The Funds and each of the other funds of Nations Funds 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 Funds 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 Funds 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 Automatic Exchange Feature, which is decribed
below). Nations Funds and Stephens reserve 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.
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 Funds to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or the last 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 or Nations Funds.
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
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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 Funds 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
.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 Funds 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 Funds 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 Funds. The Sales Support
Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Funds 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 .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
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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, Martin Luther King, Jr. 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. Dividends from net
investment income are declared and paid annually by Nations International Growth
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. A dividend or distribution on newly purchased shares
would therefore represent, in substance, a return of capital. However, such
dividend or distribution would nevertheless be taxable. 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
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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 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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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 tax on dividends, distributions and proceeds from the disposition of
Fund shares paid to certain foreign shareholders.
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, if more than 50% of
the value of the total assets of each of those Funds consists of securities of
foreign issuers, it may elect to "pass through" to its shareholders these
foreign taxes, if any. Upon such an election, 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. Each Fund (except Nations International
Growth Fund) will limit its investments in bank obligations so they do not
exceed 25% 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. Pursuant to line of credit arrangements, the Funds may
borrow 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.
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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 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 income (including interest, distributions and disposition
proceeds), 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.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs, in registered
form, are designed for use in the U.S. securities markets. GDRs are designed for
use in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
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, or which were issued under Section
4(2) of the 1933 Act, Rule 144A under the 1933 Act. Any such security will not
be considered illiquid so long as
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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 or other buyers cease
purchasing such restricted securities pursuant to Rule 144A or otherwise, 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: 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 the Fund to value its portfolio securities, and the
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.
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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.
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.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
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 Funds.
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 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
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
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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. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. 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, some 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; 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. 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-
37
<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 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.
38
<PAGE>
("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 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
39
<PAGE>
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.
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
40
<PAGE>
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.
41
<PAGE>
Prospectus
DAILY SHARES
AUGUST 1, 1997
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 Funds Family ("Nations Funds" or "Nations
Funds Family"). This Prospectus describes one class
of shares of each Money Market Fund -- Daily Shares
(formerly named Investor D 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 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 Daily 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 Funds at its
address or telephone number shown below. The SAIs
dated August 1, 1997 are incorporated by reference
in their entirety into this Prospectus. The SEC
maintains a Web site (http://www.sec.gov) that
contains the SAIs, material incorporated by
reference in this Prospectus and other information
regarding registrants that file electronically with
the SEC. NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the term "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
SHARES OF NATIONS FUNDS 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
SERVICES TO NATIONS FUNDS, 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 FUNDS.
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 Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Funds Logo Appears here)
NF-96148-897
<PAGE>
Table Of Contents
About The Funds Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 9
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 17
How To Redeem Shares 19
How To Exchange Shares 21
Shareholder Servicing And Distribution Plans 22
How The Funds Value Their Shares 23
How Dividends And Distributions Are Made; Tax
Information 24
Appendix A -- Portfolio Securities 25
Appendix B -- Description Of Ratings 32
2
<PAGE>
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 FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS 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 52
investment company portfolios in the Nations Funds 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 Daily 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
Daily Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
DAILY SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Nations Nations Treasury Government Money
SHAREHOLDER TRANSACTION EXPENSES Prime Fund Fund Market Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Charge .00%1 .00%1 .00%1
<CAPTION>
Nations
Tax Exempt
SHAREHOLDER TRANSACTION EXPENSES Fund
Sales Load Imposed on Purchases None
Deferred Sales Charge .00%1
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .16% .16% .14%
(as a percentage of average net assets)
Rule 12b-1 Fees (After Fee Waivers) .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses .14% .14% .16%
Total Operating Expenses (After Fee Waivers) .80% .80% .80%
<CAPTION>
Management Fees (After Fee Waivers) .16%
<S> <C>
Rule 12b-1 Fees (After Fee Waivers) .25%
Shareholder Servicing Fees .25%
Other Expenses .14%
Total Operating Expenses (After Fee Waivers) .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 Daily 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 $ 8 $ 8 $ 8
3 Years $26 $26 $26
5 Years $44 $44 $44
10 Years $99 $99 $99
<CAPTION>
Nations
Tax Exempt
Fund
1 Year $ 8
3 Years $26
5 Years $44
10 Years $99
</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 contained in the
above table are based on amounts incurred during the Funds' 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/or reimbursements will
continue. In particular, to the extent other expenses are less than expected,
waivers and/or reimbursements of management fees, if any, may
4
<PAGE>
decrease. Shareholders will be notified of any decrease that materially
increases Total Operating Expenses. 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 of Securities Dealers, Inc.
For more complete descriptions of the Funds' operating expenses, see "How The
Funds Are Managed."
Absent fee waivers, "Management Fees," "Rule 12b-1 Fees" and "Total Operating
Expenses" for Daily Shares of the indicated Fund would have been as follows:
Nations Prime Fund -- .20%, .45% and 1.04%, respectively; Nations Treasury
Fund -- .20%, .45% and 1.04%, respectively; Nations Government Money Market
Fund -- .40%, .45% and 1.26%, respectively; and Nations Tax Exempt Fund -- .40%,
.45% and 1.24%, 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 following financial information on the following pages has been derived from
the audited 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.
5
<PAGE>
FOR A DAILY SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD PERIOD
ENDED ENDED ENDED
DAILY SHARES 03/31/97 03/31/96(a) 05/31/95*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0470 0.0439 0.0173
Distributions from net investment income (0.0470) (0.0439) (0.0173)
Total dividends and distributions $ (0.0470) $ (0.0439) $ (0.0173)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.80% 4.49% 1.74%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 9,010 $ 40 $ 2
Ratio of operating expenses to average net assets 0.80% 0.67%+ 0.55%+
Ratio of net investment income to average net assets 4.71% 5.25%+ 4.98%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.85% 0.74%+ 0.63%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0466 $ 0.0434 $ 0.0165
</TABLE>
* Nations Prime Fund Daily 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 A DAILY SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD PERIOD
ENDED ENDED ENDED
DAILY SHARES 03/31/97 03/31/96(a) 05/31/95*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0455 0.0404 0.0167
Distributions from net investment income (0.0455) (0.0404) (0.0167)
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.0455) (0.0404) (0.0167)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.66% 4.09% 1.67%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 16,323 $ 2 $ 2
Ratio of operating expenses to average net assets 0.80% 0.64%+ 0.55%+
Ratio of net investment income to average net assets 4.59% 5.18%+ 4.74%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.85% 0.71%+ 0.60%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0450 $ 0.0399 $ 0.0162
</TABLE>
* Nations Treasury Fund Daily 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.
7
<PAGE>
FOR A DAILY SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD PERIOD
ENDED ENDED ENDED
DAILY SHARES 03/31/97 03/31/96(a) 11/30/95*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0453 0.0157 0.0418
Dividends from net investment income (0.0453) (0.0157) (0.0418)
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.0453) (0.0157) (0.0418)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.63% 1.58% 4.38%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7,860 $ 2 $ 2
Ratio of operating expenses to average net assets 0.80% 0.71%+ 0.55%+
Ratio of net investment income to average net assets 4.53% 4.79%+ 5.33%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.07% 1.00%+ 0.82%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0426 $ 0.0147 $ 0.0397
</TABLE>
* Nations Government Money Market Fund Daily 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>
<S> <C> <C> <C>
YEAR PERIOD PERIOD
ENDED ENDED ENDED
DAILY SHARES 03/31/97 03/31/96(a) 11/30/95*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0270 0.0090 0.0243
Distributions from net investment income (0.0270) (0.0090) (0.0243)
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.0270) (0.0090) (0.0243)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 2.73% 0.91% 2.61%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,334 $ 2 $ 2
Ratio of operating expenses to average net assets 0.80% 0.69%+ 0.45%+
Ratio of net investment income to average net assets 2.75% 2.96%+ 3.47%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.05% 0.97%+ 0.72%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0244 $ 0.0081 $ 0.0225
</TABLE>
* Nations Tax Exempt Fund Daily 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.
8
<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.
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.
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 (together with U.S. Treasury Obligations, "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 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. In addition, the Fund may
lend its portfolio securities to qualified institutional investors. Although the
Fund is permitted to invest a portion of its assets in second tier securities
(as defined below) in accordance with Rule 2a-7 under the Investment Company Act
of 1940, as amended (the "1940 Act"), the Fund invests only in first tier
securities (as defined below). 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 and
repurchase agree-
9
<PAGE>
ments secured by such obligations. The Fund may lend its portfolio securities to
qualified institutional investors. Although the Fund is permitted to invest a
portion of its assets in second tier securities (as defined below) in accordance
with Rule 2a-7 under the 1940 Act, the Fund invests only in first tier
securities (as defined below). 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. Although the Fund may invest in
repurchase agreements it does not currently intend to do so. 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. Although the Fund is permitted to invest a portion of
its assets in second tier securities (as defined below) in accordance with Rule
2a-7 under the 1940 Act, the Fund invests only in first tier securities (as
defined below). 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; having a long-term rating of
"A" or higher from D&P, Fitch, S&P, IBCA, BankWatch or Moody's in the case of
certain bonds which are 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."
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
10
<PAGE>
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
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. Although the
Fund is permitted to invest a portion of its assets in second tier securities
(as defined below) in accordance with Rule 2a-7 under the 1940 Act, the Fund
invests only in first tier securities (as defined below). For more information
concerning the Fund's investments, see "Appendix A."
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 SAI. 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 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 1940 Act, as amended, 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 greater maturities, provided such obligations
are subject to demand features or resets which are less than 397 days, 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
11
<PAGE>
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 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 Daily 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 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 Agent (as defined below) or by calling Nations Funds at the toll-free
number indicated on the cover of this Prospectus.
12
<PAGE>
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 contain the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Funds 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 investment
sub-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: .25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus .20% of the combined average daily net assets of such Funds
in excess of $250 million; and .40% of the average daily net assets of each of
Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided pursuant to sub-advisory agreements, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rate of .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 April 1, 1996 to March 31, 1997, after waivers,
Nations Fund Trust paid NBAI under the Investment Advisory Agreement advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Government Money Market Fund -- .14% and Nations Tax Exempt
Fund -- .16%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agree-
13
<PAGE>
ment advisory fees at the indicated rates of the following Funds' average daily
net assets: Nations Prime Fund -- .16% and Nations Treasury Fund -- .16%.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- .055%, Nations Tax Exempt Fund -- .055%, Nations
Prime Fund -- .055% and Nations Treasury Fund -- .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. Prior to assuming her
position with TradeStreet, she was Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. 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 Funds and special counsel to
NationsBank, has advised Nations Funds 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 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.
14
<PAGE>
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 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
.10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .09% and Nations Tax Exempt Fund -- .09%.
For the fiscal period from April 1, 1996 to March 31, 1997, 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 -- .09% and
Nations Treasury Fund -- .09%.
NationsBank serves as sub-administrator for Nations Funds 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. Nations Funds
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 Daily Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A., ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of all Funds except the international portfolios. 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 to the
Nations Funds Family, NationsBank of Texas is entitled to receive, in addition
to out of pocket expenses, fees at the rate of (i) $300,000 per annum, to be
paid monthly in payments of $25,000 for custodian services for up to and
including 50 Funds; and (ii) $6,000 per annum, to be paid in equal monthly
payments, for custodian services for each additional Fund above 50 Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all Nations Funds except the international portfolios, for which BONY is
already serving as Custodian. BONY is located at 90 Washington Street, New York,
New York 10286. In return for providing sub-custodial services, BONY receives,
in addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess including
all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's Daily
Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Daily Shares, are deducted from accrued income before dividends
are declared. The Funds' expenses
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include, but are not limited to: fees paid to the Adviser, 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, Stephens or First Data under their respective agreements with
Nations Funds; and any extraordinary expenses. Daily Shares may bear certain
class specific 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.
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family
currently has more than 52 distinct investment portfolios and total assets in
excess of $27 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,
Daily, Primary A and Primary B Shares. This Prospectus relates only to the Daily
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 Agent (as defined
below) or Nations Funds 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, 1997, 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 420,000,000,000 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
Daily 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 Agent (as defined below) or
Nations Funds 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, 1997, 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 Daily 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 a share-
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holder servicing agreement ("Servicing Agreement") with Nations Funds
("Servicing Agents") and/or a sales support agreement ("Sales Support
Agreement") with Stephens ("Selling Agents").
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"), Savings Incentives Method Plans for Employees
("SIMPLE IRAs"), salary reduction-Individual Retirement Accounts ("SAR-IRAs") or
similar types of accounts. However, the assets of such plans must reach an asset
value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs, 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 Funds 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 Daily 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 Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("Customers") who own Daily Shares ("Servicing Agents"). Selling
Agents and Servicing Agents are sometimes referred to hereafter as "Agents."
From time to time the Agents, Stephens, and Nations Funds may agree to
voluntarily reduce the fees payable for shareholder services and sales support
services. See "Shareholder Servicing And Distribution Plans."
Nations Funds and Stephens reserve the right to reject any purchase order. The
issuance of Daily 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 Agent transmitting the order, and any funds
received will be returned promptly to the sending 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. Daily 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 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 Funds.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Daily 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 the last day of the applicable
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month. Subject to certain exceptions for employees of NationsBank and its
affiliates and pre-existing SIP accounts, the systematic investment amount may
be in any amount from $50 to $100,000. For more information concerning the SIP,
contact your 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 Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
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, less any applicable CDSC, next
determined after receipt of the order by Stephens or by the Transfer Agent. 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 Funds.
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 Agents. Nations Funds 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 Funds may redeem a shareholder's Daily 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 Funds 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 Daily 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
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signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Funds have previously been
made. Nations Funds 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,
Daily Shares purchased through an exchange from Investor C Shares that were
purchased prior to August 1, 1997 will be subject to a CDSC of .50% if redeemed
within one year of the initial purchase of the Investor C Shares exchanged.
Daily Shares purchased directly are not subject to a CDSC. The CDSC is imposed
on the lesser of the net asset value of the Daily Shares redeemed or the initial
purchase price of the Investor C Shares exchanged to acquire the Daily 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 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 Daily 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) payments made to pay medical expenses which exceed 7.5% of income
and distribution to pay for insurance by an individual who has separated from
employment and who has received unemployment compensation under a federal or
state program for at least 12 weeks, (iv) effected pursuant to Nations Funds'
right to liquidate a shareholder's account, including instances where the
aggregate net asset value of the Daily Shares held in the account is less than
the minimum account size, (v) in connection with the combination of Nations
Funds with any other registered investment company by merger, acquisition of
assets or by any other transaction, and (vi) 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 Daily Shares in the
account. Shareholders are responsible for providing evidence sufficient to
establish that they are eligible for any waiver of the CDSC.
REINSTATEMENT PRIVILEGE: Within 120 days after a redemption of Daily 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 shareholder of a Fund if the value of the Daily Shares in
his/her accounts within the Nations Funds Family (valued at the net asset value
at
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the time of the establishment of the AWP) equals $10,000 or more. Daily 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
Daily 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. Daily 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 Funds at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Daily Shares of a Money Market
Fund to exchange such shares for Investor C Shares of a Non-Money Market Fund or
Daily Shares of another Money Market Fund when that shareholder believes that a
shift between funds is an appropriate investment decision. An exchange of Daily
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.
No CDSC will be imposed in connection with an exchange of Daily Shares that
meets the requirements discussed in this section. If a shareholder acquires
shares in exchange for Daily Shares of a Fund, the acquired shares will remain
subject to the CDSC applicable to the Investor C Shares exchanged to acquire the
subject Daily 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 Funds 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 Funds 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 Funds 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 Daily 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 Funds 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.
Daily Shares may be exchanged by directing a request directly to the Agent
through which the original Daily Shares were purchased or in some cases Stephens
or the Transfer Agent. During periods of significant economic or market
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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.
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 Funds to another as allowed by the applicable exchange rules within the
Prospectus. Exchanges will occur on or about the 15th or last 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 Nations
Funds.
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 Daily 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 Daily 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 Daily Shares; providing sub-accounting with respect to Daily Shares
beneficially owned by Customers or the information necessary for sub-accounting;
responding to inquiries from Customers concerning their investment in Daily
Shares; arranging for bank wires; and providing such other similar services as
may be reasonably requested.
Nations Funds 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 Daily 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 Daily 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 Daily 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.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed
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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 0.50% of the offering price per share on
all sales of Daily Shares to retirement plans 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.
Nations Funds 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 Funds understands that Selling Agents and/or Servicing Agents may charge
fees to their Customers who are the owners of Daily 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 Funds. 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 Funds 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 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 Funds 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. Daily 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 Daily 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
Daily 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
Daily 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 Daily
Shares will be reduced by the amount of retail transfer agency fees allocated to
Daily 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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds that the
Taxpayer Identification Number listed on a share-
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holder 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 tax on dividends, distributions and proceeds from
the disposition of Fund shares paid to certain foreign shareholders.
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.
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 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.
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 gen-
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erally 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. Nations Treasury Fund and Nations Government Money Market 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. Pursuant to line of credit arrangements, certain of the
Funds may borrow 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, each of the Funds (except Nations Tax Exempt
Fund) 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.
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At the time a Fund enters into a reverse repurchase agreement, it will establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities ("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.
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 obligations
(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 income (including interest, dividends and disposition proceeds),
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
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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.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
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 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.
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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 under the 1933 Act, or which
were issued under Section 4(2) of 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 or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, 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 obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less 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.
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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 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 securities with put or demand features 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.
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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.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
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 Funds.
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 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
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. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. 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, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Assocation; 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. No assurance can be given that the U.S. Government would
provide financial
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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 take
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 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
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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.
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.
33
<PAGE>
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.
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:
34
<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.
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.
35
<PAGE>
Prospectus
DAILY SHARES
AUGUST 1, 1997
This Prospectus describes NATIONS TREASURY FUND
(THE "FUND") OF NATIONS FUND, INC., AN OPEN-END
MANAGEMENT INVESTMENT COMPANY IN THE NATIONS FUNDS
FAMILY ("NATIONS FUNDS" OR "NATIONS FUNDS FAMILY").
THIS PROSPECTUS DESCRIBES ONE CLASS OF SHARES OF
THE FUND -- DAILY SHARES.
THE FUND SEEKS TO MAINTAIN A NET ASSET VALUE OF
$1.00 PER SHARE.
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Fund that a prospective
purchaser of Daily Shares should consider before
investing. Investors should read this Prospectus
and retain it for future reference. Additional
information about Nations Fund, Inc. is contained
in a separate Statement of Additional Information
(the "SAI"), that has been filed with the
Securities and Exchange Commission (the "SEC") and
is available upon request without charge by writing
or calling Nations Funds at its address or
telephone number shown below. The SAI dated August
1, 1997 is incorporated by reference in its
entirety into this Prospectus. The SEC maintains a
Web site (http://www.sec.gov) that contains the
SAI, material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Fund. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Fund. As used herein
the term "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
SHARES OF NATIONS FUNDS 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 FUND
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
SERVICES TO NATIONS FUNDS, 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 FUNDS.
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 Treasury
Fund
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NF-97335-897
<PAGE>
About The Fund Table Of Contents
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objective 6
How Objective Is Pursued 6
How Performance Is Shown 7
How the Fund Is Managed 8
Organization And History 10
About Your Investment
How To Buy Shares 11
How To Redeem Shares 13
How To Exchange Shares 14
Shareholder Servicing And Distribution Plans 16
How The Fund Values Its Shares 17
How Dividends And Distributions Are Made; Tax
Information 17
Appendix A -- Portfolio Securities 18
Appendix B -- Description Of Ratings 22
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S 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 FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES:
(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) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Fund.
See "How The Fund Is Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Treasury Fund, declares dividends
daily and pays them monthly. The 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. Although the 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 the Fund are not insured against loss of principal. For
a discussion of these and other factors, see "How Objective Is
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 Daily 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 Fund. The
following table summarizes shareholder transaction and operating expenses for
Daily Shares of the Fund. The Example shows the cumulative expenses attributable
to a hypothetical $1,000 investment in the Fund over specified periods.
DAILY SHARES
<TABLE>
<CAPTION>
<S> <C>
Nations Treasury
SHAREHOLDER TRANSACTION EXPENSES Fund
Sales Load Imposed on Purchases None
Deferred Sales Charge .00%1
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Management Fees .16%
(as a percentage of average net assets)
Rule 12b-1 Fees (After Fee Waivers)
Shareholder Servicing Fees .25%
Other Expenses .14%
Total Operating Expenses (After Fee Waivers) .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.
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Daily Shares of
the Fund, assuming (1) a 5% annual return and (2) redemption at the end of each
time period.
<TABLE>
<CAPTION>
<S> <C>
Nations
Treasury
Fund
1 Year $ 8
3 Years $26
5 Years $44
10 Years $99
</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
Fund will bear either directly or indirectly. Certain figures contained in the
above table are based on amounts incurred during the 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/or reimbursements will
continue. In particular, to the extent other expenses are less than expected,
waivers and/or reimbursements of management fees, if any, may decrease.
Shareholders will be notified of any decrease that materially increases Total
Operating
4
<PAGE>
Expenses. If fee waivers and/or reimbursements are discontinued, the amounts
contained in the "Example" above may increase.
Absent fee waivers, "Management Fees," "Rule 12b-1 Fees" and "Total Operating
Expenses" for Daily Shares of Nations Treasury Fund would have been .20%, .45%
and 1.04%, respectively. Long-term shareholders in the 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
of Securities Dealers, Inc. For more complete descriptions of the Fund's
operating expenses, see "How The Fund Is 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 following financial information has been derived from the audited financial
statements of Nations Fund, Inc. Price Waterhouse LLP is the independent
accountant jto Nations Fund, Inc. The report of Price Waterhouse LLP for the
most recent fiscal years of Nations Fund, Inc. accompany the financial
statements for such periods and are incorporated by reference in the SAI, which
is available upon request. Shareholders of the 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 A DAILY SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR PERIOD PERIOD
ENDED ENDED ENDED
DAILY SHARES 03/31/97 03/31/96(a) 05/31/95*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0455 0.0404 0.0167
Distributions from net investment income (0.0455) (0.0404) (0.0167)
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.0455) (0.0404) (0.0167)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.66% 4.09% 1.67%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 16,323 $ 2 $ 2
Ratio of operating expenses to average net assets 0.80% 0.64%+ 0.55%+
Ratio of net investment income to average net assets 4.59% 5.18%+ 4.74%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.85% 0.71%+ 0.60%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0450 $ 0.0399 $ 0.0162
</TABLE>
* Nations Treasury Fund Daily 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>
Objective
The 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 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.
Although the Adviser will seek to achieve the investment objective of the 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 the Fund are not insured against loss of principal.
How Objective Is Pursued
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury bills, notes and bonds and other instruments issued directly by
the U.S. Government ("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 and repurchase agreements secured by such obligations. The Fund
may lend its portfolio securities to qualified institutional investors. Although
the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940 (the "1940 Act"), the Fund invests only in first tier
securities (as defined below). For more information concerning these
instruments, see "Appendix A."
INVESTMENT LIMITATIONS: The 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 the Fund 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 Fund's SAI.
The 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 the 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 the 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 the Fund's assets, the Fund will not hold
more than 10% of the voting securities of any issuer.
6
<PAGE>
The investment objective and policies of the Fund, unless otherwise specified,
may be changed without shareholder approval. If the investment objective or
policies of the 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 the Fund's shares for sale in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should the 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 A MONEY MARKET FUND: In order for the Fund to value
its investments on the basis of amortized cost (see "How The Fund Value Its
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the 1940 Act, as amended, 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 greater maturities, provided such obligations
are subject to demand features or resets which are less than 397 days, 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, 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 the 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 Fund may advertise the "yield" and "effective yield" of 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 the 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.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the 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. 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.
7
<PAGE>
In addition to Daily Shares, the Fund offers Primary A, Primary B, Investor A,
Investor B and Investor C 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 Fund's
shares. The Fund's annual report contains additional performance information and
is available upon request without charge from the Fund's distributor or an
investor's Agent (as defined below) or by calling Nations Funds at the toll-free
number indicated on the cover of this Prospectus.
How The Fund Is Managed
The business and affairs of Nations Fund, Inc. are managed under the direction
of its Board of Directors. Nations Fund, Inc.'s SAI contains the names of and
general background information concerning each Director of Nations Fund, Inc.
Nations Funds 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 Fund. 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 investment
sub-adviser to the Fund. 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, Inc.'s Board of Directors,
and in accordance with the Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for the Fund, makes decisions with
respect to and places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. From time
to time, to the extent consistent with its investment objective, policies and
restrictions, the Fund may invest in securities of companies with which
NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to an Investment
Advisory Agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: .25% of the first $250 million of the
combined average daily net assets of Nations Treasury Fund, plus .20% of the
combined average daily net assets of the Fund in excess of $250 million.
For the services provided pursuant to a sub-advisory agreement, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rate of .055% of the average daily net assets of the 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 the Fund.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid NBAI under the Investment Advisory Agreement advisory
fees at the rate of .16% of the Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers, NBAI
paid TradeStreet under the Sub-Advisory Agreements sub-advisory fees at the rate
of .055% of the Fund's average daily net assets.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund.
8
<PAGE>
She has been Portfolio Manager for the Fund 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.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such 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 Funds pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Fund, 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 Fund.
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 Place, Boston, Massachusetts 02109, serves as
the co-administrator of the Fund pursuant to a Co-Administration Agreement.
Under the Co-Administration Agreement, First Data provides various
administrative and accounting services to the Fund, 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 Fund. 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
.10% of the Fund's average daily net assets.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the rate of .09% of
the Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Funds 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 Fund's 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 Fund's average daily net
assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/ dealer. Nations Funds
has entered into a distribution agreement with Stephens that provide that
Stephens has the exclusive right to distribute shares of the Fund. Stephens may
pay service fees or commissions to selling agents that assist customers in
purchasing Daily Shares of the Fund. See "Shareholder Servicing And Distribution
Plans."
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with the
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of the 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 to the Nations Funds Family, NationsBank
of Texas is
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<PAGE>
entitled to receive, in addition to out of pocket expenses, fees at the rate of
(i) $300,000 per annum, to be paid monthly in payments of $25,000 for custodian
services for up to and including 50 Funds; and (ii) $6,000 per annum, to be paid
in equal monthly payments, for custodian services for each additional Fund above
50 Funds.
BONY has entered into an agreement with the Fund and NationsBank of Texas,
whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets of all
Nations Funds except the international portfolios, for which BONY is already
serving as Custodian. BONY is located at 90 Washington Street, New York, New
York 10286. In return for providing sub-custodial services, BONY receives, in
addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Fund's Daily
Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Fund, as well as certain expenses
attributable to Daily Shares, are deducted from accrued income before dividends
are declared. The Fund's expenses include, but are not limited to: fees paid to
the Adviser, Stephens and First Data; interest; 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, Stephens or First Data under
their respective agreements with Nations Funds; and any extraordinary expenses.
Daily Shares may bear certain class specific expenses and also bear certain
additional shareholder service and distribution costs. Any general expenses 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,
Inc. or in such other manner as the Board of Directors deems appropriate.
Organization And History
The Fund is member of the Nations Funds Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations Institutional
Reserves and Nations LifeGoal Funds, Inc. The Nations Funds Family currently has
more than 52 distinct investment portfolios and total assets in excess of $27
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 420,000,000,000 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
Daily Shares of Nations Treasury 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 Agent (as defined below) or Nations Funds at
1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of
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<PAGE>
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, 1997, 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.
About Your Investment
How To Buy Shares
The Fund has established various procedures for purchasing Daily 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 a shareholder servicing agreement
("Servicing Agreement") with Nations Funds ("Servicing Agents") and/or a sales
support agreement ("Sales Support Agreement") with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000 in the Fund, 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"), Savings Incentives Method Plans for Employees
("SIMPLE IRAs"), salary reduction-Individual Retirement Accounts ("SAR-IRAs") or
similar types of accounts. However, the assets of such plans must reach an asset
value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs, 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 Funds 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
pur-
11
<PAGE>
chase of Daily Shares of the 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 Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("Customers") who own Daily Shares ("Servicing Agents"). Selling
Agents and Servicing Agents are sometimes referred to hereafter as "Agents."
From time to time the Agents, Stephens, and Nations Funds may agree to
voluntarily reduce the fees payable for shareholder services and sales support
services. See "Shareholder Servicing And Distribution Plans."
Nations Funds and Stephens reserve the right to
reject any purchase order. The issuance of Daily Shares is recorded on the books
of the Fund, 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. 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 Agent transmitting the order, and any funds received will be returned
promptly to the sending 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. Daily 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 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 Funds.
SYSTEMATIC INVESTMENT PLAN: Under the Fund's Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Daily 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 the last day of the applicable month. Subject
to certain exceptions for employees of NationsBank and its affiliates and pre-
existing SIP accounts, the systematic investment amount may be in any amount
from $50 to $100,000. For more information concerning the SIP, contact your
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 Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds 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 Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
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<PAGE>
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, less any applicable CDSC, next
determined after receipt of the order by Stephens or by the Transfer Agent. 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 Funds.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time and payment will normally be wired the same day to Agents. Nations Funds
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 the 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 will be processed on the next
Business Day.
Nations Funds may redeem a shareholder's
Daily 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 Funds also may redeem shares of the 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 Daily 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 Funds have previously been made. Nations Funds 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,
Daily Shares purchased through an exchange from Investor C Shares that were
purchased prior to August 1, 1997 will be subject to a CDSC of .50% if redeemed
within one year of the initial purchase of the Investor C Shares exchanged.
Daily Shares purchased directly are not subject to a CDSC. The CDSC is imposed
on the lesser of the net asset value of the Daily Shares redeemed or the initial
purchase price of the Investor C Shares exchanged to acquire the Daily 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 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 Daily 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
fol-
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<PAGE>
lowing 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) payments made to pay medical expenses which exceed 7.5% of income and
distributions to pay for insurance by an individual who has separated from
employment and who has received unemployment compensation under a federal or
state program for at least 12 weeks, (iv) effected pursuant to Nations Funds'
right to liquidate a shareholder's account, including instances where the
aggregate net asset value of the Daily Shares held in the account is less than
the minimum account size, (v) in connection with the combination of Nations
Funds with any other registered investment company by merger, acquisition of
assets or by any other transaction, and (vi) 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 Daily Shares in the
account. Shareholders are responsible for providing evidence sufficient to
establish that they are eligible for any waiver of the CDSC.
REINSTATEMENT PRIVILEGE: Within 120 days after a redemption of Daily Shares of
the Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor A Shares of the 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 the Fund if the value of the Daily Shares in
his/her accounts within the Nations Funds Family (valued at the net asset value
at the time of the establishment of the AWP) equals $10,000 or more. Daily
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 Daily 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. Daily 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 Funds at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Daily Shares of the Fund to
exchange such shares for Investor C Shares of a Non-Money Market Fund or Daily
Shares of another Money Market Fund when that shareholder believes that a shift
between funds is an appropriate investment decision. An exchange of Daily 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.
No CDSC will be imposed in connection with an exchange of Daily Shares that
meets the
require-
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<PAGE>
ments discussed in this section. If a shareholder acquires shares in exchange
for Daily Shares of the Fund, the acquired shares will remain subject to the
CDSC applicable to the Investor C Shares exchanged to acquire the subject Daily
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 Fund and each of the other funds of Nations Funds 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 Funds 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 Funds 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 Daily 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 Funds 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.
Daily Shares may be exchanged by directing a request directly to the Agent
through which the original Daily 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.
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 the last 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 Nations
Funds.
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<PAGE>
Shareholder Servicing And
Distribution Plans
SHAREHOLDER SERVICING PLAN: The Fund's
shareholder servicing plan ("Servicing Plan") permits the Fund to compensate
Servicing Agents for certain shareholder support services that are provided by
the Servicing Agents to their Customers that own Daily 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 Directors, provided that the annual rate may not
exceed 0.25% of the average daily net asset value of the Fund's Daily 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 the Fund on behalf of
Customers; providing sales information periodically to Customers, including
information showing their positions in Daily Shares; providing sub-accounting
with respect to Daily Shares beneficially owned by Customers or the information
necessary for sub-accounting; responding to inquiries from Customers concerning
their investment in Daily Shares; arranging for bank wires; and providing such
other similar services as may be reasonably requested.
Nations Funds may suspend or reduce payments
under the Servicing Plan at any time, and payments are subject to the
continuation of the Fund's Servicing Plan described above and the terms of the
Servicing Agreements. See the SAI for more details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Directors also
have approved a Distribution Plan with respect to Daily Shares of the Fund.
Pursuant to the Distribution Plan, the Fund may compensate or reimburse Stephens
for any activities or expenses primarily intended to result in the sale of Daily
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 Directors
provided that the annual rate may not exceed 0.45% of the average daily net
asset value of the Fund's Daily 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.
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 Fund during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.50% of the offering
price per share on all sales of Daily Shares to retirement plans 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 Fund
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 Funds and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the Fund's
Distribution Plan
16
<PAGE>
described above and the terms of the Sales Support Agreement between Selling
Agents and Stephens. See the SAI for more details on the Distribution Plan.
Nations Funds understands that Selling Agents
and/or Servicing Agents may charge fees to their Customers who are the owners of
Daily 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 Funds. 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
Funds 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 The Fund Values Its Shares
The net asset value of a share of each class of shares in the 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
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 the Fund are valued based upon the amortized cost method. Although
Nations Funds seeks to maintain the net asset value per share of the Fund 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 the Fund
are declared daily to shareholders at 3:00 p.m., Eastern time on the day of
declaration. Daily 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 Daily Shares of the 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 Daily Shares in the Fund. To the
extent that there are any net short-term capital gains, they will be paid at
least annually.
The Fund's net investment income available for distribution to the holders of
Daily Shares will be reduced by the amount of sales support and shareholder
servicing fees paid to Selling Agents and Servicing Agents, respectively. The
Fund's net investment income available for distribution to the holders of Daily
Shares will be reduced by the amount of retail transfer agency fees allocated to
Daily Shares.
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<PAGE>
TAX INFORMATION: The 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.
The Fund intends to distribute substantially all
of its investment company taxable income and net tax-exempt income each taxable
year. Distributions by the 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 the Fund may qualify as
tax-exempt dividends for state income tax purposes in some states. The Fund does
not expect to realize any long-term capital gains, and therefore, does 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 Funds to withhold 31% from any dividends (other
than exempt-interest dividends) paid by Nations Funds and/or redemptions
(including exchanges and redemptions in-kind) 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 Funds 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 Fund
to withhold tax on dividends, distributions and proceeds from the disposition of
Fund shares paid to certain foreign shareholders.
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 Fund 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 SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How Objective Is Pursued" section of this Prospectus
identifies the Fund's permissible investments, and the SAI contain more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
BORROWINGS: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Fund 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
18
<PAGE>
the purchase of portfolio securities. Pursuant to line of credit arrangements,
the Fund may borrow 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 the 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 Fund 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 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 the Fund enters into a reverse repurchase agreement, it will
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. Government securities ("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 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, the 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, the 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.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not hold more
than 10% of the value of its net assets in securities that are illiquid or such
lower percentage as may be required by the states in which the Fund sells its
shares. Repurchase agreements, time deposits and GICs that do not provide for
payment to the Fund within seven days after notice, and illiquid restricted
securities are subject to the limitation on illiquid securities.
If otherwise consistent with its investment objective and policies, the 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 under the 1933 Act, or which were issued
under
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Section 4(2) of the 1933 Act. Any such security will not be considered illiquid
so long as it is determined by the 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 or
other buyers cease purchasing such restricted securities pursuant to Rule 144A
or otherwise, 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, the Fund 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 the
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.
The 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. The 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 the 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. The 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 obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less 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.
OTHER INVESTMENT COMPANIES: The 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, the 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 the Fund bears directly in connection with its
own operations. Pursuant to an exemptive order issued by the SEC, the Nations'
Non-Money Market Funds may purchase shares of Nations' Money Market Funds.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by the 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 the 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. The Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
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SECURITIES LENDING: To increase return on portfolio securities, the 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 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 the Fund may not exceed 33% of the
value of its total assets. Cash collateral received by a Nations Fund may be
invested in a Nations' Money Market Fund.
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. U.S. Treasury Obligations differ only in
their interest rates, maturities and time of issuance. 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, some are backed by the
full faith and credit of the U.S. Treasury, such as direct pass-through
certificates of the Government National Mortgage Assocation; 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. 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 Fund 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 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 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 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.
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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
23
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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 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.
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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.
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<PAGE>
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
August 1, 1997
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
August 1, 1997 (each a "Prospectus"). All terms used in this SAI that are
defined in the Prospectuses will have the same meanings assigned in the
Prospectuses. Copies of these Prospectuses may be obtained by writing Nations
Funds c/o Stephens Inc., One NationsBank Plaza, 33rd Floor, Charlotte, North
Carolina 28255, or by calling Nations Funds at (800) 321-7854.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION ................................................................................ 1
FUND TRANSACTIONS AND BROKERAGE.............................................................. 1
General Brokerage Policy....................................................................1
Prime, Treasury and Government Securities Funds...................................... 1
Equity Income and International Equity Funds......................................... 2
Section 28(e) Standards..................................................................... 3
ADDITIONAL INFORMATION ON FUND INVESTMENTS .................................................. 4
General.............................................................................. 4
When-Issued Securities .............................................................. 5
Delayed Delivery Transactions ....................................................... 5
Foreign Currency Transactions ....................................................... 5
Futures, Options and Other Derivative
Instruments ................................................................... 6
Interest Rate Transactions .......................................................... 14
Asset-Backed Securities.............................................................. 15
Special Situations................................................................... 17
Reverse Repurchase Agreements ....................................................... 18
Securities Lending................................................................... 18
Short Sales.......................................................................... 18
Guaranteed Investment Contracts ..................................................... 18
Illiquid Securities.................................................................. 19
Lower Rated Debt Securities.......................................................... 19
Commercial Instruments............................................................... 20
Municipal Securities................................................................. 21
Real Estate Investment Trusts........................................................ 22
Additional Investment Limitations ................................................... 22
NET ASSET VALUE.............................................................................. 24
Purchases and Redemptions............................................................ 24
Investment Strategy.................................................................. 24
Net Asset Value Determination........................................................ 25
Exchanges............................................................................ 26
DESCRIPTION OF SHARES........................................................................ 26
Dividends and Distributions.......................................................... 26
ADDITIONAL INFORMATION CONCERNING TAXES...................................................... 27
Qualification as a Regulated Investment
Company........................................................................ 27
Excise Tax on Regulated Investment Companies......................................... 29
Distributions and Other Matters...................................................... 29
Sale or Redemption of Shares ........................................................ 30
Tax Rates............................................................................ 30
Foreign Shareholders ................................................................ 30
Effect of Future Legislation: Local Tax Considerations............................... 30
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DIRECTORS AND OFFICERS....................................................................... 31
Nations Funds Retirement Plan........................................................ 35
Nations Funds Deferred Compensation Plan ........................................... 35
Compensation Table................................................................... 36
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING AND
DISTRIBUTION AGREEMENTS ..................................................................... 38
The Company and Its Common Stock..................................................... 38
Investment Adviser................................................................... 38
Investment Styles.................................................................... 43
Administrator and Co-Administrator................................................... 44
Distribution Plans and Shareholder Servicing
Arrangements for Investor Shares................................................. 45
Shareholder Servicing Agreements-Money Market Funds
(Primary B Shares)............................................................... 54
Shareholder Administration Plan-Non-Money Market Funds
(Primary B Shares)............................................................... 55
Expenses............................................................................. 55
Transfer Agents and Custodians....................................................... 57
DISTRIBUTOR ................................................................................. 57
INDEPENDENT ACCOUNTANT AND REPORTS........................................................... 57
COUNSEL............................................................................................57
ADDITIONAL INFORMATION ON PERFORMANCE........................................................ 58
Yield Calculations................................................................... 58
Total Return Calculations............................................................ 60
MISCELLANEOUS ............................................................................... 63
Certain Record Holders............................................................... 63
SUITABILITY OF NATIONS TREASURY FUND FOR
INVESTMENT BY MUNICIPAL INVESTORS............................................................ 71
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, Primary B, Investor A, Investor B,
Investor C and Daily 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 B (formerly called Investor N Shares) and
Investor C 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, and Daily Shares are referred to as
"Investor Shares." Prospectuses relating to these Funds may be obtained without
charge by written request to Nations Funds, 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 International Equity Fund. Gartmore Global
Partners ("Gartmore") serves as sub-investment adviser to 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 year ended May 31, 1995, and for the fiscal period ended
March 31, 1996, and for the fiscal year ended March 31, 1997, the Company did
not pay brokerage commissions to NationsBanc Securities, Inc., NationsBanc
Capital Markets, Inc., Nations Securities or Stephens.
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.
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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 year ended May 31, 1995, for the fiscal period ended
March 31, 1996 and for the fiscal year ended March 31, 1997, the Equity Income
Fund paid aggregate brokerage commissions of $2,076,553, $578,343 and
$1,083,187.32, 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 year ended May 31, 1995, for the fiscal
period ended March 31, 1996 and for the fiscal year ended March 31, 1997, the
International Equity Fund paid aggregate brokerage commissions of $2,108,611,
$1,251,696 and $1,738,165.19, respectively.
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
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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.
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
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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 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
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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 segregate cash or high grade securities in an amount equal to
the when-issued commitment. Segregated securities will be valued at market for
the purpose of determining the adequacy of the segregated securities. If the
market value of such segregated securities declines, additional cash or
securities will be segregated on a daily basis so that the market value of the
segregated securities will equal the amount of the Fund's when-issued
commitments. To the extent funds securities are segregated, 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 segregated securities, 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.
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
will direct its custodian to segregate high grade liquid assets in an amount at
least equal to its obligations under each forward foreign currency exchange
contract. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of a Fund's portfolio securities
or in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
A Fund may enter into a forward contract, for example, when it enters into
a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when the Adviser believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
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approximating the value of some or all of the Fund's securities denominated in
such foreign currency, or when the Adviser believes that the U.S. dollar may
suffer a substantial decline against the foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
(a "position hedge").
A Fund may, however, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Adviser believes that
the U.S. dollar value of the currency to be sold pursuant to the forward
contract will fall whenever there is a decline in the U.S. dollar value of the
currency in which the fund securities are denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to protect a Fund
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.
The Fund's custodian will segregate cash, U.S. Government securities or
other high-quality debt securities having a value equal to the aggregate amount
of the Fund's commitments under forward contracts entered into with respect to
position hedges and cross-hedges. If the value of the segregated securities
declines, additional cash or securities will be segregated on a daily basis so
that the value of the segregated securities will equal the amount of the Fund's
commitments with respect to such contracts. As an alternative to segregating all
or part of such securities, the Fund may purchase a call option permitting the
Fund to purchase the amount of foreign currency being hedged by a forward sale
contract at a price no higher than the forward contract price or the Fund may
purchase a put option permitting the Fund to sell the amount of foreign currency
subject to a forward purchase contract at a price as high or higher than the
forward contract price.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
FUTURES CONTRACTS IN GENERAL. A futures contract is an agreement between
two parties for the future delivery of fixed income securities or for the
payment or acceptance of a cash settlement in the case of futures contracts on
an index of fixed income or equity securities. A "sale" of a futures contract
means the contractual obligation to deliver the securities at a specified price
on a specified date, or to make the cash settlement called for by the contract.
Futures contracts have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and must
be executed through a brokerage firm, known as a futures commission merchant,
which is a member of the relevant contract market. Futures contracts trade on
these markets, and the exchanges, through their clearing organizations,
guarantee that the contracts will be performed as between the clearing members
of the exchange. Presently, futures contracts are based on such debt securities
as long-term U.S. Treasury Bonds, Treasury Notes, 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
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the specific security that provides the standard for the contract. In some (but
not many) cases, securities called for by a futures contract may not have been
issued when the contract was written.
Futures contracts on indices of securities are settled through the making
and acceptance of cash settlements based on changes in value of the underlying
rate or index between the time the contract is entered into and the time it is
liquidated.
FUTURES CONTRACTS ON FIXED INCOME SECURITIES AND RELATED INDICES. As noted
in their respective Prospectuses, certain Funds may enter into transactions in
futures contracts for the purpose of hedging a relevant portion of their
portfolios. A Fund may enter into transactions in futures contracts that are
based on U.S. Government obligations, including any index of government
obligations that may be available for trading. Such transactions will be entered
into where movements in the value of the securities or index underlying a
futures contract can be expected to correlate closely with movements in the
value of securities held in a Fund. For example, a Fund may sell futures
contracts in anticipation of a general rise in the level of interest rates,
which would result in a decline in the value of its fixed income securities. If
the expected rise in interest rates occurs, the Fund may realize gains on its
futures position, which should offset all or part of the decline in value of
fixed income fund securities. A Fund could protect against such decline by
selling fixed income securities, but such a strategy would involve higher
transaction costs than the sale of futures contracts and, if interest rates
again declined, the Fund would be unable to take advantage of the resulting
market advance without purchases of additional securities.
The purpose of the purchase or sale of a futures contract on government
securities and indices of government securities, in the case of the
above-referenced Funds, which hold or intend to acquire long-term debt
securities, is to protect a Fund from fluctuations in interest rates without
actually buying or selling long-term debt securities. For example, if long-term
bonds are held by a Fund, and interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling an equivalent value of the long-term
bonds held by the Fund. If interest rates did increase, the value of the debt
securities in the Fund would decline, but the value of the futures contracts to
the Fund would increase at approximately the same rate thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. When
a Fund is not fully invested and a decline in interest rates is anticipated,
which would increase the cost of fixed income securities that the Fund intends
to acquire, it may purchase futures contracts. In the event that the projected
decline in interest rates occurs, the increased cost of the securities acquired
by the Fund should be offset, in whole or part, by gains on the futures
contracts by entering into offsetting transactions on the contract market on
which the initial purchase was effected. In a substantial majority of
transactions involving futures contracts on fixed income securities, a Fund will
purchase the securities upon termination of the long futures positions, but
under unusual market conditions, a long futures position may be terminated
without a corresponding purchase of securities.
Similarly, when it is expected that interest rates may decline, futures
contracts on fixed income securities and indices of government securities may be
purchased for the purpose of hedging against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of such futures
contracts should be similar to that of long-term bonds, a Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund's cash reserves could then be used to
buy long-term bonds in the cash market. Similar results could be accomplished by
selling bonds with long maturities and investing in bonds with short maturities
when interest rates are expected to increase. However, since the futures market
is more liquid than the cash market, the use of these futures contracts as an
investment technique allows a Fund to act in anticipation of such an interest
rate decline without having to sell its portfolio securities. To the extent a
Fund enters into futures contracts for this purpose, the segregated assets
maintained by a Fund will consist of cash, cash equivalents or high quality debt
securities of the Fund in an amount equal to the difference between the
fluctuating market value of such futures contract and the aggregate value of the
initial deposit and variation margin payments made by the Fund with respect to
such futures contracts.
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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.
In addition, a Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its portfolio, it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. As such securities
are acquired, a Fund's futures positions would be closed out. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of its portfolio will decline prior to the time of sale.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract gives the
purchaser (the "holder") the right, but not the obligation, to enter into a
"long" position in the underlying futures contract (i.e., a purchase of such
futures contract) in the case of an option to purchase (a "call" option), or a
"short" position in the underlying futures contract (i.e., a sale of such
futures contract) in the case of an option to sell (a "put" option), at a fixed
price (the "strike price") up to a stated expiration date. The holder pays a
non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchase of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be lost.
Upon exercise of the option by the holder, the exchange clearing corporation
establishes a corresponding long position in the case of a put option. In the
event that an option is exercised, the parties will be subject to all the risks
associated with the trading of 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
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the extent anticipated, however, the targeted sale or buy might not be
successful and a Fund could sustain a loss on the transaction that may not be
offset by the premium received. In addition, a Fund may be required to forego
the benefit of an intervening increase or decline in value of the underlying
security.
OPTIONS AND FUTURES STRATEGIES. The Adviser may seek to increase the
current return of the Fund by writing covered call or put options. In addition,
through the writing and purchase of options and the purchase and sale of U.S.
and certain foreign stock index futures contracts, interest rate futures
contracts, foreign currency futures contracts and related options on such
futures contracts, the Adviser may at times seek to hedge against a decline in
the value of securities included in the Fund or an increase in the price of
securities that it plans to purchase for the Fund. Expenses and losses incurred
as a result of such hedging strategies will reduce the Fund's current return. A
Fund's investment in foreign stock index futures contracts and foreign interest
rate futures contracts, and related options on such futures contracts, are
limited to only those contracts and related options that have been approved by
the CFTC for investment by U.S. investors. Additionally, with respect to a
Fund's investment in foreign options, unless such options are specifically
authorized for investment by order of the CFTC or meet the definition of trade
options as set forth in CFTC rule 32.4, a Fund will not make these investments.
The ability of a Fund to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to stock indices,
foreign government securities and foreign currencies are relatively new and
still developing. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore, no assurance
can be given that a Fund will be able to utilize these instruments effectively
for the purposes stated below. Furthermore, a Fund's ability to engage in
options and futures transactions may be limited by tax considerations. Although
a Fund will only engage in options and futures transactions for limited
purposes, these activities will 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
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from the repurchase of a call option is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by a Fund.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. A Fund may purchase put
options to protect its portfolio holdings in an underlying security against a
decline in market value. Such hedge protection is provided during the life of
the put option since a Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. In order for a put option to be profitable,
the market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might otherwise have realized
in its underlying security by the premium paid for the put option and by
transaction costs.
A Fund may also purchase call options to hedge against an increase in
prices of securities that it wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Fund will reduce any
profit it might have realized had it bought the underlying security at the time
it purchased the call option by the premium paid for the call option and by
transaction costs.
PURCHASE AND SALE OF OPTIONS AND FUTURES ON STOCK INDICES. A Fund may
purchase and sell options on non-U.S. stock indices and stock index futures as a
hedge against movements in the equity markets.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars multiplied by a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike options on specific securities, all settlements
of options on stock indices are in cash and gain or 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
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maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to a Fund in the form of dealer spreads and
brokerage commissions.
The sale of interest rate futures contracts provides an alternative means
of hedging against rising interest rates. As rates increase, the value of a
Fund's short position in the futures contracts will also tend to increase, thus
offsetting all or a portion of the depreciation in the market value of a Fund's
investments that are being hedged. While a Fund will incur commission expenses
in selling and closing out futures positions (which is done by taking an
opposite position which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS AND INTEREST RATE FUTURES
CONTRACTS. A Fund may purchase and write call and put options on non-U.S. stock
index and interest rate futures contracts. A Fund may use such options on
futures contracts in connection with its hedging strategies in lieu of
purchasing and writing options directly on the underlying securities or stock
indices or purchasing and selling the underlying futures. For example, a Fund
may purchase put options or write call options on stock index futures, or
interest rate futures, rather than selling futures contracts, in anticipation of
a decline in general stock market prices or rise in interest rates,
respectively, or purchase call options or write put options on stock index or
interest rate futures, rather than purchasing such futures, to hedge against
possible increases in the price of equity securities or debt securities,
respectively, which the Fund intends to purchase.
PURCHASE AND SALE OF CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. In
order to hedge its portfolio and to protect it against possible variations in
foreign exchange rates pending the settlement of securities transactions, a Fund
may buy or sell currency futures contracts and related options. If a fall in
exchange rates for a particular currency is anticipated, a Fund may sell a
currency futures contract or a call option thereon or purchase a put option on
such futures contract as a hedge. If it is anticipated that exchange rates will
rise, a Fund may purchase a currency futures contract or a call option thereon
or sell (write) a put option to protect against an increase in the price of
securities denominated in a particular currency a Fund intends to purchase.
These futures contracts and related options thereon will be used only as a hedge
against anticipated currency rate changes, and all options on currency futures
written by a Fund will be covered.
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
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<PAGE>
with its custodian, or own put options on currency futures or short currency
futures, with the difference, if any, between the market value of the put
written and the market value of the puts purchased or the currency futures sold
maintained by a Fund in cash, Treasury bills or other high grade short-term
obligations in a segregated account with its custodian. If at the close of
business on any day the market value of the put options purchased or the
currency futures by a Fund falls below 100% of the market value of the put
options written by the Fund, a Fund will so segregate an amount of cash,
Treasury bills or other high grade short-term obligations equal in value to the
difference.
If other methods of providing appropriate cover are developed, a Fund
reserves the right to employ them to the extent consistent with applicable
regulatory and exchange requirements. In connection with transactions in stock
index options, stock index futures, interest rate futures, foreign currency
futures and related options on such futures, a Fund will be required to deposit
as "initial margin" an amount of cash or short-term government securities equal
to from 5% to 8% of the contract amount. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from the broker to reflect
changes in the value of the futures contract.
LIMITATIONS ON PURCHASE OF OPTIONS. The staff of the SEC has taken the
position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid and, therefore, together with
other illiquid securities, cannot exceed 15% of a Fund's assets. The Adviser
intends to limit a Fund's writing of over-the-counter options in accordance with
the following procedure. Each Fund intends to write over-the-counter options
only with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. Also, the contracts which a Fund has in place with
such primary dealers will provide that the Fund has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula in the contract. Although the specific formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by a Fund for writing the option, plus the
amount, if any, of the option's intrinsic value (i.e., the amount that the
option is in-the-money). The formula also may include a factor to account for
the difference between the price of the security and the strike price of the
option if the option is written out-of-the-money. A Fund will treat all or a
part of the formula price as illiquid for purposes of the 15% test imposed by
the SEC staff.
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.
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RISK OF IMPERFECT CORRELATION. A Fund's ability effectively to hedge all
or a portion of its portfolio through transactions in futures, options on
futures or options on stock indices depends on the degree to which movements in
the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the relevant portion of the Fund's
securities. If the values of the securities being hedged do not move in the same
amount or direction as the underlying security or index, the hedging strategy
for a Fund might not be successful and the Fund could sustain losses on its
hedging transactions which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation between the security or
index underlying a futures or option contract and the portfolio securities being
hedged, which could result in losses both on the hedging transaction and the
Fund securities. In such instances, a Fund's overall return could be less than
if the hedging transactions had not been undertaken. Stock index futures or
options based on a narrower index of securities may present greater risk than
options or futures based on a broad market index, as a narrower index is more
susceptible to rapid and extreme fluctuations resulting from changes in the
value of a small number of securities. A Fund would, however, effect
transactions in such futures or options only for hedging purposes.
The trading of futures and options on indices involves the additional risk
of imperfect correlation between movements in the futures or option price and
the value of the underlying index. The anticipated spread between the prices may
be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase of
an option on a futures contract also involves the risk that changes in the value
of underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the option
and enter into the underlying futures contract in order to realize a profit.
Under certain extreme market conditions, it is possible that a Fund will not be
able to establish hedging positions, or that any hedging strategy adopted will
be insufficient to completely protect the Fund.
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
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other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
RISK OF PREDICTING INTEREST RATE MOVEMENTS. Investments in futures
contracts on fixed-income securities and related indices involve the risk that
if the Adviser's investment judgment concerning the general direction of
interest rates is incorrect, a Fund's overall performance may be poorer than if
it had not entered into any such contract. For example, if a Fund has been
hedged against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of the increased
value of its bonds which have been hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell bonds from its portfolio to meet daily
variation margin requirements, possibly at a time when it may be disadvantageous
to do so. Such sale of bonds may be, but will not necessarily be, at increased
prices which reflect the rising market.
TRADING AND POSITION LIMITS. Each contract market on which futures and
option contracts are traded has established a number of limitations governing
the maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Adviser does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding the Funds' investments.
REGULATIONS ON THE USE OF FUTURES AND OPTIONS CONTRACTS. Regulations of
the CFTC require that the Funds enter into transactions in futures contracts and
options thereon for hedging purposes only, in order to assure that they are not
deemed to be a "commodity pool" under such regulations. In particular, CFTC
regulations require that all short futures positions be entered into for the
purpose of hedging the value of investment securities held by a Fund, and that
all long futures positions either constitute bona fide hedging transactions, as
defined in such regulations, or have a total value not in excess of an amount
determined by reference to certain cash and securities positions maintained for
the Fund, and accrued profits on such positions. In addition, a Fund may not
purchase or sell such instruments if, immediately thereafter, the sum of the
amount of initial margin deposits on its existing futures positions and premiums
paid for options on futures contracts would exceed 5% of the market value of the
Fund's total assets.
When a Fund purchases a futures contract, an amount of cash or cash
equivalents or high debt securities will be segregated with the Fund's custodian
so that the amount so segregated, plus the initial deposit and variation margin
held in the account of its broker, will at all 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
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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.
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
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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.
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.
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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 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.
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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 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
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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 applicable limitations on such Fund's investments in illiquid securities.
A Money Market Fund will restrict its investments in GlCs to those having a term
of 397 days or less. In determining average weighted portfolio maturity, a GIC
will be deemed to have a maturity equal to the period of time remaining under
the next readjustment of the guaranteed interest rate.
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.
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Since the risk of default is higher for lower rated securities, the
Adviser will try to minimize the risks inherent in investing in lower rated debt
securities by engaging in credit analysis, diversification, and attention to
current developments and trends affecting interest rates and economic
conditions. The Adviser will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future obligations,
have improved, or are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated
securities, but they may not be attractive to as may buyers. Each Fund's
policies regarding lower rated debt securities is not fundamental and may be
changed at any time without shareholder approval.
While the market values of lower rated debt and comparable unrated
securities tend to react less to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain lower
rated debt and comparable unrated securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, lower rated debt securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
lower rated debt and comparable unrated securities often are highly leveraged
and may not have more traditional methods of financing available to them so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. The risk of
loss due to default by such issuers is significantly greater because lower rated
debt and comparable unrated securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness. A Fund may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings. The
existence of limited markets for lower rated debt and comparable unrated
securities may diminish a Fund's ability to (a) obtain accurate market
quotations for purposes of valuing such securities and calculating its net asset
value and (b) sell the securities at fair value either to meet redemption
requests or to respond to changes in the economy or in financial markets.
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.
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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. A
Fund may invest in variable and floating rate instruments only when the Adviser
deems the investment to involve minimal credit risk. If such instruments are not
rated, the Adviser will consider the earning power, cash flows, and other
liquidity ratios of the issuers of such instruments and will continuously
monitor their financial status to meet payment on demand. In determining average
weighted portfolio maturity, an instrument will be deemed to have a maturity
equal to the longer of the period remaining to the next interest rate adjustment
or the demand notice period specified in the instrument.
The Nations Prime Fund also may purchase short-term participation
interests in loans extended by banks to companies, provided that both such banks
and such companies meet the quality standards set forth above.
MUNICIPAL SECURITIES
The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Private activity
bonds held by a Fund are in most cases revenue securities and are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of private activity bonds is usually directly related to the credit standing of
the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Municipal securities may include variable or floating rate instruments
issued by industrial development authorities and other governmental entities.
While there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments
purchased by a Fund will be determined by the Adviser to be of comparable
quality at the time of purchase to instruments rated "high quality" by any major
rating service. Where necessary to ensure that an instrument is of comparable
"high quality," a Fund will require that an issuer's obligation to pay the
principal of the note may be backed by an unconditional bank letter or line of
credit, guarantee, or commitment to lend.
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Municipal securities may include participations in privately arranged
loans to municipal borrowers, some of which may be referred to as "municipal
leases." Generally such loans are unrated, in which case they will be determined
by the Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged loans
have variable interest rates and may be backed by a bank letter of credit. In
other cases, they may be unsecured or may be secured by assets not easily
liquidated. Moreover, such loans in most cases are not backed by the taxing
authority of the issuers and may have limited marketability or may be marketable
only by virtue of a provision requiring repayment following demand by the
lender. Such loans made by a Fund may have a demand provision permitting the
Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable. 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.
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 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.
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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 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.
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<PAGE>
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. Each of the Nations Prime Fund and the 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 first tier 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,
time deposits and GICs with maturities in excess of seven days, illiquid
restricted securities, and other securities which are not readily
marketable. For purposes of this restriction, illiquid securities shall not
include securities which may be resold under Rule 144A and Section 4(2) of
the Securities Act of 1933 that the Board of Directors, or its delegate,
determines to be liquid, based upon the trading markets for the specific
security.
8. No Non-Money Market Fund of the Company will invest more than 15% of the
value of its net assets in illiquid securities, including repurchase
agreements, time deposits and GICs with maturities in excess of seven days,
illiquid restricted securities, and other securities which are not readily
marketable. For purposes of this restriction, illiquid securities shall not
include securities which may be resold under Rule 144A and Section 4(2) of
the Securities Act of 1933 that the Board of Directors, or its delegate,
determines to be liquid, based upon the trading markets for the specific
security.
9. No Fund 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).
24
<PAGE>
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.
INVESTMENT STRATEGY
Investing the same dollar amount at regular intervals is an investment
strategy known as Dollar Cost Averaging. Using this strategy, investors purchase
a greater number of shares when the fund's price is low and fewer shares when
the price is high. As a result, the average purchase price for shares will be
less than their average cost. Dollar Cost Averaging does not provide assurance
of making a profit or any guarantee against loss in continually declining
markets. Investors should evaluate whether they are able to make regular
investments through periods of declining price levels before deciding to use
this investment technique.
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
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
25
<PAGE>
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.
EXCHANGES
By use of the exchange privilege, the holder of Investor Shares and/or
Primary 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 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 Shares of each Fund
describe the exchange privileges available to holders of such Investor Shares
and Primary Shares, respectively.
DESCRIPTION OF SHARES
DIVIDENDS AND DISTRIBUTIONS
26
<PAGE>
NATIONS PRIME AND TREASURY FUNDS. All of the net investment income earned
by each of the Money Market Funds is declared daily as a dividend to the
shareholders of record of each class of shares of each Fund. The Investor A,
Investor B, Investor C, Daily 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 B, Investor C and Primary B Shares of the Funds shall
accrue an additional expense not borne by the Primary A Shares as a result of
the applicable Rule 12b-1 Plan and/or Shareholder Servicing Plan or Shareholder
Administration Plan and/or Shareholder Administration Agreements. Consequently,
a separate calculation shall be made to arrive at the net asset value per share
and dividends of each class of shares of the Funds.
GOVERNMENT SECURITIES FUND. Dividends and distributions from net
investment income are declared daily and paid monthly, and capital gains
distributions are declared and paid annually. The Investor A, Investor B,
Investor C and Primary B Shares of the Fund shall accrue an additional expense
not borne by the Primary A Shares as a result of the 12b-1 Plans and the
Shareholder Servicing Plan or Shareholder Administration Plan and/or Shareholder
Administration Agreements. Consequently, a separate calculation shall be made to
arrive at the net asset value per share and dividends of each class of shares of
the 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 Funds
prorated to a Fund on the basis of its relative net assets. With respect to the
Non-Money Market Funds, net income for dividend purposes consists of (i), (ii)
and (iii) above, plus dividend or distribution income on the Fund's assets.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectuses. No attempt is made to present a detailed explanation of the
tax treatment of each Fund or its shareholders, and the discussion here and in
the Prospectuses is not intended as a substitute for careful tax planning.
The Company has received a private letter ruling from the Internal Revenue
Service to the effect that: (i) the differing fees imposed on Primary A, Primary
B, Investor A, Investor C, Daily 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
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<PAGE>
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 net 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 some of which 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 ("Short-Short Gains"). 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 principal business of investing in stock or securities (or options or
futures thereon). Because of the limitations on Short-Short Gains, a Fund may
have to limit the sale of appreciated securities that it has held for less than
three months. However, the Short-Short Gains limitations will not prevent a Fund
from disposing of specific investments at a loss, since the recognition of a
loss before the expiration of the three-month holding period is disregarded for
purposes of Short-Short Gains. 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 for purposes of Short-Short Gains.
However, income that is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including tax-exempt obligations purchased
after April 30, 1993) purchased by a Fund at a market discount (generally, at a
price less than its principal amount) will be treated as ordinary income to the
extent of the portion of the market discount which accrued during the period of
time the Fund held the debt obligation. In addition, under the rules of Section
988 of the Code, 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 Short-Short Gains, 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 loss on the disposition of an
asset held as part of a straddle may be deemed to the extent of any unrecognized
gain on the offsetting position.
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<PAGE>
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 Gains, 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. Any
gain or loss arising from the actual or deemed disposition of a Section 1256
contract 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 not be treated as
Short-Short Gains if the gains arise from a deemed disposition. A Fund may elect
not to have this special tax treatment apply to Section 1256 contracts that are
part of "mixed straddles" with other investments of the Fund that are not
Section 1256 contracts.
A regulated investment company, in determining its net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, must generally treat all or part of any net capital loss, or
net long-term capital loss incurred after October 31 as if they had been
incurred in the succeeding year. Treasury regulations similarly provide that a
regulated investment company can elect to defer until the next taxable year
recognition of its net capital loss and net currency loss, to the extent such
losses arise after October 31 of the current taxable year, in determining its
investment company taxable income.
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.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A non-deductible 4% excise tax will be imposed on each Fund (other than to
the extent of the Fund's tax-exempt income) to the extent it does not meet
certain minimum distribution requirements by the end of each calendar year. Each
Fund will either actually or be deemed to distribute substantially all of its
net investment income and net capital gains by the end of the calendar year and,
thus, expects not to be subject to the excise tax.
DISTRIBUTIONS AND OTHER MATTERS
For purposes of the corporate alternative minimum tax (the "AMT") and the
"environmental 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.
If a regulated investment company purchases shares in a "passive foreign
investment company" ("PFIC"), the regulated investment company may be subject to
federal income tax and an interest charge imposed by the IRS upon certain
distributions from the PFIC or the regulated investment company's disposition of
its PFIC shares. If a regulated investment company invests in a PFIC, the
regulated investment company intends to make an election, prescribed by proposed
Treasury Regulations, to mark-to-market its interest in PFIC shares. Pursuant to
the election, the regulated investment company will be treated as recognizing at
the end of each taxable year the excess, if any, of the fair market value of its
interest in PFIC shares over its basis in such shares. Although such excess will
be taxable to the regulated investment company as ordinary income
notwithstanding any distributions
29
<PAGE>
by the PFIC, the regulated investment company will not be subject to federal
income tax or the interest charge with respect to its interest in the PFIC.
Distributions by a Fund that do not constitute ordinary income dividends,
exempt-interest dividends or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his/her shares; any excess will be treated as gain from the sale of his/her
shares, as discussed below.
Prior to purchasing shares in one of the Non-Money Market Funds, the
impact of dividends or distributions which are expected to be or have been
declared, but not paid, should be carefully considered. Any dividend or
distribution declared shortly after a purchase of such shares prior to the
record date will have the effect of reducing the per share net asset value by
the per share amount of the dividend or distribution. All or a portion of such
dividend or distribution, although in effect a return of capital, may be subject
to tax.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of a Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Fund, distributions of such
amounts will be taxable to the shareholder in the manner described above, even
though such distributions economically constitute a return of capital to the
shareholder.
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 in nature 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. Capital losses in any year are deductible only to the extent
capital gains plus, in the case of a taxpayer filing an individual tax return,
$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. Such payments in-kind shall
also result in recognized gain or loss, and most likely be capital in nature, to
a redeeming shareholder on the difference between the fair market value of the
securities received and the shareholder's adjusted tax basis in the Fund shares
sold or redeemed.
TAX RATES
As of the printing of this SAI, the maximum individual tax rate applicable
to ordinary income is 39.6% (marginal rates may be higher for some individuals
due to phase out of exemptions and elimination of deductions); the maximum
individual tax rate applicable to net capital gains is 28%; and the maximum
corporate tax rate
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applicable to ordinary income and net capital gains is 35% (however, to
eliminate the benefit of lower marginal corporate income tax rates, corporations
which have taxable income in excess of $100,000 for a taxable year will be
required to pay an additional amount of income tax of up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of tax of up to $100,000).
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.
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(*).
<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, 60 Director Director, President and
Saunders & Benson, Inc. Treasurer, Saunders & Benson,
728 East Main Street Inc. (Insurance); Trustee,
Suite 400 Nations Institutional Reserves
Richmond, VA 23219 and Nations Fund Trust, Director,
Nations Fund, Inc., Nations
LifeGoal Funds, Inc., and Nations
Fund Portfolios, Inc.
James Ermer, 54 Director Senior Vice President- Finance,
13705 Hickory Nut Point CSX Corporation (transportation
Midlothian, VA 23112 and natural resources); Director,
National Mine Service; Director,
Lawyers Title Corporation;
Trustee, Nations Institutional
31
<PAGE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME ADDRESS AND AGE THE COMPANY DIRECTORSHIPS
<S> <C> <C>
Reserves and Nations Fund Trust;
Director, Nations Fund, Inc.,
Nations LifeGoal Funds, Inc., and
Nations Fund Portfolios, Inc.
Thomas F. Keller, 65 Director R.J. Reynolds Industries
Fuqua School of Business Professor of Business
P.O. Box 90120 Administration and Dean, Fuqua
Duke University School of Business, Duke
Durham, NC 27708 University; Director, LADD
Furniture, Inc.; Director, Wendy's
International Mentor Growth Fund,
and Cambridge Trust; Director,
Hatteras Income Securities, Inc.,
Nations Government Income Term
Trust 2003, Inc., Nations
Government Income Term Trust 2004,
Inc., Nations Balanced Target
Maturity Fund, Inc., Nations Fund,
Inc., Nations LifeGoal Funds,
Inc., and Nations Fund Portfolios,
Inc.; Trustee, Nations
Institutional Reserves and Nations
Fund Trust.
Carl E. Mundy, Jr., 62 Director Commandant, United States Marine
9308 Ludgate Drive Corps, from July 1991 to July
Alexandria, VA 22309 1995; Commanding General, Marine
Forces Atlantic, from June 1990 to
June 1991; Director, Nations Fund,
Inc., Nations LifeGoal Funds,
Inc., and Nations Fund Portfolios,
Inc.; Trustee, Nations
Institutional Reserves and Nations
Fund Trust.
A. Max Walker*, 75 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., Nations LifeGoal Funds,
Inc., and Nations Fund
32
<PAGE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME ADDRESS AND AGE THE COMPANY DIRECTORSHIPS
<S> <C> <C>
Portfolios. Inc.; President and
Chairman of the Board of Trustees,
Nations Institutional Reserves and
Nations Fund Trust.
Charles B. Walker, 58 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.,
Nations LifeGoal Funds, Inc, and
Nations Fund Portfolios, Inc.;
Trustee, Nations Institutional
Reserves and Nations Fund Trust.
Thomas S. Word, Jr.*, 59 Director Partner, McGuire Woods Battle &
McGuire, Woods, Battle & Boothe Boothe (law); Director, Vaughan
One James Center Bassett Furniture Company,
Richmond, VA 23219 Director VB Williams Furniture
Company, Inc.; Director, Nations
Fund, Inc., Nations LifeGoal
Funds, Inc., and Nations Fund
Portfolios, Inc.; Trustee, Nations
Institutional Reserves and Nations
Fund Trust.
Richard H. Blank, Jr., 40 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.,
Nations LifeGoal Funds, Inc., and
Nations Fund Portfolios, Inc.
Michael W. Nolte, 36 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
Louise P. Newcomb, 44 Assistant Secretary Corporate Syndicate Associate,
Stephens Inc. Stephens Inc.
33
<PAGE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME ADDRESS AND AGE THE COMPANY DIRECTORSHIPS
<S> <C> <C>
James E. Banks, 41 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, 42 Treasurer Since 1994, Vice President,
First Data Investor Services Group, Inc. Division Manager, First Data
(formerly, The Shareholder Services Group, Investor Services Group, Inc.
Inc.) since 1988, Senior Vice
One Exchange Place President, The Boston Company
Boston, MA 02109 Advisors. Inc.; Treasurer,
Nations Institutional Reserves,
Nations Fund Trust, Nations Fund,
Inc., Nations LifeGoal Funds,
Inc., and Nations Fund Portfolios,
Inc.
Joseph C. Viselli, 33 Assistant Treasurer Since 1994, Director, First Data
First Data Investor Services Group, Inc. Investor Services Group, Inc.,
One Exchange Place since 1992, Assistant Vice
Boston, MA 02109 President, The Boston Company
Advisors, Inc., since 1989,
Senior Accountant, Price
Waterhouse LLP
Steven Levy, 32 Assistant Treasurer Since 1997, Vice President of
Fund Accounting, First Data
Investor Services Group, Inc.;
Prior to 1997, Investment
Operations Manager, Franklin
Templeton Group and Assistant
Vice President of Fund
Accounting, Scudder Stevens and
Clark, Inc.
</TABLE>
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 Funds Family.
Richard H. Blank, Jr., Richard H. Rose, Joseph C. Viselli, Steven Levy, 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.
34
<PAGE>
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. Officers
receive no direct remuneration in such capacity from the Company. No person who
is an officer, director, or employee of Nations Bank or its affiliates serves as
an officer, Director or employee of the company. As of the date of this SAI, the
directors and officers of the Company as a group owned less than 1% of the
outstanding shares of each of the Funds.
The Company has adopted a Code of Ethics which, among other things,
prohibits each access person of the Company from purchasing or selling
securities when such person knows or should have known that, at the time of the
transaction, the security (i) was being considered for purchase or sale by a
Fund, or (ii) was being purchased or sold by a Fund. For purposes of the Code of
Ethics, an access person means (i) a director or officer of the Company, (ii)
any employee of the Company (or any company in a control relationship with the
Company) who, in the course of his/her regular duties, obtains information
about, or makes recommendations with respect to, the purchase or sale of
securities by the Company, and (iii) any natural person in a control
relationship with the Company who obtains information concerning recommendations
made to the Company regarding the purchase or sale of securities. Portfolio
managers and other persons who assist in the investment process are subject to
additional restrictions, including a requirement that they disgorge to the
Company any profits realized on short-term trading (i.e., the purchase/sale or
sale/purchase of securities within any 60-day period). The above restrictions do
not apply to purchases or sales of certain types of securities, including mutual
fund shares, 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.
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
35
<PAGE>
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.
36
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION PENSION OR RETIREMENT
NAME OF PERSON FROM BENEFITS ACCRUED AS ESTIMATED ANNUAL TOTAL COMPENSATION FROM
BENEFITS UPON REGISTRANT AND FUND
POSITION (1) REGISTRANT (2) PART OF FUND EXPENSES RETIREMENT COMPLEX(3)(4)
------------ -- -------------- --------------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Edmund L. Benson, III, $4,894.39 $23,368.92 $11,684.46 $84,042.84 50% Def
Trustee
James Ermer $8,085.49 $23,368.92 $11,684.46 $46,716.94
Trustee
William H. Grigg $0.00 $23,368.92 $11,684.46 $115,933.25 100% Def
Trustee
Thomas F. Keller $178.90 $23,368.92 $11,684.46 $124,575.75 100% Def
Trustee
A. Max Walker $11,486.99 $23,368.92 $11,684.46 $75,322.94
Chairman of the Board
Charles B. Walker $9,215.83 $23,368.92 $11,684.46 $51,238.33
Trustee
Thomas S. Word $417.01 $23,368.92 $11,684.46 $118,926.66 100% Def
Trustee
Carl E. Mundy, Jr. $9,679.25 $23,368.92 $11,684.46 $52,092.00
--------- ---------- ---------- ----------
Trustee
$43,957.85 $186,951.37 $93,475.68 $668,848.71
========== =========== ========== ===========
</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, 1997. 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 nine
investment companies, including the Company, that are deemed to be part of
the Nations Funds "fund complex," as that term is defined under Rule
14a-101 of the Securities Exchange Act of 1934, as amended. Messrs. Benson,
Ermer, C. Walker, Mundy and Word receive compensation from five investment
companies, including the Company, deemed to be part of the Nations Funds
complex.
(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Directors: Edmund L.
Benson, III ($55,652.78); William H. Grigg ($102,683.25); Thomas F. Keller
($10,610.14); and Thomas S. Word ($114,008.63).
37
<PAGE>
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 eight separate
Funds. This SAI relates to the following Funds of the Company: Prime Fund,
Treasury Fund, Equity Income Fund, Government Securities Fund and 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 Daily Shares) of the Money Market Funds and (Primary
A Shares, Primary B Shares, Investor A Shares, Investor B Shares and Investor C
Shares) of the Non-Money Market Funds. 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."
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 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, Nations LifeGoal Funds, Inc., and Nations Fund
Portfolios, Inc., each a registered investment company that is part of the
Nations Funds Family. In addition, NBAI serves as the investment advisor to
Hatteras Income Securities, Inc.,
38
<PAGE>
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 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
39
<PAGE>
evaluates economic, statistical and financial information to formulate and
implement investment policies for the Funds.
The Advisory Agreements for NBAI and TradeStreet each provide that in the
absence of willful misfeasance, bad faith, negligence or reckless disregard of
obligations or duties thereunder on the part of NBAI or Trade Street,
respectively, or any of their respective officers, directors, employees or
agents, NBAI or TradeStreet shall not be subject to liability to the Company or
to any shareholder of the Company for any act or omission in the course of, or
connected with, rendering services under thereunder or for any losses that may
be sustained in the purchase, holding or sale of any security.
The Investment Advisory Agreement with NBAI shall become effective with
respect to a Fund if and when approved by the Directors of the Company, and if
so approved, shall thereafter continue from year to year, provided that such
continuation of the Agreement is specifically approved at least annually by (a)
(i) the Company's Board of Directors or (ii) the vote of "a majority of the
outstanding voting securities" of a Fund (as defined in Section 2(a)(42) of the
1940 Act), and (b) the affirmative vote of a majority of the Company's Directors
who are not parties to such Agreement or "interested persons" (as defined in the
1940 Act) of a party to such Agreement (other than as Directors of the Company),
by votes cast in person at a meeting specifically called for such purpose. The
Investment Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable with respect to a Fund at any time without penalty
by the Company (by vote of the Board of Directors or by vote of a majority of
the outstanding voting securities of the Fund) or by NBAI on 60 days' written
notice.
The Sub-Advisory Agreement with TradeStreet shall become effective with
respect to each Fund as of its execution date and, unless sooner terminated,
shall continue in full force and effect for one year, and may be continued with
respect to each Fund thereafter, provided that the continuation of the Agreement
is specifically approved at least annually by (a) (i) the Company's Board of
Directors (ii) the vote of "a majority of the outstanding voting securities" of
a Fund (as defined in Section 2(a)(42) of the 1940 Act), and (b) the affirmative
vote of a majority of the Company's Directors who are not parties to such
Agreement or "interested persons" (as defined in the 1940 Act) of a party to
such Agreement (other than as Directors of the Company), by votes cast in person
at a meeting specifically called for such purpose. The Sub-Advisory Agreement
will terminate automatically in the event of its assignment, and is terminable
with respect to a Fund at any time without penalty by the Company (by vote of
the Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund), or by NBAI, or by TradeStreet on 60 days' written
notice.
The Sub-Advisory Agreement with 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.
The continuation of the Advisory and Sub-Advisory Agreements was approved
by the Board of Directors at the October 11-12, 1996 Board of Directors Meeting.
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.
40
<PAGE>
Subject to reduction in accordance with the expense limitation
provisions which may be imposed by states in which the Funds' shares are
qualified for sale, NBAI received fees from the Funds for its services as
outlined in the following chart, which states the net advisory fees paid to
NBAI, the advisory fees waived and expense reimbursements where applicable for
the fiscal year ended March 31, 1997.
ADVISORY FEES
Year Ended March 31, 1997
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
Prime Fund $ 6,849,130.00 $1,579,771.00 $ 0
Treasury Fund 4,030,618.00 1,026,792.00 0
Equity Income
Fund 2,632,510.00 0 0
International
Equity Fund 8,870,691.00 0 0
Government
Securities Fund 568,081.00 156,808.00 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
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 year ended
March 31, 1997.
SUB-ADVISORY FEES
Year Ended March 31, 1997
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
Prime Fund $2,296,435.00 $ 0 $ 0
Treasury Fund 1,377,806.00 0 0
Equity Income
Fund 777,371.00 0 0
International
Equity Fund 6,899,426.00 0 0
Government
Securities Fund 170,424.00 0 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 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 sub-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.
41
<PAGE>
ADVISORY FEES
Period Ended March 31, 1996
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
Prime Fund $ 6,265,471.00 $ 726,242.00 $ 0
Treasury Fund 4,417,264.00 552,985.00 0
Equity Income
Fund 2,329,896.00 0 0
International
Equity Fund 5,291,343.00 84,472.00 0
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
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.
SUB-ADVISORY FEES
Period Ended March 31, 1996
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
Prime Fund $ 563,821.51 $ 0 $ 0
Treasury Fund 356,560.15 0 0
Equity Income
Fund 212,221.62 0 0
International
Equity Fund 0 0 0
Government
Securities Fund 47,092.65 0 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 year ended May 31, 1995 where applicable.
ADVISORY FEES
Year Ended May 31, 1995
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
Prime Fund $4,608,731 $2,649,510 $191,636
Treasury Fund 4,709,550 1,285,177 0
Equity Income
Fund 2,482,606 0 0
International
Equity Fund 2,158,263 0 0
Government
Securities Fund 519,421 196,944 0
42
<PAGE>
INVESTMENT STYLES
When you invest in any Fund in the Nations Funds Family, you can be
assured your money is managed according to a disciplined investment style; one
that remains constant regardless of particular styles coming in an out of favor.
The Adviser believes this structured approach to managing portfolio securities
may provide you with consistent performance over time. These investment styles
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 macro
economics forecasts to identify areas of the world which will exhibit relatively
strong growth within the context of a modest inflation and low interest rate
environment. The political factors and market liquidity constraints which can
affect stock market valuations are also taken into consideration by the Adviser
prior to making stock selections.
The stock selection process begins with the elimination of equity
securities with a market capitalization of less than $250 million. The next step
in the process is the ranking of each country and industry sector by relative
price/earnings ratio using an historical range of not less than ten years from
an universe of approximately 1000 stocks. In addition to the relative historical
price/earnings ratio the portfolio managers also employ a fundamental analysis
of growth opportunities, management and future direction of these stocks.
The International Equity Fund is a dollar-denominated mutual fund and
therefore, consideration is given to hedging part or all of the portfolio back
to U.S. dollars from international currencies. All decisions to hedge are
43
<PAGE>
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
Stephens Inc. (the "Administrator") serves as administrator of the Company
and First Data Investors Services Group, Inc. (formerly, The Shareholder
Services Group, Inc.) (the "Co-Administrator") serves as the co-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 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 year ended March 31, 1997, the fiscal period from June 1,
1995 to March 31, 1996 and for the fiscal year ended May 31, 1995.
44
<PAGE>
<TABLE>
<CAPTION>
ADMINISTRATION FEES
Year Ended March 31, 1997 Period Ended March 31, 1996 Year Ended May 31,
------------------------------- ------------------------------- -----------------------
1995
Net Net Net
Administration Administration Administration Administration Administration Administration
Fees Fees Waived Fees Fees Waived Fees Fees Waived
<S> <C> <C> <C> <C> <C> <C>
Prime Fund $3,775,833.00 $419,503.00 $1,924,496.00 $1,537,278.00 $3,510,935.00 $190,996.00
Treasury Fund 2,254,616.00 $250,485.00 1,405,372.00 1,126,831.00 2,670,833.00 30,792.00
Equity Income 388,686.00 0.00 346,633.00 0.00 344,917.00 18,677.00
Fund
International 985,632.00 0.00 597,450.00 0.00 511,883.00 27,683.00
Equity Fund
Government 113,616.00 0.00 96,960.00 0.00 106,071.00 6,098.00
Securities Fund
</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 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.
45
<PAGE>
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 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 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 in connection with Investor A Shares of
the Money Market Funds: $972,685 and $35,670, respectively. Of these amounts,
the prior Distributor retained $0 and $6,728.76, respectively, and paid the
balance to selling dealers.
During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
the Non-Money Market Funds: $0. Of this amount, the Distributor retained $0 and
paid the balance to selling dealers.
During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor A Shares of
the Money Market Funds: $0. Of this amount, the Distributor retained $0 and paid
the balance to selling dealers.
46
<PAGE>
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.
Pursuant to the Investor B/C Plan, the Distributor may enter into Sales
Support Agreements with Selling Agents for providing sales support services to
their Customers who are the record or beneficial owners of Investor B Shares of
the Money Market Funds and Investor C Shares of the non-Money Market Funds. Such
Selling Agents will be compensated at the annual rate of up to 0.75% of the
average daily net asset value of the Investor C Shares of the Non-Money Market
Funds, and up to 0.10% of the average daily net asset value of the Investor B
Shares of the Money Market Funds held of record or beneficially by such
Customers. The sales support services provided by Setting Agents may include
providing distribution assistance and promotional activities intended to result
in the sales of shares such as paying for the preparation, printing and
distribution of prospectuses to other than current shareholders.
Fees paid pursuant to the Investor B/C Plan are accrued daily and paid
monthly, and are charged as expenses of the relevant shares of a Fund as
accrued. Expenses incurred by the Distributor pursuant to the Investor B/C Plan
in any given year may exceed the sum of the fees received under the Investor B/C
Plan and payments received pursuant to contingent deferred sales charges. Any
such excess may be recovered by the Distributor in future years so long as the
Investor B/C Plan is in effect. If the Investor B/C Plan were terminated or not
continued, a Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges.
In addition, the Directors have approved an Amended and Restated
Shareholder Servicing Plan ("Servicing Plan") with respect to the Investor B
Shares of the Money Market Funds and Investor C Shares of the Non-Money Market
Funds (the "Investor B/C Servicing Plan"). Pursuant to the Investor B/C
Servicing Plan, each Fund may pay banks, broker/dealers or other financial
institutions that have entered into a Shareholder Servicing Agreement with
Nations Funds ("Servicing Agents") for certain expenses that are incurred by the
Servicing Agents in connection with shareholder support services that are
provided by the Servicing Agents. Payments under the Investor B/C Servicing Plan
will be calculated daily and paid monthly at a rate set from time to time by the
Board of Directors, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Money Market Funds' Investor B Shares and
the Non-Money Market Funds' Investor C Shares. The shareholder services provided
by the Servicing Agents may include (i) aggregating and processing purchase and
redemption requests for such Investor B or Investor C Shares from Customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Investor B or Investor C Shares pursuant to specific
or pre-authorized instructions; (iii) dividend and distribution payments from
the Company on behalf of Customers; (iv) providing information periodically to
47
<PAGE>
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 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
B Shares of the Money Market Funds: $1,982,677.43 and $65,117 respectively. Of
these amounts, the prior distributor retained $13,780.21 and $456.62,
respectively, and paid the balance to selling dealers.
During the fiscal year ended March 31,1997, the Distributor received the
following amount from Rule 12b-1 fees in connection with Investor B Shares of
the Money Market Funds: $4,403,155.44. Of this amount, the Distributor retained
$302.33 and paid the balance to selling dealers.
During the fiscal year ended March 31,1997, the Distributor received the
following amounts from Rule 12b-1 fees CDSC in connection with Investor C Shares
of the Non-Money Market Funds: $38,342.90 and $587.17, respectively. Of these
amounts, the Distributor retained $4,441.52 and $587.17, respectively, and paid
the balance to selling dealers.
INVESTOR C SHARES OF THE MONEY MARKET FUNDS AND INVESTOR B SHARES OF THE
NON-MONEY MARKET FUNDS. The Directors have approved a Distribution Plan (the
"Investor B Distribution Plan") with respect to Investor B Shares of the
Non-Money Market Funds. Pursuant to the Investor B Distribution Plan, a
Non-Money Market Fund may compensate or reimburse the Distributor for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor B Shares, including for sales related services provided by banks,
broker/dealers or other financial institutions that have entered into a Sales
Support Agreement relating to the Investor B Shares with the Distributor
("Selling Agents"). Payments under a Fund's Investor B Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Directors provided that the annual rate may not exceed 0.75% of the
average daily net asset value of each Non-Money Market Fund's Investor B Shares.
The fees payable under the Investor B Distribution Plan are used primarily
to compensate or reimburse the Distributor for distribution services provided by
it, and related expenses incurred, including payments by the Distributor to
compensate or reimburse Selling Agents, for sales support services provided, and
related expenses incurred, by such Selling Agents. Payments under the Investor B
Distribution Plan may be made with respect to preparation, printing and
distribution of prospectuses, sales literature and advertising materials by the
Distributor or, as applicable, Selling Agents, attributable to distribution or
sales support activities, respectively, commissions, incentive compensation or
other compensation to, and expenses of, account executives or other employees of
the Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; overhead and other office expenses of the Distributor
relating to the foregoing (which may be calculated as a carrying charge in the
Distributor's or Selling Agents' unreimbursed expenses), incurred in connection
with distribution or sales support activities. The overhead and other office
expenses referenced above may include, without limitation, (i) the expenses of
operating the Distributor's or Selling Agents' offices in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefit
costs of administrative, operations and support personnel, utility costs,
communication costs and the costs of stationery and supplies, (i) the costs of
client sales seminars and
48
<PAGE>
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 B Shares of
the Non-Money Market Funds ( "Investor C/B Servicing Plan"). Pursuant to the
Investor C/B Servicing Plan, a Fund may compensate or reimburse banks,
broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Company ("Servicing Agents") for
certain activities or expenses of the Servicing Agents in connection with
shareholder services that are provided by the Servicing Agents. Payments under
the Investor C/B Servicing Plan will be calculated daily and paid monthly at a
rate or rates set from time to time by the Board of Directors, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor C Shares of the Money Market Funds and Investor B Shares of the
Non-Money Market Funds.
The fees payable under the Investor C/B Servicing Plan are used primarily
to compensate or reimburse Servicing Agents for shareholder services provided,
and related expenses incurred, by such Servicing Agents. The shareholder
services provided by Servicing Agents may include: (i) aggregating and
processing purchase and redemption requests for such Investor C or Investor B
Shares from Customers and transmitting promptly net purchase and redemption
orders to the Distributor or Transfer Agent; (ii) providing Customers with a
service that invests the assets of their accounts in such Investor C or Investor
B Shares pursuant to specific or pre-authorized instructions; (iii) processing
dividend and distribution payments from the Company on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in such
Investor C or Investor B Shares; (v) arranging for bank wires; (vi) responding
to Customers' inquiries concerning their investment in such Investor C or
Investor B Shares; (vii) providing sub-accounting with respect to such Investor
C or Investor B Shares beneficially owned by Customers or providing the
information to us necessary for sub-accounting; (viii) if required by law,
forwarding shareholder communications from the 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 B Distribution Plan and Investor C/B
Servicing Plan (together, the "Investor C/B Plans") are treated by the Funds as
an expense in the year they are accrued. At any given time, a Selling Agent
and/or Servicing Agent may incur expenses in connection with services provided
pursuant to its agreements with the Distributor under the Investor C/B Plans
which exceed the total of (i) the payments made to the Selling Agents and
Servicing Agents by the Distributor or the Company and reimbursed by the Fund
pursuant to the Investor C/B Plans, and (ii) the proceeds of contingent deferred
sales charges paid to the Distributor and reallowed to the Selling Agent, upon
the redemption of their Customers' Investor C Shares. Any such excess expenses
may be recovered in future years, so long as the Investor C/B Plans are in
effect. Because there is no requirement under the Investor C/B Plans that the
Distributor be paid or the Selling Agents and Servicing Agents be compensated or
reimbursed for all their expenses or any requirement that the Investor C/B Plans
be continued from year to year, such excess amount, if any, does not constitute
a liability to a Fund or the Distributor. Although there is no legal obligation
for the Fund to pay expenses incurred by the Distributor, a Selling Agent or a
Servicing Agent in excess of payments previously made to the Distributor under
the Investor C/B Plans or in connection with contingent deferred sales charges,
if for any reason the Investor C/B Plans are terminated, the Directors will
consider at that time the manner in which to treat such expenses.
For the fiscal year ended May 31, 1995, the following funds paid the
indicated fees pursuant to the Investor B 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
49
<PAGE>
in 12b-1 fees of which $5,085.17 was retained by the Distributor for the
Investor B 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 B Shares of the Non-Money Market Funds: $796,535 and $503,334
respectively. Of these amounts, the prior distributor retained $ 0 and $ 0,
respectively, and paid the balance to selling dealers.
During the fiscal year ended March 31, 1997, the Distributor received the
following amounts from Rule 12b-1 fees and CDSC fees in connection with Investor
B Shares of the Non-Money Market Funds: $0 and $0, respectively. Of these
amounts, the Distributor retained $0 and $0, respectively, and paid the balance
to selling dealers.
DAILY SHARES OF THE MONEY MARKET FUNDS. The Directors have approved a
Distribution Plan (the "Daily Distribution Plan") with respect to Daily Shares
of the Money Market Funds. Pursuant to the Daily Distribution Plan, a Money
Market Fund may compensate or reimburse the Distributor for any activities or
expenses primarily intended to result in the sale of the Fund's Daily Shares,
including for sales related services provided by banks, broker/dealers or other
financial institutions that have entered into a Sales Support Agreement relating
to the Daily Shares with the Distributor ("Selling Agents"). Payments under a
Fund's Daily Distribution Plan will be calculated daily and paid monthly at a
rate or rates set from time to time by the Board of Directors provided that the
annual rate may not exceed 0.45 % of the average daily net asset value of each
Money Market Fund's Daily Shares.
The fees payable under the Daily Distribution Plan are used primarily to
compensate or reimburse the Distributor for distribution services provided by
it, and related expenses incurred, including payments by the Distributor to
compensate or reimburse Selling Agents, for sales support services provided, and
related expenses incurred, by such Selling Agents. Payments under the Daily
Distribution Plan may be made with respect to preparation, printing and
distribution of prospectuses, sales literature and advertising materials by the
Distributor or, as applicable, Selling Agents, attributable to distribution or
sales support activities, respectively, commissions, incentive compensation or
other compensation to, and expenses of, account executives or other employees of
the Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; overhead and other office expenses of the Distributor
relating to the foregoing (which may be calculated as a carrying charge in the
Distributor's or Selling Agents' unreimbursed expenses), incurred in connection
with distribution or sales support activities. The overhead and other office
expenses referenced above may include, without limitation, (i) the expenses of
operating the Distributor's or Selling Agents' offices in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefit
costs of administrative operations and support personnel, utility costs,
communication costs and the costs of stationery and supplies, (ii) the costs of
client sales seminars and travel related to distribution and sales support
activities, and (iii) other expenses relating to distribution and sales support
activities.
In addition, the Directors have approved a Shareholder Servicing Plan with
respect to Daily Shares of the Money Market Funds (the "Daily Servicing Plan").
Pursuant to the Daily Servicing Plan, a Fund may compensate or reimburse banks,
broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Company ("Servicing Agents") for
certain activities or expenses of the Servicing Agents in connection with
shareholder services that are provided by the Servicing Agents. Payments under
the Daily Servicing Plan will be calculated daily and paid monthly at a rate or
rates set from time to time by the Board of Directors, provided that the annual
rate may not exceed 0.25% of the average daily net asset value of the Daily
Shares of the Money Market Funds.
The fees payable under the Daily Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for such Daily Shares from Customers and
transmitting promptly net purchase and redemption orders to the Distributor or
Transfer Agent; (ii) providing Customers with a service that invests the
50
<PAGE>
assets of their accounts in such Daily Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Company on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in such Daily Shares; (v) arranging for
bank wires; (vi) responding to Customers' inquiries concerning their investment
in such Daily Shares; (vii) providing sub-accounting with respect to such Daily
Shares beneficially owned by Customers or providing the information to us
necessary for sub-accounting; (viii) if required by law, forwarding shareholder
communications from the Company (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; (ix) forwarding to Customers proxy statements and proxies
containing any proposals regarding the Daily Servicing Plan or related
agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as the Company may reasonably request to
the extent such Servicing Agent is permitted to do so under applicable statutes,
rules or regulations.
The fees payable under the Daily Distribution Plan and Daily Servicing
Plan (together, the "Daily Plans") are treated by the Funds as an expense in the
year they are accrued. At any given time, a Selling Agent and/or Servicing Agent
may incur expenses in connection with services provided pursuant to its
agreements with the Distributor under the Daily Plans which exceed the total of
(i) the payments made to the Selling Agents and Servicing Agents by the
Distributor or the Company and reimbursed by the Fund pursuant to the Daily
Plans, and (ii) the proceeds of contingent deferred sales charges paid to the
Distributor and reallowed to the Selling Agent, upon the redemption of their
Customers' Daily Shares. Any such excess expenses may be recovered in future
years, so long as the Daily Plans are in effect. Because there is no requirement
under the Daily Plans that the Distributor be paid or the Selling Agents and
Servicing Agents be compensated or reimbursed for all their expenses or any
requirement that the Daily Plans be continued from year to year, such excess
amount, if any, does not constitute a liability to a Fund or the Distributor.
Although there is no legal obligation for the Fund to pay expenses incurred by
the Distributor, a Selling Agent or a Servicing Agent in excess of payments
previously made to the Distributor under the Daily Plans or in connection with
contingent deferred sales charges, if for any reason the Daily Plans are
terminated, the Directors will consider at that time the manner in which to
treat such expenses.
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
Daily Plan.
During the fiscal period ended March 31, 1996, the Distributor received
the following amounts from Rule 12b-1 fees in connection with Daily Shares of
the Money Market Funds: $48 and $0, respectively. Of these amounts, the prior
Distributor retained $0 and $0, respectively, and paid the balance to selling
dealers.
During the fiscal year ended March 31, 1997, the Distributor received $0
from Rule 12b-1 fees in connection with Daily Shares of the Money Market Funds.
Of this amount, the Distributor retained $0 and paid the balance to selling
dealers.
INFORMATION APPLICABLE TO INVESTOR A, INVESTOR B, INVESTOR C AND DAILY
SHARES. The Investor A Plan, the Money Market Investor A Servicing Plan, the
Investor B/C Plan, the Investor B/C Servicing Plan, the Investor C Plan, the
Daily Distribution Plan, the Daily Servicing Plan and the Investor C/B Servicing
Plan (each a "Plan" and collectively the "Plans") may only be used for the
purposes specified above and as stated in each such Plan. Compensation payable
to Selling Agents or Servicing Agents for shareholder support services under the
Investor A Plan, the Money Market Investor A Servicing Plan, the Investor B/C
Servicing Plan, Daily Servicing Plan and the Investor C/B Servicing Plan is
subject to, among other things, the National Association of Securities Dealers,
Inc. ("NASD") Rules of 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.
51
<PAGE>
As required by Rule 12b-1 under the 1940 Act, each Plan was approved by
the Board of Directors, including a majority of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("Qualified Directors") on February 6, 1997, with
respect to the Investor C Shares of the Money Market Funds, on March 22, 1991,
with respect to the Investor A Shares of the Equity Income and Government
Securities Funds, on June 24, 1992 with respect to the Investor A Shares of the
International Equity Fund, and on March 19, 1992, with respect to the Investor C
Shares of the Non-Money Market Funds. Additionally, each Plan with respect to
the Investor B Shares of the Money Market Funds and with respect to the Investor
B Shares of all the Non-Money Market Funds was approved by the Board of
Directors, including a majority of the Qualified Directors, on February 3, 1993.
The Plan with respect to the Investor C Shares of the Money Market Funds was
initially approved on August 4, 1993. The Plan with respect to the Daily Shares
of the Money Market Funds was initially approved on August 4, 1993. The Plans
continue in effect as long as such continuance is specifically approved at least
annually by the Board of Directors, including a majority of the Qualified
Directors. On October 12, 1996, the Board of Directors (including a majority of
the Qualified Directors) voted to continue each Plan for an additional one year
period.
In approving the Plans in accordance with the requirements of Rule 12b-1,
the directors considered various factors and determined that there is a
reasonable likelihood that each Plan will benefit the respective Investor A,
Investor B, Investor C Shares or Investor B Shares and the holders of such
shares. The Investor A Plan was approved by the Shareholders of the Investor A
Shares of each of the Funds except the International Equity Fund on September 6,
1991, and the Investor B/C Plan applicable to Investor C Shares of the
International Equity and Equity Income Funds and the Investor A Plan applicable
to Investor A Shares of the International Equity Fund were approved on September
22, 1992 by the Investor C Shareholders of the respective International Equity
and Equity Income Funds with respect to the Investor B/C Plan and by the
Investor A Shareholders of the International Equity Fund with respect to the
Investor A Plan. The Plans applicable to the Investor B Shares of the Money
Market Funds and Investor B Shares of the Non-Money Market Funds were approved
by such Funds' initial shareholder of Investor B and Investor B Shares.
The Investor A Shares' Plans with respect to the Money Market Funds
originally became effective on December 4, 1989, and were amended February
12,1990, March 19, 1992 and February 3, 1993. The Investor A Shares' Plan with
respect to the Equity Income and Government Securities Funds became effective on
March 22, 1991, and was amended March 19, 1992. The Investor A Shares' Plan with
respect to the International Equity Fund became effective September 6, 1991 and
was amended March 19, 1992 and February 3, 1993.
The Investor A Plan, Investor B/C Plan and Investor C/B Plan may be
terminated with respect to their respective shares by vote of a majority of the
Qualified Directors, or by vote of a majority of the holders of the outstanding
voting securities of the Investor A, Investor B or Investor C, as appropriate.
Any change in such a Plan that would increase materially the distribution
expenses paid by the Investor A, Investor B or Investor C Shares requires
shareholder approval; otherwise, each Plan may be amended by the directors,
including a majority of the Qualified Directors, by vote cast in person at a
meeting called for the purpose of voting upon such amendment. The Money Market
Investor A Servicing Plan, the Investor B/C Servicing Plan and the Investor C/N
Servicing Plan may be terminated by a vote of a majority of the Qualified
Directors. As long as a Plan is in effect, the selection or nomination of the
Qualified Directors is committed to the discretion of the Qualified Directors.
52
<PAGE>
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.
FEES PAID PURSUANT TO SHAREHOLDER SERVICING/DISTRIBUTION PLANS
INVESTOR A SHARES
<TABLE>
<CAPTION>
NET NET
FEES PAID (12B-1 COMPONENT) FEES PAID (SHAREHOLDER NET
YEAR ENDED 3/31/97 SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/97 PAID
<S> <C> <C> <C>
Prime Fund $ 1,097,979.00 $ 2,747,215.00 $3,845,194.00
Treasury Fund 162,471.00 406,736.00 569,207.00
Equity Income Fund 110,224.00 N/A 110,224.00
International Equity Fund 24,965.00 N/A 24,965.00
Government Securities 26,901.00 N/A 26,901.00
Fund
</TABLE>
FEES PAID PURSUANT TO DISTRIBUTION PLANS
INVESTOR B SHARES - MONEY MARKET FUNDS
INVESTOR C SHARES - NON-MONEY MARKET FUNDS
<TABLE>
<CAPTION>
NET NET
FEES PAID (12B-1 COMPONENT) FEES PAID (SHAREHOLDER NET
YEAR ENDED 3/31/97 SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/97 PAID
<S> <C> <C> <C>
Prime Fund $ 0 $858,611.00 858,611.00
Treasury Fund 0 3,544,545.00 3,544,545.00
Equity Income Fund 11,994.00 11,993.00 23,987.00
International Equity Fund 1,875.00 1,882.00 3,756.00
Government Securities 5,499.00 5,499.00 10,999.00
Fund
</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.
53
<PAGE>
INVESTOR C SHARES - MONEY MARKET FUNDS
INVESTOR B SHARES - NON-MONEY MARKET FUNDS
<TABLE>
<CAPTION>
NET NET
FEES PAID (12B-1 COMPONENT) FEES PAID (SHAREHOLDER NET
YEAR ENDED 3/31/97 SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/97 PAID
<S> <C> <C> <C>
Prime Fund N/A $208,356.00 $ 208,356.00
Treasury Fund N/A 31,570.00 31,570.00
Equity Income Fund $ 537,211.00 267,429.00 804,639.00
International Equity Fund 291,590.00 101,842.00 393,431.00
Government Securities 182,232.00 144,169.00 296,401.00
Fund
</TABLE>
DAILY SHARES - MONEY MARKET FUNDS
<TABLE>
<CAPTION>
NET FEES PAID
NET (SHAREHOLDER
FEES PAID (12B-1 SERVICING COMPONENT) NET
COMPONENT) YEAR ENDED 3/31/97 FEES
FUND YEAR ENDED 3/31/97 PAID
<S> <C> <C> <C>
Prime Fund $2,524.00 $2,495.00 $ 5,018.00
Treasury Fund 1,655.00 1,657.00 3,311.00
</TABLE>
FEES PAID PURSUANT TO THE ADMINISTRATION PLAN
<TABLE>
<CAPTION>
PRIMARY B SHARES
Net Admin Net Admin
Fees Paid Fees Waived
<S> <C> <C>
Prime Fund $503,055 $0
Treasury Fund 173,395 0
Equity Income Fund 12,732 0
International Equity Fund 13,436 0
Government Securities Fund 2,205 0
</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
54
<PAGE>
net asset value of such shares. Such services may include: (i) aggregating and
processing purchase, exchange and redemption requests for Primary B Shares from
Customers and transmitting promptly net purchase and redemption orders with the
Distributor or the transfer agents; (ii) providing Customers with a service that
invests the assets of their accounts in Primary B Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Company on behalf of Customers; (iv) providing information periodically
to Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customer inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding the Shareholder Servicing Agreements or Shareholder Serving Plan; and
(x) providing such other similar services as may reasonably be requested to the
extent permitted under applicable statutes, rules, or regulations.
Such plan shall continue in effect as long as the Board of Directors,
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.
55
<PAGE>
EXPENSES
The Administrator furnishes, without additional cost to the Company, the
services of the Treasurer and Secretary of the Company and such other personnel
(other than the personnel of the Adviser) as are required for the proper conduct
of the Company's affairs. The Distributor bears the incremental expenses of
printing and distributing prospectuses used by the Distributor or furnished by
the Distributor to investors in connection with the public offering of the
Company's shares and the costs of any other promotional or sales literature,
except that to the extent permitted under the Plans relating to the Investor A,
Investor B or Investor C Shares of each Fund, sales-related expenses incurred by
the Distributor may be reimbursed by the Company.
The Company pays or causes to be paid all other expenses of the Company,
including, without limitation: the fees of the Adviser, the Administrator and
Co-Administrator; the charges and expenses of any registrar, any custodian or
depository appointed by the Company for the safekeeping of its cash, fund
securities and other property, and any stock transfer, dividend or accounting
agent or agents appointed by the Company; brokerage commissions chargeable to
the Company in connection with fund securities transactions to which the Company
is a party; all taxes, including securities issuance and transfer taxes;
corporate fees payable by the Company to federal, state or other governmental
agencies; all costs and expenses in connection with the registration and
maintenance of registration of the Company and its shares with the SEC and
various states and other jurisdictions (including filing fees, legal fees and
disbursements of counsel); the costs and expenses of typesetting prospectuses
and statements of additional information of the Company (including supplements
thereto) and periodic reports and of printing and distributing such prospectuses
and statements of additional information (including supplements thereto) to the
Company's shareholders; all expenses of shareholders' and directors' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; fees and travel expenses of directors or director members of any
advisory board or committee; all expenses incident to the payment of any
dividend or distribution, whether in shares or cash; charges and expenses of any
outside service used for pricing of the Company's shares; fees and 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).
56
<PAGE>
TRANSFER AGENTS AND CUSTODIANS
First Data Investors 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
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.
Bank of New York, 90 Washington Street, New York, New York 10286, serves
as sub-custodian for the portfolio securities and cash of all the Funds, except
the International Equity Fund, for which Bank of New York is already serving as
custodian.
DISTRIBUTOR
Stephens Inc. (the "Distributor") serves as the principal underwriter and
distributor of the shares of the Funds.
Pursuant to a distribution agreement (the "Distribution Agreement"), the
Distributor, as agent, sells shares of the Funds on a continuous basis and
transmits purchase and redemption orders that its receives to the 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
57
<PAGE>
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 Annual Reports for the fiscal period ended March 31, 1997 are hereby
incorporated herein by reference in this SAI. The Annual Reports will be sent
free of charge with this SAI to any shareholder who requests this SAI.
COUNSEL
Morrison & Foerster LLP serves as legal counsel to the Company. Their
address is 2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006.
ADDITIONAL INFORMATION ON PERFORMANCE
Yield information and other performance information for the Company's Funds may
be obtained by calling the Company at (800) 321-7854.
From time to time, the yield and total return of a Fund's Investor Shares
and Primary Shares may be quoted in advertisements, shareholder reports, and
other communications to shareholders. Each Fund of the Company also may quote
information obtained from the Investment Company Institute in its advertising
materials and sales literature. In addition, certain potential benefits of
investing in world securities markets may be discussed in promotional materials.
Such benefits include, but are not limited to: a) the expanded opportunities for
investment in securities markets outside the U.S.; b) the growth of securities
markets outside the U.S. vis-a-vis U.S. markets; c) the relative return
associated with foreign securities markets vis-a-vis U.S. markets; and d) a
reduced risk of portfolio volatility resulting from a diversified securities
portfolio consisting of both U.S. and foreign securities. Performance
information is available by calling 1-800-321-7854 with respect to Investor
Shares and 1-800-621-2192 with respect to Primary Shares.
YIELD CALCULATIONS
The current yield quotations for the Primary A, Primary B, Investor A,
Investor B, Investor C and Daily Shares of the Money Market Funds are computed
by determining the net change, exclusive of capital changes, over a seven-day
base period in the value of a hypothetical pre-existing account having a balance
of one share at the beginning of the period. The net change in account value is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The base period return is then multiplied by
(5/7), with the resulting annualized yield figure carried to the nearest 1/100
of 1%. For purposes of calculating current yield, net change in account value
reflects: (i) the value of additional shares purchased with dividends from the
original shares and dividends declared on both the original shares and any such
additional shares, and (ii) all fees (other than non-recurring account charges)
that are charged to all shareholder accounts in proportion to the length of the
base period and the average account size of the Primary A, Primary B, Investor
A, Investor B, Investor C and Daily Shares of the Money Market Funds. The
capital changes excluded from the calculation of current yield are realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation.
The effective yield quotations for the Primary Shares and Investor Shares
of the Money Market Funds are computed by compounding the unannualized seven-day
base period return as follows: 1 is added to the base period return and this sum
is then raised to a power equal to (5/7), and 1 is then subtracted from the
result. Based on the seven-day period ended March 31, 1997, (the "base period"),
the current and effective yields of the various shares of the Money Market Funds
were as follows:
58
<PAGE>
Seven Day Yield
<TABLE>
<CAPTION>
Effective
Yield Yield Tax
Without Without Fee Tax Equivalent
Fee Waivers Effective Waivers Equivalent Yield w/o
Yield Yield Yield Waivers
<S> <C> <C> <C> <C> <C> <C>
Prime Fund
Primary A Shares 5.36% 5.31% 5.50% 5.45% 8.87% 8.82%
Primary B Shares 5.11% 5.06% 5.24% 5.19% 8.46% 8.41%
Investor A Shares 5.01% 4.96% 5.14% 5.09% 8.29% 8.24%
Investor B Shares 5.11% 4.96% 5.24% 5.09% 8.46% 8.31%
Investor C Shares 5.11% 5.06% 5.24% 5.19% 8.46% 8.41%
Daily Shares 4.86% 4.61% 4.98% 4.73% 8.05% 7.80%
Treasury Fund
Primary A Shares 5.40% 5.35% 5.55% 5.50% 8.94% 8.89%
Primary B Shares 5.15% 5.10% 5.28% 5.23% 8.53% 8.48%
Investor A Shares 5.05% 5.00% 5.18% 5.13% 8.36% 8.31%
Investor B Shares 5.15% 5.00% 5.28% 5.13% 8.53% 8.38%
Investor C Shares 5.15% 5.10% 5.28% 5.23% 8.53% 7.86%
Daily Shares 4.90% 4.65% 5.02% 4.77% 8.11% 7.86%
</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 March 31, 1997, the yields of the various shares of the Government
Securities Fund(1) were as follows:
<TABLE>
<CAPTION>
Thirty Day Yield
Yield Without Fee
Government Securities Fund Yield Waivers
----- -------
<S> <C> <C>
Primary A Shares 6.14% 6.00%
Primary B Shares 5.63% 5.48%
Investor A Shares 5.88% 5.74%
Investor C Shares 5.63% 5.49%
Investor N Shares 5.48% 5.33%
</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.
- --------
1 The Equity Fund does not disclose a 30-day yield because it is an equity fund.
59
<PAGE>
Such yield figures were determined by dividing the net investment income
per share earned during the specified 30-day period by the maximum offering
price per share on the last day of the period, according to the following
formula:
Yield = 2[(a-b + 1)(6)-1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = average daily number of shares outstanding during
the period that were entitled to receive dividends
d = maximum offering price per share on the last day of
the period
For purposes of yield quotation, income is calculated in accordance with
standardized methods applicable to all stock and bond mutual funds. In general,
interest income is reduced with respect to bonds trading at a premium over their
par value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. Capital gains and losses are excluded from the
calculation.
Income calculated for the purposes of calculating a Fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions a Fund paid over the same period or the rate of income reported in
the Funds' financial statements.
TOTAL RETURN CALCULATIONS
Total return measures both the net investment income generated by, and the
effect of any realized or unrealized appreciation or depreciation of the
underlying investments in a Non-Money Market Fund. The Non-Money Market Funds'
average annual and cumulative total return figures are computed in accordance
with the standardized methods prescribed by the SEC.
Average annual total return figures are computed by determining the
average annual compounded rates of return over the periods indicated in the
advertisement, sales literature or shareholders' report that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period of
a hypothetical $1,000 payment made at the beginning
of such period.
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 following figures, for the period ended March 31, 1997, reflect the
deduction of sales charges, if any, that would have been deducted from a sale of
shares.
60
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
5 Year Period Ended
3/31/97 or
One Year Inception
Period Ended 3/31/97 through 3/31/97
<S> <C> <C>
Equity Income Fund
Primary A Shares 15.62% 14.10%
Investor A 15.30% 13.78%
Investor B 14.76% 13.26%
Investor C 15.01% 13.51%
International Equity Fund
Primary A 1.32% 8.24%
Investor A 1.08% 6.63%
Investor B 0.28% 7.21%
Investor C 0.77% 6.58%
Government Securities Fund
Primary A 3.18% 5.02%
Investor A 2.92% 4.79%
Investor B 2.51% 2.88%
Investor C 2.67% 3.55%
</TABLE>
Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
CTR = (ERV-P) 100
-------
P
Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of
a hypothetical $1,000 payment made at the beginning
of such period
P = initial payment of $1,000.
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory and administrative fees, charged as expenses to all shareholder
accounts.
61
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
10 Year Period 10 Year Period
Ended 3/31/97 Ended 3/31/97
or Inception or Inception
FYE FYE 5 Year Period 5 Year Period through through
3/31/97 3/31/97 Ended 3/31/97 Ended 3/31/97 3/31/97 3/31/97
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
<S> <C> <C> <C> <C> <C> <C>
Equity Income Fund
Primary A Shares 15.62% 15.62% 14.10% 14.10% 119.98% 119.98%
Primary B Shares NA NA NA NA 11.17% 11.17%
Investor A Shares 15.30% 15.30% 13.78% 13.78% 115.48% 115.48%
Investor B Shares 14.76% 14.76% NA NA 60.81% 60.81%
Investor C Shares 15.01% 14.55% NA NA 83.38% 83.38%
International Equity Fund
Primary A Shares 1.32% 1.32% 8.24% 8.24% 44.13% 44.13%
Primary B Shares NA NA NA NA -0.66% -0.66%
Investor A Shares 1.08% 1.08% NA NA 36.33% 36.33%
Investor B Shares 0.28% 0.28% NA NA 30.40% 30.40%
Investor C Shares 0.77% 0.28% NA NA 35.67% 35.67%
Government Securities
Fund 3.18% 3.18% 5.02% 40.32% 40.32%
Primary A Shares
Primary B Shares NA NA NA NA NA NA
Investor A Shares 2.92% 2.92% 4.79% 4.79% 38.37% 38.40%
Investor B Shares 2.51% 2.51% NA NA 11.44% 11.44%
Investor C Shares 2.67% 2.18% NA NA 17.94% 17.94%
</TABLE>
* Primary A Shares of the Company do not carry a sales charge.
The Primary Shares and Investor Shares of the Equity Income Fund, Government
Securities Fund and International Equity Fund may also quote their distribution
rates, which express the historical amount of income dividends paid to their
shareholders during a one-month (in the case of the Government Securities Fund)
or a three-month (in the case of the Equity Income Fund and International Equity
Fund) period as a percentage of the maximum offering price per share on the last
day of such period. The performance figures of the Funds as described above will
vary from time to time depending upon market and economic conditions, the
composition of their portfolios and operating expenses. These factors should be
considered when comparing the performance figures of the Funds with those of
other investment companies and investment vehicles.
The "yield" and "effective yield" of each class of shares of a Money
Market Fund may be compared to the respective averages compiled by DONOGHUE'S
MONEY FUND REPORT, a widely recognized independent publication that monitors the
performance of money market funds, or to the average yields reported by the BANK
RATE MONITOR for money market deposit accounts offered by the 50 leading banks
and thrift institutions in the top five metropolitan statistical areas. Each
Fund may quote information obtained from the Investment Company Institute,
national financial publications, trade journals and other industry sources in
its advertising and sales literature. In addition, the Funds also may compare
the performance and yield of a class or series of shares to those of other
mutual funds with similar investment objectives and to other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. Performance and yield data as
reported in national financial publications such as MONEY MAGAZINE, FORBES,
BARRON'S, THE WALL STREET JOURNAL, and THE NEW YORK TIMES, OR in publications of
a local or regional nature, also may be used in comparing the performance of a
class of shares in a Fund.
62
<PAGE>
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, 1997. Unless otherwise indicated, the
address for each recordholder of Primary Shares is 1401 Elm Street, 11th Floor,
Dallas, Texas 75202.
Name and Address Percentage of Shares
Held of Record Only
PRIME FUND
Primary A Shares 61.98%
- ----------------
NationsBank of Texas, N.A.
Attn: Adrian Castillo
1401 Elm Street, 11th Floor
Dallas, TX 75202-2911
Boatmen's Trust Company 36.45%
P.O. Box 14737 LBT 0785
St. Louis, MO 63178
Primary B Shares
NationsBank of Texas, N.A. 98.12%
Attn: Adrian Castillo (B Shares)
1401 Elm Street, 11th Floor
Dallas, TX 75202-2911
Investor A Shares
Dean Witter Reynolds Cust For 29.64%
J. Harold Courson
IRA Rollover DTD 06/14/93
3212 Carmel Bay Drive
Mt. Pleasant, SC 29464-8512
Dean Witter Reynolds Cust For 19.30%
Jane S. Mollenhoff
IRA Rollover DTD 06/14/93
5603 Boatwright Circle
Williamsburg, VA 23185
BSDT Cust 10.20%
63
<PAGE>
Name and Address Percentage of Shares
Held of Record Only
Rollover IRA FBO
William D. Patterson
1742 Hilltop
Kingwood, TX 77339
National Financial For The 9.80%
Exclusive Benefit Of Our Customers
200 Liberty Street
1 World Financial Center
Attn: Mutual Funds, 5th Floor
New York, NY 10281
Dean Witter Reynolds Cust For 6.65%
C. David Kaley
IRA Rollover, DTD 06/14/93
129 Shomate Drive
Longwood, FL 32750-3040
Dean Witter Reynolds Cust For 6.52%
Clark N. West III
IRA Rollover DTD 12/16/94
894 Mulligan Lane
West Minster, MD 21138
Dean Witter Reynolds Cust For 5.96%
R. Reid Adams
IRA Standard DTD 06/14/93
P.O. Box 130
Lawrenceville, GA 30246-0130
Gerald S. Goldman & 5.85%
Margit M. Goldman JTWROS
8130 Arbor Way
Owings, MD 20736
BSDT Cust IRA FBO 5.43%
Redit Askew
147 15th Street, 5A
Atlanta, GA 30309
Investor C Shares
Steven A. Franks & Larry D. Johnson 32.19%
TTEES For Fielder Electric Motor
Repair Inc. PEN Plan U/A DTD 10/01/82
104 Poplar Knob Road
Galax, VA 24333
Marie W. Thomason and 20.00%
James R. Thomason JTTEN
2911 Polo Club Road
Nashville, TN 37221
64
<PAGE>
Name and Address Percentage of Shares
Held of Record Only
Jim Celania 17.76%
200 S Canterbury Road
Charlotte, NC 28211
Rebecca L. Layous Revocable Trust 14.07%
DTD 03/05/92
Rebecca L. Layous Trustee
11500 Big Piney Way
Potomac, MD 20854
John Jones and 7.89%
Becky L. Jones JTTEN
4235 SW 111 Terrace
Davie, FL 33328-2111
Dean Witter Reynolds Cust For 6.45%
Max Elgan Clark
IRA Rollover DTD 08/26/93
P.O. Box 276
Mineral Wells, TX 76068-0276
Dallas Summer Musicals Inc. 5.75%
P.O. Box 710336
Dallas, TX 75371
Holy Trinity Greek Orthodox 5.39%
Church Inc.
4905 Franklin Road
Nashville, TN 37220
Daily Shares
Stephens Inc. Omnibus Account 46.31%
Attn: Jean Geiger
111 Center Street
Little Rock, AR 72201-4402
Unit Parts Company 2.52%
P.O. Box 26021
Oklahoma City, OK 73126-0021
The G.H.K. Company 2.09%
Mr. Robert A. Livingston
6305 Waterford Blvd.
Oklahoma City, OK 73118-1116
Robinson-Van Vuren Associates Inc. 1.56%
3000 United Founders Blvd., Suite 240
Oklahoma City, OK 73112-4279
65
<PAGE>
Name and Address Percentage of Shares
Held of Record Only
Donaldson Lufkin Jenrette 1.43%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
Westphalen Bradley & James Inc. 1.41%
P.O. Box 18447
Oklahoma City, OK 73154-0447
National Cowboy Hall of Fame 1.39%
Whiskey Smuggler Account
1700 NE 63rd Street
Oklahoma City, OK 73111-7906
TREASURY FUND
Primary A Shares
Boatmen's Trust Company 63.59%
P.O. Box 14737 LBT0785
St. Louis, MO 63178
NationsBank of Texas, N.A. 35.81%
Attn: Adrian Castillo
1401 Elm Street, 11th Floor
Dallas, TX 75202-2911
Primary B Shares
NationsBank of Texas, N.A. 97.98%
Attn: Adrian Castillo
1401 Elm Street, 11th Floor
Dallas, TX 75202-2911
Investor A Shares
Hare & Co., Bank of New York 88.94%
Attn: STIF/Master Note
One Wall Street, 2nd Floor
New York, NY 10286
Investor B Shares
Hare & Co., Bank of New York 64.01%
Attn: STIF/Master Note
One Wall Street, 2nd Floor
New York, NY 10286
Investor C Shares
Dean Witter Reynolds Cust For 68.03%
Dorothy Page Suggs
IRA STD/Rollover DTD 10/04/93
8332 Highway 100
Nashville, TN 37221
66
<PAGE>
Name and Address Percentage of Shares
Held of Record Only
Dean Witter Reynolds Cust For 24.63%
John P. Nicoson
IRA STD/Rollover DTD 01/31/95
13147 Ashvale Drive
Fairfax, VA 22033
Lois H. Bohler 17.88%
6 Bransord Place
Augusta, GA 30904-6131
Gail Margules 12.94%
21 Manor Lane
Lawrence, NY 11559-1503
Kenneth E. Hester & 11.18%
J. Robert Wren Jr. TTEES
Daniel J. Stowe Rev. Trust DTD 08/22/95
P.O. Box 1046
Belmont, NC 28012
Carlos Ghosn Bichara 10.00%
Villa La Ranchere
1 Rue Charles DeGaulle
Saint Nom La Breteche
78860, France
David S. Hungerford and 6.25%
UTA-Heide Hungerford Ten Enty
10715 Potspring Road
Cockeysville, MD 21030
Daily Shares
Stephens Inc. Omnibus Account 5.87%
Attn: Jean Geiger
111 Center Street
Little Rock, AR 72201-4402
EQUITY INCOME FUND
Primary A Shares
NationsBank of Texas, N.A. 54.55%
Attn: Adrian Castillo
1401 Elm Street, 11th Floor
Dallas, TX 75202-2911
CNOM & Co. 35.46%
P.O. Box 500409
St. Louis, MO 63150-0409
67
<PAGE>
Name and Address Percentage of Shares
Held of Record Only
Primary B Shares
NationsBank of Texas, N.A. 100.00%
Attn: Adrian Castillo
1401 Elm Street, 11th Floor
Dallas, TX 75202-2911
Investor A Shares
Patricia M. Suber 55.66%
1330 Whittaker Drive
Columbia, SC 29206
Mineo Moriai 25.94%
817 Marsh Trail Circle
Atlanta, GA 30328-5733
Wilma F. Hamilton & 16.45%
James H. Hamilton &
Gwen H. Baker JTTEN
P.O. Box 281
Pine Level, NC 27568
Investor C Shares
Dean Witter Reynolds Cust For 7.73%
Dale Morris
IRA Standard DTD 06/14/93
818 19th Avenue S
Nashville, TN 37203-3202
Philip P. Brown & 7.02%
Sue N. Brown JTWROS
518 Park Center Drive
Nashville, TN 37205
Ralph Akins, Bruce Akins, Betty 6.73%
Anne George & James Matlock TTEES
FBO Akins Feed & Seed Co. Inc.
Profit Sharing Plan
P.O. Box 289
Griffin, GA 30224
GOVERNMENT SECURITIES FUND
Primary A Shares
NationsBank of Texas, N.A. 98.75%
Attn: Adrian Castillo
1401 Elm Street, 11th Floor
Dallas, TX 75202-2911
68
<PAGE>
Name and Address Percentage of Shares
Held of Record Only
Primary B Shares
NationsBank of Texas, N.A. 100.00%
Attn: Adrian Castillo
1401 Elm Street, 11th Floor
Dallas, TX 75202-2911
Investor A Shares
Southside Bank TTEE 26.65%
East Texas Regional Health Facilities Trust
U/A DTD 10/20/89
P.O. Box 8444
Tyler, TX 75711
Dodson Brothers 14.02%
Exterminating Co. Inc.
Attn: H.P. Dawson
P.O. Box 10249
Lynchburg, VA 24506
Investor C Shares
Dean Witter Reynolds Cust For 10.68%
Gene H. Sloan Jr.
IRA Standard DTD 06/14/93
412 Lillard Road
Murfreesboro, TN 37130-3130
Harvey W. Campbell Jr. 5.57%
Route 2, Box 434
Appomattox, VA 24522
INTERNATIONAL EQUITY FUND
Primary A Shares
NationsBank of Texas, N.A. 97.88%
Attn: Adrian Castillo
1401 Elm Street, 11th Floor
Dallas, TX 75202-2911
Primary B Shares
NationsBank of Texas, N.A. 96.23%
Attn: Adrian Castillo
1401 Elm Street, 11th Floor
Dallas, TX 75202-2911
Investor A Shares
Alpine Associates 9.62%
A Partnership
100 Union Avenue
Cresskill, NJ 07626
69
<PAGE>
Name and Address Percentage of Shares
Held of Record Only
Northern Trust Co. Cust FBO 7.71%
Curtiswood Corp.
P.O. Box 92956
Chicago, IL 60675
Roy R. Martine & 6.39%
Kathleen H. Martine JTWROS
4009 Tottenham Court
Richmond, VA 23233-1771
BSDT Cust IRA FBO 5.29%
Redi Askew
147 15th Street, 5A
Atlanta, GA 30309
Investor C Shares
Ralph Akins, Bruce Akins, Betty 17.27%
Anne George & James Matlock TTEES
FBO Atkins Feed & Seed Co. Inc.
Profit Sharing Plan
P.O. Box 289
Griffin, GA 30224
C.A. Porterfield & Rosalee Moxley & 9.80%
Frank Minton TTEES FBO
Starmount Company Employees
Tax Deferred Savings Plan
600 Green Valley Road, Suite 300
Greensboro, NC 27408-7722
Haeson Mills TTEE FBO 5.75%
Q Systems, Inc.
401K Plan
1430 Spring Hill Road, Suite 300
McLean, VA 22102
Deb Oweis and 5.35%
Mohammad Oweis TTEES FBO
Amtec International Inc.
Profit Sharing Plan
1200 Woodruff Road, Apt. C-35
Greensville, SC 29607
William W. Jaeger & 5.12%
Randall T. Odeneal TTEES
FBO Sconnix Broadcasting Company
Retirement Savings Plan
1921 Gallows Road, Suite 850
Vienna, VA 22182
70
<PAGE>
As of July 15, 1997, 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.
71
<PAGE>
SCHEDULE A
DESCRIPTION OF RATINGS
The following summarizes the highest six ratings used by Standard & Poor's
Corporation ("S&P") for corporate and municipal bonds. The first four ratings
denote investment-grade securities.
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay principal.
AA - Debt rated AA is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in a
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B - Bonds rated BB and B are regarded, on balance as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. Debt rated
BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. Debt
rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
To provide more detailed indications of credit quality, the AA, A and BBB,
BB and B ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's Investors
Service, Inc. ("Moody's") for corporate and municipal bonds. The first four
denote investment grade securities.
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
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 payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted A-1+. Capacity for timely
A-3
<PAGE>
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.
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SCHEDULE B
ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES
As stated in the Prospectus, each Non-Money Market Fund, may enter into
futures contracts and options for hedging purposes. Such transactions are
described in this Schedule. During the current fiscal year, each of these Funds
intends to limit its transactions in futures contracts and options so that not
more than 5% of the Fund's net assets are at risk. Furthermore, in no event
would any Fund purchase or sell futures contracts, or related options thereon,
for hedging purposes if, immediately thereafter, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract (or futures option) is traded, plus any premiums paid
by the Fund on its open futures options positions, exceeds 5% of the Fund's
total assets, after taking into account any unrealized profits and unrealized
losses on the Fund's open contracts and excluding the amount that a futures
option is "in-the-money" at the time of purchase. (An option to buy a futures
contract is "in-the-money" if the value of the contract that is subject to the
option exceeds the exercise price; an option to sell a futures contract is
"in-the-money" if the exercise Price exceeds the value of the contract that is
subject of the option.)
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Fund may use interest rate futures as a defense,
or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it hopes
to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
B-1
<PAGE>
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. A Fund would deal
only in standardized contracts on recognized changes. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association ("GNMA") modified pass-through
mortgage-backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
Examples of Futures Contract Sale. A Fund would engage in an interest rate
futures contract sale to maintain the income advantage from continued holding of
a long-term bond while endeavoring to avoid part or all of the loss in market
value that would otherwise accompany a decline in long-term securities prices.
Assume that the market value of a certain security in a Fund tends to move in
concert with the futures market prices of long-term United States Treasury bonds
("Treasury Bonds"). The Adviser wishes to fix the current market value of this
portfolio security until some point in the future. Assume the portfolio security
has a market value of 100, and the Adviser believes that, because of an
anticipated rise in interest rates, the value will decline to 95. The Fund might
enter into futures contract sales of Treasury bonds for an equivalent of 98. If
the market value of the portfolio securities does indeed decline from 100 to 95,
the equivalent futures market price for the Treasury bonds might also decline
from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Future Contract Purchase. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter-term securities
whose yields are greater than those available on long-term bonds. The Fund's
basic motivation would be to maintain for a time the income advantage from
investing in the short-term securities; the Fund would be endeavoring at the
same time to eliminate the effect of all or part of an expected increase in
market price of the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the Adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9-1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury
B-2
<PAGE>
bonds might also rise from 98 to 103. In that case, the 5-point increase in the
price that the Fund pays for the long-term bond would be offset by the 5-point
gain realized by closing out the futures contract Purchase.
The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued incremental
income will be reduced by the loss realized on closing out the futures contract
purchase.
In each transaction, expenses also would be incurred.
II. Index Futures Contracts.
A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contract, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100, the
Bond Buyer Municipal Bond Index, an index composed of 40 term revenue and
general obligation bonds, or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a decrease in
market value of its portfolio securities that might otherwise result from a
market decline. The Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in anticipation of
changes in the composition of its portfolio holdings. For example, in the event
that a Fund expects to narrow the range of industry groups represented in its
holdings it may, prior to making purchases of the actual securities, establish a
long futures position based on a more restricted index, such as an index
comprised of securities of a particular industry group. A Fund also may sell
futures contracts in connection with this strategy, in order to protect against
the possibility that the value of the securities to be sold as part of the
restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net of
commissions and premiums, if any).
B-3
<PAGE>
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objection Protect Against Increasing Price
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.
B-4
<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 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
B-5
<PAGE>
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying security or index fluctuates making
the long and short positions in the futures contract more or less valuable, a
process known as marking to the market. For example, when a Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where a Fund has purchased a
futures contract and the price of the futures contract has declined in response
to a decrease in the underlying instruments, the position would be less
valuable, the Fund would be required to make a variation margin payment to the
broker. At any time prior to expiration of the futures contract, the Adviser may
elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
IV. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by a Fund as
a hedging device. One risk arises because of the imperfect correlation between
movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of securities
being hedged has moved in an unfavorable direction, the Fund would be in a
better position than if it had not hedged at Al. If the price of the securities
being hedged has moved in a favorable direction, this advance will be partially
offset by the loss on the future. If the price of the future moves more than the
price of the hedged securities, the Fund involved will experience either a loss
or gain on the future which will not be completely offset by movements in the
price of the securities which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of securities being hedged if the volatility over a particular time
period of the prices of such securities has been greater than the volatility
over such time period of the future, or if otherwise deemed to be appropriate by
the Adviser. Conversely, a Fund may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the securities being
hedged is less than the volatility over such time period of the futures contract
being used, or if otherwise deemed to be appropriate by the Adviser. It also is
possible that, where a Fund has sold futures to hedge its portfolio against a
decline in the market, the market may advance, and the value of securities held
by the Fund may decline. If this occurred, the Fund would lose money on the
future and also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's Custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
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.
STATEMENT OF ADDITIONAL INFORMATION
NATIONS SMALL COMPANY GROWTH FUND
NATIONS U.S. GOVERNMENT BOND FUND
NATIONS INTERNATIONAL GROWTH FUND
INVESTOR A, INVESTOR B, INVESTOR C, PRIMARY A AND PRIMARY B SHARES
August 1, 1997
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the classes of shares representing interests in the
above listed three investment portfolios of Nations Fund, Inc. This SAI is not a
prospectus, and should be read only in conjunction with the current Prospectuses
for the aforementioned Funds related to the class or series of shares in which
one is interested, dated August 1, 1997 (each a "Prospectus"). All terms used in
this SAI that are defined in the Prospectuses will have the same meanings as
assigned in the Prospectuses. Copies of these Prospectuses may be obtained by
writing Nations Funds c/o Stephens Inc., One NationsBank Plaza, 33rd Floor,
Charlotte, North Carolina 28255, or by calling Nations Funds at (800) 321-7854.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION ................................................................................ 1
FUND TRANSACTIONS AND BROKERAGE.............................................................. 1
General Brokerage Policy............................................................. 1
Section 28(e) Standards.............................................................. 2
ADDITIONAL INFORMATION ON FUND INVESTMENTS .................................................. 3
General.............................................................................. 3
When-Issued Securities, Forward Commitments and Delayed Settlements.................. 4
Foreign Securities .................................................................. 4
Forward Foreign Currency Exchange Contracts.......................................... 5
Futures, Options and Other Derivative Instruments ................................... 6
Warrants ........................................................................... 8
Options on Securities and Indices.................................................... 8
Futures Contracts.................................................................... 9
Options on Futures Contracts......................................................... 10
Limitations on Use of Futures Transactions and Risk Considerations................... 10
Options on Currencies................................................................ 11
Futures Contracts on Foreign Currencies.............................................. 11
Currency Swaps....................................................................... 11
Convertible Securities............................................................... 11
Variable and Floating Rate Instruments............................................... 12
Stripped Securities.................................................................. 13
Participation Interests and Company Receipts......................................... 13
Asset-Backed and Mortgage-Backed Securities.......................................... 14
Repurchase Agreements................................................................ 14
Reverse Repurchase Agreements ....................................................... 15
Lending of Portfolio Securities...................................................... 16
Other Investment Companies........................................................... 16
Restricted and Other Illiquid Securities............................................. 16
Combined Transactions................................................................ 16
Use of Segregated and Other Special Accounts......................................... 17
U.S. Government Obligations.......................................................... 17
Custodial Receipts................................................................... 18
Corporate Debt Securities............................................................ 18
U.S. and Foreign Bank Obligations.................................................... 18
Real Estate Investment Companies..................................................... 19
Additional Investment Limitations ................................................... 19
NET ASSET VALUE.............................................................................. 23
Purchases and Redemptions............................................................ 23
Investment Strategy.................................................................. 23
Net Asset Value Determination........................................................ 23
Exchanges............................................................................ 24
DESCRIPTION OF SHARES........................................................................ 25
Dividends and Distributions.......................................................... 25
<PAGE>
ADDITIONAL INFORMATION CONCERNING TAXES...................................................... 25
Qualification as a Regulated Investment Company...................................... 25
Excise Tax on Regulated Investment Companies......................................... 27
Distributions and Other Matters...................................................... 27
Sale or Redemption of Shares ........................................................ 28
Tax Rates............................................................................ 28
Foreign Shareholders ................................................................ 29
Effect of Future Legislation; Local Tax Considerations............................... 29
DIRECTORS AND OFFICERS....................................................................... 29
Nations Funds Retirement Plan........................................................ 34
Nations Funds Deferred Compensation Plan ............................................ 34
Compensation Table................................................................... 35
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING AND
DISTRIBUTION AGREEMENTS ..................................................................... 36
The Company and Its Common Stock..................................................... 36
Investment Adviser................................................................... 36
Investment Styles.................................................................... 38
Administrator and Co-Administrator................................................... 39
Distribution Plans and Shareholder Servicing
Arrangements for Investor Shares..................................................... 41
Shareholder Administration Plan
(Primary B Shares)................................................................... 45
Expenses............................................................................. 46
Transfer Agents and Custodians....................................................... 47
DISTRIBUTOR ................................................................................. 47
INDEPENDENT ACCOUNTANT AND REPORTS........................................................... 48
COUNSEL...................................................................................... 48
ADDITIONAL INFORMATION ON PERFORMANCE ....................................................... 48
Yield Calculations................................................................... 48
Total Return Calculations............................................................ 49
MISCELLANEOUS ............................................................................... 52
Certain Record Holders............................................................... 52
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
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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, Primary B, Investor A, Investor B(formerly
Investor N) and Investor C Shares of Nations Small Company Growth Fund (the
"Small Company Growth Fund"), Nations U.S. Government Bond Fund (the "Government
Bond Fund") and Nations International Growth Fund (the "International Growth
Fund") (hereinafter the Small Company Growth, Government Bond and International
Growth Funds, collectively referred to individually as a "Fund" and collectively
as the "Funds"). The Primary A and Primary B Shares are collectively referred to
herein as "Primary Shares" and the Investor A, Investor B and Investor C Shares
are referred to as "Investor Shares." Prospectuses relating to these Funds may
be obtained without charge by written request to Nations Funds, 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.
Boatmen's Capital Management, Inc. ("Boatmen's") is the investment sub-adviser
to Government Bond Fund. TradeStreet Associates, Inc. ("TradeStreet") serves as
investment sub-adviser to Small Company Growth Fund. Gartmore Global Partners
("Gartmore") serves as investment sub-adviser to International Growth Fund. As
used herein, "Adviser" shall mean NBAI, Boatmen's 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.
The Adviser is responsible for decisions to buy and sell securities for
each Fund, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
negotiated commission for their services. Orders may be directed to any broker
to the extent and in the manner permitted by applicable law.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without
stated commissions, although the price of a security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price that includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from an issuer, in which case
no commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, the Adviser is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Adviser will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds
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reasonably attainable in the circumstances. In seeking such execution, the
Adviser will use its best judgment in evaluating the terms of a transaction, and
will give consideration to various relevant factors, including, without
limitation, the size and type of the transaction, the nature and character of
the market for the security, the confidentiality, speed and certainty of
effective execution required for the transaction, the general execution and
operational capabilities of the broker-dealer, the reputation, reliability,
experience and financial condition of the firm, the value and quality of the
services rendered by the firm in this and other transactions and the
reasonableness of the spread or commission, if any.
While the Adviser generally seeks reasonably competitive spreads or
commissions, a Fund will not necessarily be paying the lowest spread or
commission available. Within the framework of this policy, the Adviser will
consider research and investment services provided by brokers or dealers who
effect or are parties to portfolio transactions of a Fund, the Adviser or its
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include statistical
and economic data and research reports on particular companies and industries.
Such services are used by the Adviser in connection with all of its investment
activities, and some of such services obtained in connection with the execution
of transactions for a Fund may be used in managing other investment accounts.
Conversely, brokers furnishing such services may be selected for the execution
of transactions of such other accounts, whose aggregate assets are far larger
than those of a Fund. Services furnished by such brokers may be used by the
Adviser in providing investment advisory and investment management services for
the Company.
Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Directors of the Company.
In certain instances there may be securities which are suitable for
more than one Fund as well as for one or more of the other clients of the
Adviser. Investment decisions for each Fund and for the Adviser's other clients
are made with the goal of achieving their respective investment objectives. It
may happen that a particular security is bought or sold for only one client even
though it may be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients when one or more other
clients are selling that same security. Some simultaneous transactions are
inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security in a particular transaction as far
as a Fund is concerned. The Company believes that over time its ability to
participate in volume transactions will produce superior executions for the
Funds.
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the reporting period by
the monthly average value of the portfolio securities owned during the reporting
period. The calculation excludes all securities, including options, whose
maturities or expiration dates at the time of acquisition are one year or less.
Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Funds to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making portfolio
decisions.
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
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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 "Objectives" and "How Objectives Are
Pursued" and "Appendix A - Portfolio Securities." 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 "How Objectives Are
Pursued" and "Appendix A - Portfolio Securities." 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
"How Objectives Are Pursued -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
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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.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS
Each Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. The Small Company Growth Fund and
the Government Bond Fund also may purchase or sell securities on a delayed
settlement basis. These transactions involve a commitment by the Fund to
purchase or sell securities at a future date. The price of the underlying
securities (usually expressed in terms of yield) and the date on which the
securities will be delivered and paid for (the settlement date) are fixed at the
time the transaction is negotiated. When-issued purchases, forward commitment
and delayed settlement transactions are negotiated directly with the other
party, and such commitments are not traded on exchanges.
Each Fund will purchase securities on a when-issued basis or purchase
or sell securities on a forward commitment basis (and with respect to the Small
Company Growth Fund and Government Bond Fund, on a delayed settlement basis)
only with the intention of completing the transaction and actually purchasing or
selling the securities. If deemed necessary by a maker of investment strategy,
however, the Funds may dispose of or renegotiate a commitment after entering
into it. The Funds also may sell securities it has committed to purchase before
those securities are delivered to the Fund on the settlement date. The Funds may
realize a capital gain or loss in connection with these transactions.
When a Fund purchases securities on a when-issued commitment or delayed
settlement basis, the Fund's custodian will maintain in a segregated account
cash, U.S. Government securities or other high grade liquid debt obligations
having a value (determined daily) at least equal to the amount of the Fund's
purchase commitments. In the case of a forward commitment or delayed settlement
transaction to sell portfolio securities subject to such commitment, the
custodian will hold the portfolio securities themselves in a segregated account
while the commitment is outstanding. These procedures are designed to ensure
that the Fund will maintain sufficient assets at all times to cover its
obligations under when-issued purchases, forward commitments and delayed
settlements.
FOREIGN SECURITIES
Each Fund may invest in foreign securities. The Small Company Growth
and Government Bond Funds may invest either directly or indirectly through
American Depository Receipts ("ADRs"), which are receipts issued by an American
bank or trust company evidencing ownership of underlying securities issued by a
foreign issuer, or through European Depository Receipts ("EDRs"), which are
receipts issued by European financial institutions evidencing ownership of
underlying securities issued by a foreign issuer. ADRs may be listed on a
national securities exchange or may trade in the over-the-counter market. ADR
prices are denominated in United States dollars while EDR prices are generally
denominated in foreign currencies. The securities underlying an ADR or EDR will
normally be denominated in a foreign currency. The underlying securities may be
subject to foreign government taxes which could reduce the yield on such
securities.
Investors should recognize that investing in foreign securities
involves certain special considerations which are not typically associated with
investing in United States securities and which may favorably or unfavorably
affect the Fund's performance. Because foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards in
addition to practices and requirements comparable to those applicable to
domestic companies, there may be less publicly available information about a
foreign company than about a domestic company. Many foreign stock markets, while
growing in volume of trading activity, have substantially less volume than the
New York Stock Exchange (the "Exchange"), and securities of some foreign
companies are less liquid and more volatile than securities of domestic
companies. Similarly, volume and liquidity in most foreign bond markets is less
than in United States markets and at times, volatility of price can be greater
than in United States markets. Further, foreign markets have different clearance
and settlement procedures and in certain markets there have been times when
settlements have not kept pace with the volume of securities transactions making
it difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is earned
thereon. Also, delivery of securities before
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payment may be required in some countries. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in either losses to the Fund
due to subsequent declines in the value of the portfolio security or, if the
Fund has entered into a contract to sell the security, possible liability of the
purchaser. Fixed commissions on some foreign stock exchanges are generally
higher than negotiated commissions on U.S. exchanges, although the Fund will
endeavor to achieve the most favorable net results on its portfolio
transactions. Further, each Fund may encounter difficulties or be unable to
pursue legal remedies and obtain judgments in foreign courts. There is generally
less government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies in foreign countries than in the
United States. Communications between the United States and foreign countries
may be less reliable than within the United States, thus increasing the risk of
delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. In addition, with respect to certain foreign countries,
there is the possibility of expropriation or confiscatory taxation, political or
social instability or diplomatic developments, which could affect United States
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Each Fund seeks to
mitigate the risks associated with the foregoing considerations through
diversification and continuous professional management.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Each Fund may invest in forward foreign currency exchange contracts
("forward contracts") for hedging purposes and to seek to increase total return.
A forward contract involves an obligation 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 agreed upon by the parties, at a price set at the time of the
contract. These contracts are individually negotiated and privately traded in
the interbank market by currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement and no
commissions are charged at any stage for trades.
The maturity date of a forward contract may be any fixed number of days
from the date of the contract agreed upon by the parties, rather than a
predetermined date in a given month, and forward contracts may be in any amounts
agreed upon by the parties rather than predetermined amounts. Closing purchase
transactions with respect to forward contracts are usually effected by a
currency trader who is a party to the original forward contract. The Funds may
be required to segregate assets consisting of cash, U.S. government securities
or other high grade liquid debt securities to cover forward contracts that
require it to purchase foreign currency.
SMALL COMPANY GROWTH AND GOVERNMENT BOND FUNDS: When the Adviser
believes that the currency of a specific country may deteriorate against another
currency, it may enter into a forward contract to sell the less attractive
currency and buy the more attractive one. This practice is referred to as
"cross-hedging". The amount in question could be less than or equal to the value
of the Fund's securities denominated in the less attractive currency.
Each Fund may also enter into a forward contract to sell a currency
that is linked to a currency that the Adviser believes to be less attractive and
buy a currency that the Adviser believes to be more attractive (or a currency
that is linked to currency that the Adviser believes to be more attractive). The
amount in question would not exceed the value of the Fund's securities
denominated in the less attractive currency. For example, if the Austrian
Schilling is linked to the German Deutsche Mark (the "D-mark"), the Fund holds
securities denominated in Austrian Schillings and the Adviser believes that the
value of Schillings will decline against the British Pound, the Fund may enter
into a contract to sell D-marks and buy Pounds. This practice is referred to as
"proxy hedging". Proxy hedging involves the risk that the amount of currencies
involved may not equal the value of the Fund's securities denominated in the
currency expected to deteriorate and improperly anticipated currency movements
could result in losses to the Fund. Further, there is the risk that the linkage
between various currencies may change or be eliminated.
The Fund's activities involving forward contracts may be limited by the
requirements of Subchapter M of the Internal Revenue Code for qualification as a
regulated investment company.
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INTERNATIONAL GROWTH FUND: The reasons forward contracts would be used
to achieve the investment objectives of the International Growth Fund are
discussed below under "Futures Contracts on Foreign Currencies".
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
FUTURES CONTRACTS IN GENERAL. A futures contract is an agreement between
two parties for the future delivery of fixed income securities or for the
payment or acceptance of a cash settlement in the case of futures contracts on
an index of fixed income or equity securities. A "sale" of a futures contract
means the contractual obligation to deliver the securities at a specified price
on a specified date, or to make the cash settlement called for by the contract.
Futures contracts have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and must
be executed through a brokerage firm, known as a futures commission merchant,
which is a member of the relevant contract market. Futures contracts trade on
these markets, and the exchanges, through their clearing organizations,
guarantee that the contracts will be performed as between the clearing members
of the exchange. Presently, futures contracts are based on such debt securities
as long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage
Association modified pass-through mortgage-backed securities, three-month U.S.
Treasury Bills, bank certificates of deposit, and on indices of municipal,
corporate and government bonds.
While futures contracts based on securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are very seldom
made. Generally, a futures contract is terminated by entering into an offsetting
transaction. A Fund will incur brokerage fees when it purchases and sells
futures contracts. At the time such a purchase or sale is made, a Fund must
provide cash or money market securities as a deposit known as "margin." The
initial deposit required will vary, but may be as low as 2% or less of a
contract's face value. Daily thereafter, the futures contract is valued through
a process known as "marking to market," and a Fund that engages in futures
transactions may receive or be required to pay "variation margin" as the futures
contract becomes more or less valuable. At the time of delivery of securities
pursuant to a futures contract based on securities, adjustments are made to
recognize differences in value arising from the delivery of securities with a
different interest rate than the specific security that provides the standard
for the contract. In some (but not many) cases, securities called for by a
futures contract may not have been issued when the contract was written.
Futures contracts on indices of securities are settled through the making
and acceptance of cash settlements based on changes in value of the underlying
rate or index between the time the contract is entered into and the time it is
liquidated.
FUTURES CONTRACTS ON FIXED INCOME SECURITIES AND RELATED INDICES. As noted
in their respective Prospectuses, certain Funds may enter into transactions in
futures contracts for the purpose of hedging a relevant portion of their
portfolios. A Fund may enter into transactions in futures contracts that are
based on U.S. Government obligations, including any index of government
obligations that may be available for trading. Such transactions will be entered
into where movements in the value of the securities or index underlying a
futures contract can be expected to correlate closely with movements in the
value of securities held in a Fund. For example, a Fund may sell futures
contracts in anticipation of a general rise in the level of interest rates,
which would result in a decline in the value of its fixed income securities. If
the expected rise in interest rates occurs, the Fund may realize gains on its
futures position, which should offset all or part of the decline in value of
fixed income fund securities. A Fund could protect against such decline by
selling fixed income securities, but such a strategy would involve higher
transaction costs than the sale of futures contracts and, if interest rates
again declined, the Fund would be unable to take advantage of the resulting
market advance without purchases of additional securities.
The purpose of the purchase or sale of a futures contract on government
securities and indices of government securities, in the case of the
above-referenced Funds, which hold or intend to acquire long-term debt
securities, is to protect a Fund from fluctuations in interest rates without
actually buying or selling long-term debt securities. For example, if long-term
bonds are held by a Fund, and interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling
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an equivalent value of the long-term bonds held by the Fund. If interest rates
did increase, the value of the debt securities in the Fund would decline, but
the value of the futures contracts to the Fund would increase at approximately
the same rate thereby keeping the net asset value of the Fund from declining as
much as it otherwise would have. When a Fund is not fully invested and a decline
in interest rates is anticipated, which would increase the cost of fixed income
securities that the Fund intends to acquire, it may purchase futures contracts.
In the event that the projected decline in interest rates occurs, the increased
cost of the securities acquired by the Fund should be offset, in whole or part,
by gains on the futures contracts by entering into offsetting transactions on
the contract market on which the initial purchase was effected. In a substantial
majority of transactions involving futures contracts on fixed income securities,
a Fund will purchase the securities upon termination of the long futures
positions, but under unusual market conditions, a long futures position may be
terminated without a corresponding purchase of securities.
Similarly, when it is expected that interest rates may decline, futures
contracts on fixed income securities and indices of government securities may be
purchased for the purpose of hedging against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of such futures
contracts should be similar to that of long-term bonds, a Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund's cash reserves could then be used to
buy long-term bonds in the cash market. Similar results could be accomplished by
selling bonds with long maturities and investing in bonds with short maturities
when interest rates are expected to increase. However, since the futures market
is more liquid than the cash market, the use of these futures contracts as an
investment technique allows a Fund to act in anticipation of such an interest
rate decline without having to sell its portfolio securities. To the extent a
Fund enters into futures contracts for this purpose, the segregated assets
maintained by a Fund will consist of cash, cash equivalents or high quality debt
securities of the Fund in an amount equal to the difference between the
fluctuating market value of such futures contract and the aggregate value of the
initial deposit and variation margin payments made by the Fund with respect to
such futures contracts.
STOCK INDEX FUTURES CONTRACTS. 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.
In addition, a Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its portfolio, it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. As such securities
are acquired, a Fund's futures positions would be closed out. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of its portfolio will decline prior to the time of sale.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract gives the
purchaser (the "holder") the right, but not the obligation, to enter into a
"long" position in the underlying futures contract (i.e., a purchase of such
futures contract) in the case of an option to purchase (a "call" option), or a
"short" position in the underlying futures contract (i.e., a sale of such
futures contract) in the case of an option to sell (a "put" option), at a fixed
price (the "strike price") up to a stated expiration date. The holder pays a
non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchase of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be lost.
Upon exercise of the option by the holder, the exchange clearing corporation
establishes a corresponding long position in the case of a put option. In the
event that an option is exercised, the parties will be subject to all the risks
associated with the trading of 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.
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WARRANTS
Both the Small Company Growth and the Government Bond Funds are
permitted to invest in warrants. Warrants are privileges issued by corporations
enabling the owner to subscribe to and purchase a specified number of shares of
the corporation at a specified price during a specified period of time. The
prices of warrants do not necessarily correlate with the prices of the
underlying securities. The purchase of warrants involves the risk that the
purchaser could lose the purchase value of the warrant if the right to subscribe
to additional shares is not exercised prior to the warrant's expiration. Also,
the purchase of warrants involves the risk that the effective price paid for the
warrant added to the subscription price of the related security may exceed the
value of the subscribed security's market price such as when there is no
movement in the level of the underlying security.
OPTIONS ON SECURITIES AND INDICES
Each Fund may purchase and sell (write) both call and put options
listed on a national securities exchange and issued by the Options Clearing
Corporation. Such options may relate to particular securities or to various
indices.
An option on a security (or index) is a contract that gives the holder
of the option, in return for a premium paid, the right to buy from (in the case
of a call) or sell to (in the case of a put) the seller ("writer") of the option
the security underlying the option (or the cash value of the index) at a
specified exercise price at any time during the term of the option. The writer
of an option on a security has the obligation upon exercise of the option to
deliver the underlying security upon payment of the exercise price or to pay the
exercise price upon delivery of the underlying security. Upon exercise, the
writer of an option on an index is obligated to pay the difference between the
closing price of the index and the exercise price of the option, expressed in
dollars, times a specified multiple (the "multiplier"). (An index is designed to
reflect specified facets of a particular financial or securities market, a
specified group of financial instruments or securities, or certain economic
indicators.)
If an option written by a Fund expires, the Fund realizes a capital
gain equal to the premium received at the time the option was written. If an
option purchased by a Fund expires unexercised, the Fund realizes a capital loss
equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed
out by an off-setting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when a Fund desires.
A Fund will realize a capital gain from a closing purchase transaction,
if the cost of the closing option is less than the premium received from writing
the option and will realize a capital loss if it is more. If the premium
received from a closing sale transaction is more than the premium paid to
purchase the option, the Fund will realize a capital gain, or if it is less, the
Fund will realize a capital loss. The principal factors affecting the market
value of a put or a call option include supply and demand, interest rates, the
current market price of the underlying security or index in relation to the
exercise price of the option, the volatility of the underlying security or
index, and the time remaining until the expiration date.
There are several risks associated with transactions in options on
securities and on indices. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives.
There can be no assurance that a liquid market will exist when a Fund
seeks to close out an option position. If the Fund were unable to close out an
option it had purchased on a security, it would have to exercise the option to
realize any profit or the option may expire worthless. If a Fund were unable to
close out a covered call option it had written on a security, it would not be
able to sell the underlying security unless the option expired without exercise.
As a writer of a covered call option, the Fund foregoes, during the option's
life, the opportunity to profit from increases in the market value of the
security covering the call option above the sum of the premium and the exercise
price of the call.
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If trading were suspended in an option purchased by a Fund, the Fund
would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it had purchased. Except
to the extent that a call option on an index written by a Fund is covered by an
option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.
FUTURES CONTRACTS
Each Fund may enter into futures contracts on securities and futures
contracts based on securities indices, which are traded on exchanges that are
licensed and regulated by the Commodity Futures Trading Commission ("CFTC").
Each Fund will do so to hedge against anticipated changes in securities values
that would otherwise have an adverse effect upon the value of portfolio
securities or upon securities to be acquired. Futures contracts and related
options entered into by the Funds will be entered into consistent with CFTC
regulations.
Each Fund may take a "short" position in the futures markets by selling
contracts for the future delivery of securities in order to hedge against an
anticipated decline in stock prices. Such futures contracts may include
contracts for the future delivery of securities held by a Fund or securities
with price-fluctuation characteristics similar to those of its portfolio
securities. If, in the opinion of the Adviser, there is a sufficient degree of
correlation between price trends for a Fund's securities and futures contracts
based on indices, a Fund may also enter into such futures contracts as part of
its hedging strategy. When hedging of this character is successful, any
depreciation in the value of a Fund's securities will substantially be offset by
appreciation in the value of the futures position. On other occasions a Fund may
take a "long" position by purchasing futures contracts. This would be done, for
example, when a Fund anticipates the purchase of particular securities in the
future, but expects the price then available in the securities market to be less
favorable than prices that are currently available in the futures markets. Each
Fund expects that, in the normal course, it will terminate the long futures
position when it makes the anticipated purchase; under unusual market
conditions, however, a long futures position may be terminated without the
corresponding purchase of securities.
Futures contracts involve brokerage costs, which may be less than 1% of
the contract price, and require parties to the contract to make "margin"
deposits to secure performance of the contract. Each Fund will be required to
deposit as margin into a segregated custodial account (held subject to the
claims of the Fund's futures broker) an amount of cash or liquid securities
equal to approximately 2% to 5% of the value of each futures contract. This
initial margin is in the nature of a performance bond or good faith deposit on
the contract. Each Fund's position in the futures market will be
marked-to-market on a daily basis; the Funds may subsequently be required to
make "variation" margin payments depending upon whether its futures position
declines or rises in value.
Positions taken in the futures markets are not usually held until the
expiration of the contract but, instead, are normally liquidated through
off-setting transactions, which may result in a profit or a loss. Nevertheless,
a Fund may instead make or take delivery of the underlying securities whenever
it appears economically advantageous for it to do so. A clearing corporation
associated with the exchange on which futures contracts are traded assumes
responsibility for closing out contracts and guarantees that, if the contract is
still open, the sale or purchase of securities will be performed on the
settlement date.
Futures contracts on securities indices do not require the physical
delivery of securities, but merely provide for profits and losses resulting from
changes in the market value of a contract to be credited or debited at the close
of each trading day to the respective accounts of the parties to the contract.
On the contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
futures contract reflect changes in the value of the securities comprising the
index on which the futures contract is based. Futures contracts based on
securities indices currently are actively traded on the Chicago Board of Trade,
the Chicago Mercantile Exchange, the New York Futures Exchange and the Kansas
City Board of Trade.
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OPTIONS ON FUTURES CONTRACTS
Each Fund may also purchase and sell (write) call and put options on
futures contracts, which options are traded on exchanges that are licensed and
regulated by the CFTC. A "call" option on a futures contract gives the purchaser
the right, in return for the premium paid, to buy a futures contract (assume a
long position) at a specified exercise price, by exercising the option at any
time before the option expires. A "put" option gives the purchaser the right, in
return for the premium paid, to sell a futures contract (assume a "short"
position), for a specified exercise price, by exercising the option at any time
before the option expires.
Upon the exercise of a call, the writer of the option is obligated to
sell the futures contract (to deliver a "long" position to the option holder) at
the option exercise price, which will presumably be lower than the then current
market price of the contract in the futures market. Upon exercise of a put, the
writer of the option is obligated to purchase the futures contract (deliver a
"short" position to the option holder) at the option exercise price, which will
presumably be higher than the then current market price of the contract in the
futures market. When a Fund exercises an option and assumes a long futures
position, in the case of a call, or a short futures position, in the case of a
put, its gain will be credited to its futures margin account, while the loss
suffered by the writer of the option will be debited to its account. However, as
with the trading of futures contracts, most participants in the options markets
do not seek to realize their gains or losses by exercising their option rights.
Instead, the holder of an option will usually realize a gain or loss by buying
or selling an off-setting option at a market price that will reflect an increase
or a decrease from the premium originally paid.
Options on futures contracts can be used by the Fund to hedge the same
risks as might be addressed by the direct purchase or sale of the underlying
futures contracts. If the Fund purchases an option on a futures contract, it may
obtain benefits similar to those that would result if it held the futures
position itself. But, in contrast to a futures transaction in which only
transaction costs are involved, benefits received in an option transaction in
the event of a favorable market movement will be reduced by the amount of the
premium paid as well as by transaction costs. In the event of an adverse market
movement, however, in contrast to the full market risk of a futures position,
the Fund will not be subject to a risk of loss on the option transaction beyond
the amount of the premium it paid plus its transaction costs. Consequently, the
Fund may benefit from an increase in the value of its portfolio that would have
been more completely offset if the hedge had been effected through the use of a
futures contract.
If the Fund writes options on futures contracts, it will receive a
premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Fund will gain the amount of the
premium, which may partially offset unfavorable changes in the value of its
portfolio securities held in, or to be acquired for, the Fund. If the option is
exercised, the Fund will incur a loss in the option transaction, which will be
reduced by the amount of the premium it has received. Such loss may partially
offset favorable changes in the value of its portfolio securities.
LIMITATIONS ON USE OF FUTURES TRANSACTIONS AND RISK CONSIDERATIONS
Each Fund will incur brokerage fees in connection with its futures
transactions, and each will be required to deposit and maintain funds with its
broker as margin to guarantee performance of its futures obligations. In
addition, while futures contracts will be traded to reduce certain risks,
futures trading itself entails certain other risks. Thus, while a Fund may
benefit from the use of such contracts, unanticipated changes in securities may
result in a poorer overall performance of the Fund than if it had not entered
into any futures contracts. Some futures contracts may not have a broad and
liquid market, in which case the contracts may not be able to be closed at a
fair price and a Fund may lose in excess of the initial margin deposit.
Moreover, in the event of an imperfect correlation between the futures contract
and the portfolio position that is intended to be protected, the desired
protection may not be obtained and a Fund may be exposed to risk of loss.
Tax-related requirements may limit the extent to which a Fund may engage in
futures and related options transactions. (See "Tax Information.")
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OPTIONS ON CURRENCIES
The International Growth Fund may purchase and sell options on currencies
to hedge the value of securities the Fund holds or intends to buy. Options on
foreign currencies may be traded on U.S. and foreign exchanges or
over-the-counter.
FUTURES CONTRACTS ON FOREIGN CURRENCIES
A foreign currency futures contract is a standardized contract for the
future delivery of a specified amount of a foreign currency at a future date at
a price established when the position is taken. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the Chicago Mercantile Exchange.
The International Growth Fund may enter into foreign currency futures
contracts in several circumstances. First, when the Fund enters into a contract
for the purchase or sale of a foreign security denominated in a foreign
currency, or when the Fund anticipates the receipt in a foreign currency of
interest payments on such a security which it holds, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such interest payments, as the case may be. By entering into a futures contract
for the purchase or sale of the amount of foreign currency involved in the
underlying transactions at a fixed amount of U.S. dollars, the Fund will attempt
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the applicable foreign currency,
during the period between the date on which the obligation is purchased or sold,
or on which the interest payment is declared, and the date on which such
payments are made or received.
Second, when the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar (or
sometimes against another currency), the Fund may enter into a futures contract
to sell, for a fixed dollar or other currency amount, foreign currency
approximating the value of some or all of the securities held by the Fund which
are denominated in that currency. The precise matching of the futures contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of those securities between the
date on which the contract is entered into and the date it expires.
Under normal circumstances, consideration of the prospect for changes
in currency exchange rates will be incorporated into the Fund's long-term
investment strategies. However, the Adviser believes that it is important for
the Fund to have the flexibility to enter into foreign currency futures
contracts when it determines that the best interest of the Fund will be served.
CURRENCY SWAPS
The International Growth Fund also may enter into currency swaps for
hedging purposes and to seek to increase total return. In as much as swaps are
entered into for good faith hedging purposes or are offset by a segregated
account as described below, the Fund and the Adviser believe that swaps do not
constitute senior securities as defined in the 1940 Act and, accordingly, will
not treat them as being subject to the Fund's borrowing restrictions. The net
amount of the excess, if any, of the Fund's obligations over its entitlement
with respect to each currency swap will be accrued on a daily basis and an
amount of cash or liquid high grade debt securities (i.e., securities rated in
one of the top three ratings categories by an NRSRO, or, if unrated, deemed by
the Adviser to be of comparable credit quality) having an aggregate net asset
value at least equal to such accrued excess will be maintained in a segregated
account by the Fund's custodian. The Fund will not enter into any currency swap
unless the credit quality of the unsecured senior debt or the claims-paying
ability of the other party thereto is considered to be investment grade by the
Adviser.
CONVERTIBLE SECURITIES
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The Small Company Growth and International Growth Funds may invest in
convertible securities, such as bonds, notes, debentures, preferred stocks and
other securities that may be converted into common stock. All convertible
securities purchased by the Fund will be rated in the top two categories by an
NRSRO or, if unrated, determined by the Adviser to be of comparable quality.
Investments in convertible securities can provide income through interest and
dividend payments, as well as, an opportunity for capital appreciation by virtue
of their conversion or exchange features.
The convertible securities in which the Funds may invest include
fixed-income and zero coupon debt securities, and preferred stock that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities, generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stock changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the price
of a convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income or, in the case of zero coupon securities,
accretion of income with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion
exchange features. Convertible securities generally are subordinated to other
similar debt securities but not to non-convertible securities of the same
issuer. Convertible bonds, as corporate debt obligations, are senior in right of
payment to all equity securities, and convertible preferred stock is senior to
common stock, of the same issuer. However, convertible bonds and convertible
preferred stock typically have lower coupon rates than similar non-convertible
securities. Convertible securities may be issued as fixed income obligations
that pay current income or as zero coupon notes and bonds, including Liquid
Yield Option Notes ("LYONs"). Zero coupon securities pay no cash income and are
sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation
because increases (or decreases) in the market value of such securities closely
follow the movements in the market value of the underlying common stock. Zero
coupon convertible securities generally are expected to be less volatile than
the underlying common stocks because they usually are issued with short
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
VARIABLE AND FLOATING RATE INSTRUMENTS
With respect to the variable and floating rate instruments that may be
acquired by the Government Bond Fund as described in its Prospectus, the Adviser
will consider the earning power, cash flows and other liquidity ratios of the
issuers and guarantors of such instruments and, if the instrument is subject to
a demand feature, will monitor their financial status to meet payment on demand.
In determining a Fund's average weighted portfolio maturity, an
instrument will usually be deemed to have a maturity equal to the longer of the
period remaining until the next regularly scheduled interest rate
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adjustment or the time the Fund involved can recover payment of principal as
specified in the instrument. Such instruments which are U.S. Government
obligations and certain variable rate instruments having a nominal maturity of
397 days or less when purchased by the Fund involved, however, will be deemed to
have maturities equal to the period remaining until the next interest rate
adjustment.
STRIPPED SECURITIES
The Government Bond Fund may purchase stripped securities issued or
guaranteed by the U.S. Government, where the principal and interest components
are traded independently under the Separate Trading of Registered Interest and
Principal of Securities program ("STRIPS"). Under STRIPS, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently.
In addition, the Fund may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions. If
the underlying obligations experience greater than anticipated prepayments of
principal, the Fund may fail to fully recover its initial investment. The market
value of the class consisting entirely of principal payments can be extremely
volatile in response to changes in interest rates. The yields on a class of SMBS
that receives all or most of the interest are generally higher than prevailing
market yields on other mortgage-backed obligations because their cash flow
patterns are also volatile and there is a greater risk that the initial
investment will not be full recovered. SMBS issued by the U.S. Government (or a
U.S. Government agency or instrumentality) may be considered liquid under
guidelines established by the Company's Board of Directors if they can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of the Fund's per share net asset value.
Although stripped securities may not pay interest to holders prior to
maturity, Federal income tax regulations require a Fund to recognize as interest
income a portion of the bond's discount each year. This income must then be
distributed to shareholders along with other income earned by the Fund. To the
extent that any shareholders in the Fund elect to receive their dividends in
cash rather than reinvest such dividends in additional Fund shares, cash to make
these distributions will have to be provided from the assets of the Fund or
other sources such as proceeds of sales of Fund shares and/or sales of portfolio
securities. In such cases, the Fund will not be able to purchase additional
income producing securities with cash used to make such distributions and its
current income may ultimately be reduced as a result.
PARTICIPATION INTERESTS AND COMPANY RECEIPTS
The Government Bond Fund also may purchase from domestic financier
institutions and trusts created by such institutions participation interests and
trust receipts in high quality debt securities. A participation interest or
receipt gives the Fund an undivided interest in the security in the proportion
that the Fund's participation interest or receipt bears to the total principal
amount of the security. As to certain instruments for which the Fund will be
able to demand payment, the Fund intends to exercise its right to do so only
upon a default under the terms of the security, as needed to provide liquidity
or to maintain or improve the quality of its investment portfolio. It is
possible that a participation interest or trust receipt may be deemed to be an
extension of credit by the Fund to the issuing financial institution rather than
to the obligor of the underlying security and may not be directly entitled to
the protection of any collateral security provided by the obligor. In such
event, the ability of the Fund to obtain repayment could depend on the issuing
financial institution.
Participation interests and trust receipts may have fixed, floating or
variable rates of interest, and will have remaining maturities of thirteen
months or less (as defined by the Securities and Exchange Commission). If a
participation interest or trust receipt is unrated, the Adviser will have
determined that the interest or receipt is of comparable quality to those
instruments in which the Fund may invest pursuant to guidelines approved by the
Board of Directors. For certain participation interests or trust receipts the
Fund will have the right to demand payment, on not more than 30 days' notice,
for all or any part of the Fund's participation interest or trust receipt in the
securities involved, plus accrued interest.
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ASSET-BACKED AND MORTGAGE-BACKED SECURITIES
The Government Bond Fund may invest in securities backed by installment
contracts, credit card receivables and other assets. These asset-backed
securities represent interests in pools of assets in which payment of both
interest and principal on the securities is made monthly, thus in effect,
passing through (net of fees paid to the issuer or guarantor of the securities)
the monthly payments made by the individual borrowers on the assets that
underlie the asset-backed securities. The Fund may also make significant
investments in U.S. Government securities that are backed by adjustable or
fixed-rate mortgage loans.
The average life of an asset-backed or mortgage-backed instrument
varies with the maturities of the underlying instruments. In the case of
mortgages, maturities may be a maximum of forty years. The average life of an
asset-backed or mortgage-backed instrument is likely to be substantially less
than the original maturity of the asset or mortgage pools underlying the
security as the result of scheduled principal payments and prepayments. This may
be particularly true for mortgage-backed securities.
Non-mortgage asset-backed securities involve certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the underlying collateral. Credit
card receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
have given debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral may
not, in some cases, be able to support payments on these securities.
Presently, there are several types of mortgage-backed securities issued
or guaranteed by U.S. Government agencies, including guaranteed mortgage
pass-through certificates, which provide the holder with a pro rata interest in
the underlying mortgage, and collateralized mortgage obligations ("CMOs"), which
provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. Issuers of CMOs
frequently elect to be taxed as a pass-through entity known as real estate
mortgage investment conduits, or REMICs. CMOs are issued in multiple classes,
each with a specified fixed or floating interest rate and a final distribution
date. Although the relative payment rights of these classes can be structured in
a number of different ways, most often payments of principal are applied to the
CMO classes in the order of their respective stated maturities.
CMO classes may include accrual certificates (also known as "Z-Bonds"),
which only accrue interest at a specified rate until other specified classes
have been retired and are converted thereafter to interest-paying securities.
They may also include planned amortization classes ("PAC") which generally
require, within certain limits, that specified amounts of principal be applied
on each payment date, and generally exhibit less yield and market volatility
than other classes. The Fund will not purchase "residual" CMO interests, which
normally exhibit the greatest price volatility.
CMOs can expose a Fund to more volatility and interest rate risk than
other types of mortgage-backed obligations.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with selected
brokers-dealers, banks or other financial institutions. A repurchase agreement
is an arrangement under which the purchaser (I.E., a Fund) purchases a U.S.
Government or other high quality short-term debt obligation (the "Obligation")
and the seller agrees at the time of sale to repurchase the Obligation at a
specified time and price.
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Custody of the Obligation will be maintained by the Fund's custodian.
The repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase prices may be the same, with
interest at a stated rate due to the Fund together with the repurchase price on
repurchase. In either case, the income to the Fund is unrelated to the interest
rate on the Obligation subject to the repurchase agreement.
Repurchase agreements pose certain risks for all entities, including
the Funds, that utilize them. Such risks are not unique to the Funds but are
inherent in repurchase agreements. The Funds seek to minimize such risks by,
among others, the means indicated below, but because of the inherent legal
uncertainties involved in repurchase agreements, such risks cannot be
eliminated.
For purposes of the Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
Obligation. It is not clear whether, for other purposes, a court would consider
the Obligation purchased by the Fund, subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
If in the event of bankruptcy or insolvency proceedings against the
seller of the Obligation, a court holds that the Fund does not have a perfected
security interest in the Obligation, the Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, a Fund would be at risk of losing some or all
of the principal and income involved in the transaction. To minimize this risk,
the Funds utilize custodians that the Adviser believes follow customary
securities industry practice with respect to repurchase agreements, and the
Adviser analyzes the creditworthiness of the obligor, in this case the seller of
the Obligation. But because of the legal uncertainties, this risk, like others
associated with repurchase agreements, cannot be eliminated.
Also, in the event of commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, the Fund may encounter delay and
incur costs before being able to sell the security. Such a delay may involve
loss of interest or a decline in price of the Obligation.
Apart from risks associated with bankruptcy or insolvency proceedings,
there is also the risk that the seller may fail to repurchase the security.
However, if the market value of the Obligation subject to the repurchase
agreement becomes less than the repurchase price (including accrued interest),
the Fund will direct the seller of the Obligation to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement equals or exceeds the repurchase price.
Certain repurchase agreements which provide for settlement in more than
seven days can be liquidated before the nominal fixed term on seven days or less
notice. Such repurchase agreements will be regarded as illiquid instruments.
Each Fund may also enter into repurchase agreements with any party
deemed creditworthy by the Adviser including foreign banks and broker-dealers,
if the transaction is entered into for investment purposes and the
counterparty's creditworthiness is at least equal to that of issuers of
securities from which a Fund may purchase.
REVERSE REPURCHASE AGREEMENTS
The Government Bond Fund may enter into Reverse Repurchase Agreements.
At the time the Fund enters into a reverse repurchase agreement (an agreement
under which a Fund sells portfolio securities and agrees to repurchase them at
an agreed-upon date and price), it will place in a segregated custodial account
of liquid assets such as U.S. Government securities or other liquid high-grade
debt securities having a value equal to or greater than the repurchase price
(including accrued interest), and will subsequently monitor the account to
ensure that such value is maintained. Reverse repurchase agreements involve the
risk that the market value of the
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securities sold by a Fund may decline below the price of the securities it is
obligated to repurchase. Reverse repurchase agreements also are considered to be
borrowings under the 1940 Act.
LENDING OF PORTFOLIO SECURITIES
When a Fund lends its securities, it continues to receive interest and
dividends (with respect to the Small Company Growth Fund) on the securities
loaned and may simultaneously earn interest on the investment of the cash loan
collateral which will be invested in readily marketable, high-quality,
short-term obligations. Although voting rights, or rights to consent, attendant
to securities on loan pass to the borrower, such loans will be called so that
the securities may be voted by a Fund if a material event affecting the
investment is to occur. Portfolio loans will be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned plus accrued interest. Collateral for such loans may include
cash, U.S. Government securities, securities of U.S. Government agencies and
instrumentalities or an irrevocable letter of credit issued by a bank which
meets the investment standards of a Fund for short-term instruments. 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.
OTHER INVESTMENT COMPANIES
In seeking to attain their investment objectives, the Funds may invest
in securities issued by other investment companies within the limits prescribed
by the 1940 Act. Each Fund currently intends to limit its investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of its total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as a
group; and (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund or by the Company as a whole. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including Advisory fees. These expenses would be in addition to the Advisory and
other expenses that a Fund bears in connection with its own operations. The
Adviser has agreed to remit to the respective investing Fund fees payable to it
under its respective Investment Advisory Agreement with an affiliated money
market Fund to the extent such fees are based upon the investing Fund's assets
invested in shares of the affiliated money market fund.
RESTRICTED AND OTHER ILLIQUID SECURITIES
Each Fund may purchase securities that are not registered under the
Securities Act of 1933, or have some other legal or contractual restrictions on
resale in the principal market where the security is traded ("restricted
securities"), but can be offered and sold to "qualified institutional buyers"
under Rule 144A under the Securities Act of 1933. However, as stated in the
Prospectuses, a Fund will not invest more than 15% of the value of its net
assets in illiquid securities, including restricted securities, unless the
Company's Board of Directors determines, based upon a continuing review of the
trading markets for the specific Rule 144A security, that such restricted
security is liquid. The Directors may adopt guidelines and delegate to the
Adviser's the daily function of determining and monitoring liquidity of
securities. The Directors may also delegate to its Valuation Committee valuation
decisions. The Directors, however, will retain sufficient oversight and be
ultimately responsible for the determinations. Because it is not possible to
predict with assurance exactly how this market for restricted securities sold
and offered under Rule 144A will develop, the Directors will carefully monitor
each Fund's investments in these securities, focusing on such important factors,
among others, as valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of illiquidity
in a Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
COMBINED TRANSACTIONS
Each Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple forward foreign
currency exchange contracts and any combination of futures, options and forward
foreign currency exchange contracts ("component" transactions), instead of a
single transaction, as part of
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a single hedging strategy when, in the opinion of the Adviser, it is in the best
interest of a Fund to do so and where underlying hedging strategies are
permitted by a Fund's investment policies. A combined transaction, while part of
a single hedging strategy, may contain elements of risk that are present in each
of its component transactions. (See above for the risk characteristics of
certain transactions.)
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Options, futures and forward foreign currency contracts that obligate a
Fund to provide cash, securities or currencies to complete such transactions
will entail that Fund to either segregate assets in an account with, or on the
books of, the Company's custodian, or otherwise "covering" the transaction as
described below. For example, a call option written by a Fund will require the
Fund to hold the securities subject to the call (or securities convertible into
the needed securities without additional consideration) or liquid assets
sufficient to meet the obligation by purchasing and delivering the securities if
the call is exercised. A call option written on an index will require that Fund
to have portfolio securities that correlate with the index. A put option written
by a Fund also will require that Fund to have available assets sufficient to
purchase the securities the Fund would be obligated to buy if the put is
exercised.
A forward foreign currency contract that obligates a Fund to provide
currencies will require the Fund to hold currencies or liquid securities
denominated in a foreign currency which will equal the Fund's obligations.
Such a contract requiring the purchase of currencies also requires segregation.
Unless a segregated account consists of the securities, cash or
currencies that are the subject of the obligation, a Fund will hold cash, U.S.
Government securities and other high grade liquid debt obligations in a
segregated account. These assets cannot be transferred while the obligation is
outstanding unless replaced with other suitable assets. In the case of an
index-based transaction, a Fund could own securities substantially replicating
the movement of the particular index.
In the case of a futures contract, a Fund must deposit initial margin
and variation margin, as often as daily, if the position moves adversely,
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Similarly, options on futures contracts require a Fund to
deposit margin to the extent necessary to meet the Fund's commitments.
In lieu of such assets, such transactions may be covered by other means
consistent with applicable regulatory policies. A Fund may enter into
off-setting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
hedging transactions. For example, a Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by that Fund. Moreover, instead of segregating assets if a Fund held
a futures or forward contract, it could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. Of course, the off-setting transaction must terminate at
the time of or after the primary transaction.
U.S. GOVERNMENT OBLIGATIONS
Each Fund may invest in U.S. Government obligations. Examples of the
types of U.S. Government obligations that may be held by the Funds include, in
addition to U.S. Treasury bonds, notes and bills, the obligations of the Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association, General Services Administration, Student
Loan Marketing Association, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Tennessee Valley
Authority, Resolution Funding Corporation and Maritime Administration.
Obligations guaranteed as to principal or interest by the U.S. Government, its
agencies, authorities or instrumentalities are deemed to include: (a) securities
for which the payment of principal and interest is backed by an irrevocable
letter of credit issued by the U.S. Government, its agencies, authorities or
instrumentalities and (b) participations in loans made to foreign governments or
their
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agencies that are so guaranteed. The secondary market for certain of these
participations is limited. If such participations are illiquid they will not be
purchased.
U.S. Government obligations include principal and interest components
of securities issued or guaranteed by the U.S. Treasury if the components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program. Obligations issued or guaranteed as to
principal or interest by the U.S. Government, its agencies, authorities or
instrumentalities may also be acquired in the form of custodial receipts. These
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities.
CUSTODIAL RECEIPTS
The Government Bond Fund may also acquire custodial receipts that
evidence ownership of future interest payments, principal payments or both on
certain U.S. Government notes or bonds. Such notes and bonds are held in custody
by a bank on behalf of the owners. These custodial receipts are known by various
names, including "Treasury Receipts," "Treasury Investors Growth Receipts" and
"Certificates of Accrual on Treasury Securities." Although custodial receipts
are not considered U.S. Government securities, they are indirectly issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities. Custodial receipts will be treated as illiquid
securities.
CORPORATE DEBT SECURITIES
Each Fund may invest in corporate debt securities of domestic issuers
of all types and maturities, such as bonds, debentures, notes and commercial
paper. Corporate debt securities may involve equity features, such as conversion
or exchange rights or warrants for the acquisition of stock of the same or a
different issuer, participation based on revenue, sales or profit, or the
purchase of common stock or warrants in a unit transaction (where corporate debt
obligations and common stock are offered as a unit). Each Fund may also invest
in corporate debt securities of foreign issuers.
The corporate debt securities in which the Funds will invest will be
rated investment grade by at least one Nationally Recognized Statistical Rating
Organization ("NRSRO") (e.g., BBB or above by Standard & Poor's Corporation
("S&P") or Baa or above by Moody's Investors Services, Inc. ("Moody's")).
Commercial paper purchased by the Funds will be rated in the top two categories
by a NRSRO. Corporate debt securities that are not rated may be purchased by
such Funds if they are determined by the Adviser to be of comparable quality
under the direction of the Board of Directors of the Company. If the rating of
any corporate debt security held by a Fund falls below such ratings or if the
Adviser determines that an unrated corporate debt security is no longer of
comparable quality, then such security shall be disposed of in an orderly manner
as quickly as possible. A description of these ratings is attached as an
Appendix to this Statement of Additional Information.
U.S. AND FOREIGN BANK OBLIGATIONS
These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. Each Fund limits its investments in
domestic bank obligations to banks having total assets in excess of $1 billion
and subject to regulation by the U.S. Government. Each Fund may also invest in
certificates of deposit issued by members of the Federal Deposit Insurance
Corporation ("FDIC") having total assets of less than $1 billion, provided that
the Fund will at no time own more than $100,000 principal amount of certificates
of deposit (or any higher principal amount which in the future may be fully
covered by FDIC insurance) of any one of those issuers. Fixed time deposits are
obligations which are payable at a stated maturity date and bear a fixed rate of
interest. Generally, fixed time deposits may be withdrawn on demand by a Fund,
but they may be subject to early withdrawal penalties which vary depending upon
market conditions and the remaining maturity of the obligation. Although fixed
time deposits do not have a market, there are no contractual restrictions on a
Fund's right to transfer a beneficial interest in the deposit to a third party.
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Each Fund limits its investments in foreign bank obligations (i.e.,
obligations of foreign branches and subsidiaries of domestic banks, and domestic
and foreign branches and agencies of foreign banks) to obligations of banks
which at the time of investment are branches or subsidiaries of domestic banks
which meet the criteria in the preceding paragraphs or are branches or agencies
of foreign banks which (i) have more than $10 billion, or the equivalent in
other currencies, in total assets; (ii) in terms of assets are among the 75
largest foreign banks in the world; (iii) have branches or agencies in the
United States; and (iv) in the opinion of the Adviser, pursuant to the
established by the Board of Directors of the Company, are of an investment
quality comparable to obligations of domestic banks which may be purchased by a
Fund. These obligations may be general obligations of the parent bank in
addition to the issuing branch or subsidiary, but the parent bank's obligations
may be limited by the terms of the specific obligation or by governmental
regulation. Each Fund also limits its investments in foreign bank obligations to
banks, branches and subsidiaries located in Western Europe (United Kingdom,
France, Germany, Belgium, The Netherlands, Italy and Switzerland), Scandinavia
(Denmark and Sweden), Australia, Japan, the Cayman Islands, the Bahamas and
Canada. Each Fund will limit its investment in securities of foreign banks to
not more than 20% of total assets at the time of investment.
Each Fund may also make interest-bearing savings deposits in commercial
and savings banks in amounts not in excess of 5% of the total assets of the
Fund.
REAL ESTATE INVESTMENT COMPANIES
The International Growth Fund may invest in 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. Securities issued by REITs bears certain unique risks. These
include the same market risks as those affecting the real estate industry, such
as fluctuations in interest rates and changes in tax laws. REIT's underlying
assets are illiquid and often not diversified, and are highly dependent upon
management skill. 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
As used in this Statement of Additional Information, with respect to
matters required by the provisions of the 1940 Act to be submitted to
shareholders, the term "majority of the outstanding shares" of either the
Company or the Fund means the vote of the lesser of: (i) 67% or more of the
shares of the Company or Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Company or Fund are present or represented
by proxy, or (ii) more than 50% of the outstanding shares of the Company or
Fund.
The most significant investment restrictions applicable to the Funds'
investment programs are set forth in the Prospectuses under the heading "How
Objectives Are Pursued - Investment Limitations." Additionally, as a matter of
fundamental policy which may not be changed without a vote of the majority of
the outstanding shares, 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,
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(c) a Fund may enter into reverse repurchase agreements or dollar roll
transactions, and (d) a Fund may issue multiple classes of shares in
accordance with SEC regulations or exemptions under the 1940 Act. The
purchase or sale of futures contracts and related options shall not be
considered to involve the borrowing of money or issuance of senior
securities. Each Fund will maintain asset coverage of 300% or maintain a
segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations
equal in value to its borrowing.
2. Purchase any securities on margin (except for such short-term credits as
are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except against the box.) For
purposes of this restriction, the deposit or payment by the Fund of initial
or maintenance margin connection with futures contracts and related options
and options on securities is not considered to be the purchase of a
security on margin.
3. Underwrite securities issued by any other person, except to the extent that
the purchase of securities and the later disposition of such securities in
accordance with the Fund's investment program may be deemed an
underwriting. This restriction shall not limit a Fund's ability to invest
in securities issued by other registered investment companies.
4. Invest in real estate or real estate limited partnership interests. (The
Fund may, however, purchase and sell securities secured by real estate or
interests therein or issued by issuers which invest in real estate or
interests therein.) This restriction does not apply to real estate limited
partnerships listed on a national stock exchange (e.g., the New York Stock
Exchange).
5. Purchase or sell commodity contracts except that each Fund may, to the
extent appropriate under its investment policies, purchase publicly traded
securities of companies engaging in whole or in part in such activities,
may enter into futures contracts and related options, may engage in
transactions on a when-issued or forward commitment basis, and may enter
into forward currency contracts in accordance with its investment policies.
In addition, certain non-fundamental investment restrictions are also
applicable to various investment portfolios, including the following:
1. The Company will not purchase or retain the securities of any issuer if the
officers, or directors of the Company, its advisers, or managers owning
beneficially more than one half of one percent of the securities of each
issuer together own beneficially more than five percent of such securities.
2. No Fund of the Company will purchase securities of unseasoned issuers,
including their predecessors, that have been in operation for less than
three years, if by reason thereof the value of such Fund's investment in
such classes of securities would exceed 5% of such Fund's total assets. For
purposes of this limitation, issuers include predecessors, sponsors,
controlling persons, general partners, guarantors and originators of
underlying assets which have less than three years of continuous operation
or relevant business experience.
3. No Fund will purchase puts, calls, straddles, spreads and any combination
thereof if by reason thereof the value of its aggregate investment in such
classes of securities will exceed 5% of its total assets except that: (a)
this restriction shall not apply to standby commitments, (b) this
restriction shall not apply to a Fund's transactions in futures contracts
and related options, and (c) a Fund may obtain short-term credit as may be
necessary for the clearance of purchases and sales of portfolio securities.
4. No Fund will invest in warrants, valued at the lower of cost or market, in
excess of 5% of the value of such Fund's assets, and no more than 2% of the
value of the Fund's net assets may be invested in warrants that are not
listed on the New York or American Stock Exchange (for purposes of this
undertaking, warrants acquired by a Fund in units or attached to securities
will be deemed to have no value).
5. No Fund of the Company will purchase securities of companies for the
purpose of exercising control.
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6. No Fund of the Company will invest more than 15% of the value of its net
assets in illiquid securities, including repurchase agreements, time
deposits and GICs with maturities in excess of seven days, illiquid
restricted securities, and other securities which are not readily
marketable. For purposes of this restriction, illiquid securities shall not
include securities which may be resold under Rule 144A and Section 4(2) of
the Securities Act of 1933 that the Board of Directors, or its delegate,
determines to be liquid, based upon the trading markets for the specific
security.
7. 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.
8. 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.
9. 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).
In addition, as a matter of fundamental policy, the Small Company
Growth Fund and the Government Bond Fund may not:
1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalists or
certificates of deposit for any such securities) if, immediately after such
purchase, more than 5% of the value of the Fund's total assets would be
invested in the securities of such issuer, or more than 10% of the issuer's
outstanding voting securities would be owned by the Fund or the Company;
except that up to 25% of the value of a Fund's total assets may be invested
without regard to the foregoing limitations. For purposes of this
limitation, (a) a security is considered to be issued by the entity (or
entities) whose assets and revenues back the security and (b) a guarantee
of a security shall not be deemed to be a security issued by the guarantor
when the value of securities issued and guaranteed by the guarantor, and
owned by the Fund, does not exceed 10% of the value of the Fund's total
assets.
2. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no limitation
with respect to (i) instruments issued or guaranteed by the United States,
any state, territory or possession of the United States, the District of
Columbia or any of their authorities, agencies, instrumentalities or
political subdivisions and (ii) repurchase agreements secured by the
instruments described in clause (i); (b) wholly-owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the
parents; and (c) utilities will be divided according to their services, for
example, gas, gas transmission, electric and gas, electric and telephone
will each be considered a separate industry or (iii) with respect to the
Small Company Growth Fund, instruments issued by domestic branches of U.S.
Banks.
In addition, as a fundamental policy, the International Growth Fund may
not:
1. Purchase securities of any issuer if immediately after such purchase the
value of the Fund's investments in issuers conducting their principal
business activity in any one industry would exceed 25% of the value of the
Fund's total assets, provided that: (a) the gas, electric, water and
telephone businesses will be considered separate industries; (b) the
personal credit and business credit businesses will be considered separate
industries; (c) wholly-owned finance companies will be considered to be in
the industry of their parents if their activities are primarily related to
financing the activity of their parents; (d) foreign governments will be
considered separate industries; and (e) there is no limitation with respect
to or arising out of investments in
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obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities or tax-exempt obligations of state and municipal
governments and their agencies and authorities.
2. Make loans, except to the extent that the lending of portfolio securities
and purchases of debt obligations in accordance with the Fund's investment
objective(s) and policies and the entry into repurchase agreements with
banks, brokers, dealers and other financial institutions may be deemed to
be loans.
3. Purchase or sell real estate (except securities secured by real estate or
interests therein, securities issued by real estate investment trusts and
securities of companies that deal in real estate or mortgages), commodities
or commodity contracts relating to physical commodities or oil and gas
interests (although the Fund may invest in companies that own or invest in
such interests) except that the Fund may invest up to 10% of its net assets
in gold bullion, or invest in companies for the purpose of exercising
control or management. The Funds reserve freedom of action to hold and to
sell real estate acquired as a result of the Funds' ownership of
securities.
4. Act as an underwriter of securities (except as the Funds may be deemed to
be an underwriter under the Securities Act of 1933) in connection with the
purchase and sale of instruments or make short sales of securities unless
the Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short.
5. Purchase the securities of any issuer other than the U.S. Government, its
agencies or instrumentalities, if immediately after such purchase, more
than 5% of the value of the Fund's total assets would be invested in any
one issuer except that: (a) up to 25% of the value of its total assets may
be invested without regard to such 5% limitation and (b) such 5% limitation
shall not apply to repurchase agreements collateralized by obligations of
the U.S. Government, its agencies or instrumentalities. For purposes of
this restriction, a guaranty of an instrument will be considered a separate
security (subject to certain exclusions allowed under the 1940 Act).
6. Issue senior securities, except: (a) as appropriate to evidence
indebtedness that it is permitted to incur and (b) for Shares of the
separate classes or series of the Funds, provided that collateral
arrangements with respect to currency-related contracts, futures contracts,
options or other permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of senior
securities for the purpose of this restriction.
As a matter of non-fundamental policy, the Small Company Growth Fund
and Government Bond Fund may not:
1. Lend its securities if collateral values are not continuously maintained at
no less than 100% by market to market daily.
In addition, as a matter of non-fundamental policy, the Government Bond
Fund may not:
2. Purchase equity securities of issuers that are not readily marketable if
the value of a Fund's aggregate investment in such securities will exceed
5% of its total assets.
As a non-fundamental policy, the Government Bond Fund may not:
1. Purchase securities of issuers restricted as to disposition if the value of
its aggregate investment in such classes of securities will exceed 10% of
its total assets.
For purposes of the foregoing limitations, any limitation that involves
a maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings on behalf of, a Fund.
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As a matter of non-fundamental policy, which may be changed by the
Directors without Shareholder approval, the International Growth Fund may not:
1. Purchase securities of any one issuer if as a result more than 10% of the voting securities of such issuer
would be held by the Fund;
2. Purchase securities issued by any other open-end investment company, except
in the open market where no commission or, profit to a sponsor or dealer
results from the purchase other than customary brokerage commissions,
except when such purchase is part of a merger or consolidation, or except
shares of no-load "money market" investment companies advised by one of the
Funds' investment advisers or an affiliate thereof;
3. Write put and call options, unless each option is "covered," the underlying
securities are ones that the Fund is permitted to purchase, each option is
traded in a liquid market and the aggregate value of the securities
underlying the calls or obligations underlying the puts determined as of
the date an option is sold shall not exceed 25% of the Fund's net assets;
4. Purchase futures contracts or options on futures contracts for non-hedging
purposes if immediately after the purchase the value of the aggregate
initial margin with respect to all futures contracts (both for receipt and
delivery) entered into on behalf of the Fund (including foreign currency
futures contracts) and premiums paid for options on futures contracts,
exceed 5% of the fair market value of its total assets;
5. Borrow for investment leverage purposes, except in connection with
permitted reverse repurchase agreements, but solely for extraordinary or
emergency purposes and to facilitate management of the Fund's portfolio by
enabling the Funds to meet redemption requests when the liquidation of
portfolio instruments is deemed to be disadvantageous or not possible.
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.
INVESTMENT STRATEGY
Investing the same dollar amount at regular intervals is an investment
strategy known as Dollar Cost Averaging. Using this strategy, investors purchase
a greater number of shares when the fund's price is low and fewer shares when
the price is high. As a result, the average purchase price for shares will be
less than their average cost. Dollar Cost Averaging does not provide assurance
of making a profit or any guarantee against loss in continually declining
markets. Investors should evaluate whether they are able to make regular
investments through periods of declining price levels before deciding to use
this investment technique.
NET ASSET VALUE DETERMINATION
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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.
With respect to the Small Company Growth and International Growth 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 Bond 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 Small Company Growth, Government Bond and
International Growth 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 Growth Fund, all assets and liabilities of the International
Growth 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.
EXCHANGES
By use of the exchange privilege, the holder of Investor Shares and/or
Primary 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 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
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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 Shares of each Fund
describe the exchange privileges available to holders of such Investor Shares
and Primary Shares, respectively.
DESCRIPTION OF SHARES
DIVIDENDS AND DISTRIBUTIONS
SMALL COMPANY GROWTH FUND AND INTERNATIONAL GROWTH FUND. Dividends and
distributions from net investment income, if any, are declared and paid
quarterly, and capital gains distributions are declared and paid annually. The
Investor A, Investor B and Investor C Shares of the Funds shall accrue an
additional expense not borne by the Primary A Shares or Primary B Shares as a
result of the applicable Rule 12b-1 Plan and/or Shareholder Servicing Plan or
Shareholder Administration Plan and/or Shareholder Administration Agreements.
Consequently, a separate calculation shall be made to arrive at the net asset
value per share and dividends of each class of shares of the Funds.
GOVERNMENT BOND FUND. Dividends and distributions from net investment
income are declared daily and paid monthly, and capital gains distributions are
declared and paid annually. The Investor A, Investor B Shares and Investor C
Shares of the Fund shall accrue an additional expense not borne by the Primary A
Shares or Primary B 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.
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 and Investor N Shares with respect to servicing,
distribution and administrative support services, transfer agency arrangements
and the differing sales charges on purchases and redemptions of such shares does
not result in the Company's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended
(the "Code").
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 net 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 some of which 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
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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 off-setting
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 ("Short-Short Gains"). 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 principal business of investing in stock or securities (or options or
futures thereon). Because of the limitations on Short-Short Gains, a Fund may
have to limit the sale of appreciated securities that it has held for less than
three months. However, the Short-Short Gains limitations will not prevent a Fund
from disposing of specific investments at a loss, since the recognition of a
loss before the expiration of the three-month holding period is disregarded for
purposes of Short-Short Gains. 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 for purposes of Short-Short Gains.
However, income that is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including tax-exempt obligations purchased
after April 30, 1993) purchased by a Fund at a market discount (generally, at a
price less than its principal amount) will be treated as ordinary income to the
extent of the portion of the market discount which accrued during the period of
time the Fund held the debt obligation. In addition, under the rules of Section
988 of the Code, 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 Short-Short Gains, 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 loss on the disposition of an
asset held as part of a straddle may be deemed to the extent of any unrecognized
gain on the off-setting 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 Gains, 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. Any
gain or loss arising from the actual or deemed disposition of a Section 1256
contract 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
26
<PAGE>
Section 1256 contracts will not be treated as Short-Short Gains if the gains
arise from a deemed disposition. A Fund may elect not to have this special tax
treatment apply to Section 1256 contracts that are part of "mixed straddles"
with other investments of the Fund that are not Section 1256 contracts.
A regulated investment company, in determining its net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, must generally treat all or part of any net capital loss, or
net long-term capital loss incurred after October 31 as if they had been
incurred in the succeeding year. Treasury regulations similarly provide that a
regulated investment company can elect to defer until the next taxable year
recognition of its net capital loss and net currency loss, to the extent such
losses arise after October 31 of the current taxable year, in determining its
investment company taxable income.
In addition to satisfying the requirements 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, U.S. 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 or related trades or
businesses.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated earnings
and profits.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A non-deductible 4% excise tax will be imposed on each Fund (other than to
the extent of the Fund's tax-exempt income) to the extent it does not meet
certain minimum distribution requirements by the end of each calendar year. Each
Fund will either actually or be deemed to distribute substantially all of its
net investment income and net capital gains by the end of the calendar year and,
thus, expects not to be subject to the excise tax.
DISTRIBUTIONS AND OTHER MATTERS
For purposes of the corporate alternative minimum tax (the "AMT") and the
"environmental 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 Small Company Growth Fund into
account (without a dividends-received deduction) in determining its adjusted
current earnings.
If a regulated investment company purchases shares in a "passive foreign
investment company" ("PFIC"), the regulated investment company may be subject to
federal income tax and an interest charge imposed by the IRS upon certain
distributions from the PFIC or the regulated investment company's disposition of
its PFIC shares. If a regulated investment company invests in a PFIC, the
regulated investment company intends to make an election, prescribed by proposed
Treasury Regulations, to mark-to market its interest in PFIC shares. Pursuant to
the election, the regulated investment company will be treated as recognizing at
the end of each taxable year the excess, if any, of the fair market value of its
interest in PFIC shares over its basis in such shares. Although such excess will
be taxable to the regulated investment company as ordinary income
notwithstanding any distributions by the PFIC, the regulated investment company
will not be subject to federal income tax or the interest charge with respect to
its interest in the PFIC.
27
<PAGE>
Distributions by a Fund that do not constitute ordinary income dividends,
exempt-interest dividends or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his/her shares; any excess will be treated as gain from the sale of his/her
shares, as discussed below.
Prior to purchasing shares in one of the 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, even
though such distributions economically constitute a return of capital to the
shareholder.
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 in nature 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. Capital losses in any year are deductible only to the extent
capital gains plus, in the case of a taxpayer filing an individual tax return,
$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. Such payments in-kind shall
also result in recognized gain or loss, and most likely be capital in nature, to
a redeeming shareholder on the difference between the fair market value of the
securities received and the shareholder's adjusted tax basis in the Fund shares
sold or redeemed.
TAX RATES
As of the printing of this SAI, the maximum individual tax rate applicable
to ordinary income is 39.6% (marginal rates may be higher for some individuals
due to phase out of exemptions and elimination of deductions); the maximum
individual tax rate applicable to net capital gains is 28%; and the maximum
corporate tax rate applicable to ordinary income and net capital gains is 35%
(however, to eliminate the benefit of lower marginal corporate income tax rates,
corporations which have taxable income in excess of $100,000 for a taxable year
will be required to pay an additional amount of income tax of up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of tax of up to $100,000).
28
<PAGE>
FOREIGN SHAREHOLDERS
Under the Code, a nonresident alien individual, foreign estate (i.e., the
income of which is not subject to federal income taxation regardless of its
source), foreign trust (i.e., a U.S. court is not able to exercise primary
supervision over administration of that trust or a U.S. fiduciary does not have
authority to control substantial decisions of that trust), foreign corporation
(each a "foreign shareholder"), or foreign shareholder who or that is a partner
of an entity taxable as a partnership for federal income tax purposes ("a
foreign partner") will be subject to U.S. withholding tax (at a 30% or lower
income treaty rate, if applicable) on distributions of net investment income by
a Fund to such foreign shareholder (or, in the case of a foreign partner, such
foreign partner's share of partnership income attributable to such
distributions). Withholding will not apply if a dividend paid by the Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business
(or, if an income tax treaty applies, is attributable to such foreign
shareholder's U.S. "permanent establishment"), in which case the reporting and
withholding requirements applicable to U.S. residents or domestic corporations
will apply. Distributions of net long-term capital gains are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident alien
individual, such distributions ordinarily will be subject to U.S. income tax at
a rate of 30% if the individual is physically present in the U.S. for more than
182 days during the taxable year.
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 Advisers 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(*).
29
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME ADDRESS AND AGE THE COMPANY DIRECTORSHIPS
<S> <C>
Edmund L. Benson, III, 60 Director Director, President and
Saunders & Benson, Inc. Treasurer, Saunders & Benson,
728 East Main Street Inc. (Insurance); Trustee,
Suite 400 Nations Institutional Reserves
Richmond, VA 23219 and Nations Fund Trust; Director,
Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.
James Ermer, 54 Director Senior Vice President- Finance,
13705 Hickory Nut Point CSX Corporation (transportation
Midlothian, VA 23112 and natural resources); Director,
National Mine Service; Director,
Lawyers Title Corporation;
Trustee, Nations Institutional
Reserves and Nations Fund Trust;
Director, Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.
William H. Grigg, 64 Director Since April 1994, Chairman and
Duke Power Co. Chief Executive Officer; November
422 South Church Street 1991 to April 1994, Vice
PB04G Chairman, Duke Power Co.; from
Charlotte, NC 28242-0001 April 1988 to November 1991,
Executive Vice President Customer
Group, Duke Power Co.; Director,
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., Nations Fund Portfolios,
Inc. and Nations LifeGoal Funds,
Inc., Trustee, Nations
Institutional Reserves and Nations
Fund Trust.
30
<PAGE>
Thomas F. Keller, 65 Director R.J. Reynolds Industries
Fuqua School of Business Professor of Business
P.O. Box 90120 Administration and Dean, Fuqua
Duke University School of Business, Duke
Durham, NC 27708 University; Director, LADD
Furniture, Inc.; Director, Wendy's
International Mentor Growth Fund,
and Cambridge Company; Director,
Hatteras Income Securities, Inc.,
Nations Government Income Term
Trust 2003, Inc., Nations
Government Income Term Trust 2004,
Inc., Nations Balanced Target
Maturity Fund, Inc., Nations Fund,
Inc., Nations Fund Portfolios,
Inc.; and Nations LifeGoal Funds,
Inc.; Trustee, Nations
Institutional Reserves and Nations
Fund Trust.
Carl E. Mundy, Jr., 62 Director Commandant, United States Marine
9308 Ludgate Drive Corps, from July 1991 to July
Alexandria, VA 22309 1995; Commanding General, Marine
Forces Atlantic, from June 1990
to June 1991; Director, Nations
Fund, Inc., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves
and Nations Fund Trust.
A. Max Walker*, 75 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 Directors, Nations
Institutional Reserves and Nations
Fund Trust.
31
<PAGE>
Charles B. Walker, 58 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; Vice Chairman, Chief
Financial Officer and Treasurer,
Albemarle Corporation; Director,
Nations Fund, Inc. and Nations
Fund Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves
and Nations Fund Trust.
Thomas S. Word, Jr.*, 59 Director Partner, McGuire Woods Battle &
McGuire, Woods, Battle & Boothe Boothe (law); Director, Vaughan
One James Center Bassett Furniture Company;
Richmond, VA 23219 Director VB Williams Furniture
Company, Inc.; Director, Nations
Fund, Inc. and Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves
and Nations Fund Trust.
Richard H. Blank, Jr., 40 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., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.
Michael W. Nolte, 36 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
Louise P. Newcomb, 44 Assistant Secretary Corporate Syndicate Associate,
Stephens Inc. Stephens Inc.
James E. Banks, 41 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.
32
<PAGE>
Richard H. Rose, 42 Treasurer Since 1994, Vice President,
First Data Investor Services Group, Inc. Division Manager, First Data
(formerly, The Shareholder Services Group, Investor Services Group, Inc.;
Inc.) since 1988, Senior Vice
One Exchange Place President, The Boston Company
Boston, MA 02109 Advisers. Inc.; Treasurer,
Nations Institutional Reserves,
Nations Fund Trust, Nations Fund,
Inc., Nations Fund Portfolios,
Inc. and Nations LifeGoal Funds,
Inc.
Joseph C. Viselli, 33 Assistant Treasurer Since 1994, Director, First Data
First Data Investor Services Group, Inc. Investor Services Group, Inc.,;
One Exchange Place since 1992, Assistant Vice
Boston, MA 02109 President, The Boston Company
Advisers, Inc., since 1989,
Senior Accountant, Price
Waterhouse LLP.
Steven Levy, 32 Assistant Treasurer Since 1997, Vice President of
Fund Accounting, First Data
Investor Services Group, Inc.;
prior to 1997, Investment
Operations Manager, Franklin
Templeton Group and Assistant
Vice President of Fund
Accounting, Scudder, Stevens and
Clark, Inc.
</TABLE>
Mr. Rose serves as Treasurer to certain other investment companies for
which First Data Investors 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.
and Nations LifeGoal Funds, Inc., each a registered investment company that is
part of the Nations Funds Family. Richard H. Blank, Jr., Richard H. Rose, Joseph
C. Viselli, Steven Levy, Michael W. Nolte, Louise P. Newcomb and James E. Banks,
Jr. also are officers of Nations Fund Trust, Nations Institutional Reserves,
Nations LifeGoal Funds, Inc. 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. Officers
receive no direct remuneration in such capacity from the Company. No person who
is an officer, director or employee of NationsBank or its affiliates serves as
an officer, Director or employee of the company. As of the date of this SAI, the
directors and officers of the Company as a group owned less than 1% of the
outstanding shares of each of the Funds.
The Company has adopted a Code of Ethics which, among other things,
prohibits each access person of the Company from purchasing or selling
securities when such person knows or should have known that, at the time of the
transaction, the security (i) was being considered for purchase or sale by a
Fund or (ii) was being purchased or sold by a Fund. For purposes of the Code of
Ethics, an access person means (i) a director or officer of the Company; (ii)
any employee of the Company (or any company in a control relationship with the
Company) who, in the course of his/her regular duties, obtains information
about, or makes recommendations with respect to, the
33
<PAGE>
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 mutual fund shares, 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.
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.
34
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION FROM
NAME OF PERSON FROM BENEFITS ACCRUED AS BENEFITS UPON REGISTRANT AND FUND
POSITION (1) REGISTRANT (2) PART OF FUND EXPENSES RETIREMENT COMPLEX(3)(4)
------------ -- -------------- --------------------- ---------- -------------
<S> <C> <C> <C> <C>
Edmund L. Benson, III, $4,894.39 $23,368.92 $11,684.46 $84,042.84
Director (50% Def'd)
James Ermer 8,085.49 23,368.92 11,684.46 46,716.94
Director
William H. Grigg 0.00 23,368.92 11,684.46 115,933.25
Director (100% Def'd)
Thomas F. Keller 178.90 23,368.92 11,684.46 124,575.75
Director (100% Def'd)
A. Max Walker 11,486.99 23,368.92 11,684.46 75,322.94
Chairman of the Board
Charles B. Walker 417.01 23,368.92 11,684.46 51,238.33
Director
Thomas S. Word 9,215.83 23,368.92 11,684.46 118,926.66
Director (100% Def'd)
Carl E. Mundy, Jr. 9,679.25 23,368.92 11,684.46 52,092.00
Director
Total 43,957.85 186,951.37 93,475.68 668,848.71
</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 current fiscal year. 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 nine
investment companies, including the Company, that are deemed to be part of
the Nations Funds "fund complex," as that term is defined under Rule
14a-101 of the Securities Exchange Act of 1934, as amended. Messrs. Benson,
Ermer, C. Walker, Mundy and Word receive compensation from five investment
companies, including the Company, deemed to be part of the Nations Funds
complex.
(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Directors: Edmund L.
Benson, III ($55,652.78); William H. Grigg ($102,683.25); Thomas F. Keller
($110,610.14); and Thomas S. Word ($114,008.63).
35
<PAGE>
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 eight separate
Funds. This SAI relates to the following Funds of the Company: the Small Company
Growth Fund, the Government Bond Fund and the International Growth Fund. Each
Fund offers the following separate classes of shares (Primary A Shares, Primary
B Shares, Investor A Shares, Investor B Shares (formerly Investor N Shares) and
Investor C Shares). 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."
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 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
NBAI serves as investment adviser to the Funds, pursuant to an Investment
Advisory Agreement dated January 1, 1996. NBAI is a wholly owned subsidiary of
NationsBank, N.A. ("NationsBank"), which in turn is a wholly owned banking
subsidiary of NationsBank Corporation, a bank holding company organized as a
North Carolina company. The respective principal offices of NBAI and NationsBank
are located at One NationsBank Plaza, Charlotte, N.C.
28255.
NBAI also serves as investment adviser to Nations Fund Trust, Nations
Institutional Reserves, Nations Fund Portfolios, Inc. and Nations LifeGoal
Funds, Inc., each a registered investment company that is part of the Nations
Funds Family. In addition, NBAI serves as investment adviser to Hatteras Income
Securities, Inc., Nations Government Income Term Trust 2003, Inc., Nations
Government Income Term Trust 2004, Inc., and Nations
36
<PAGE>
Balanced Target Maturity Fund, Inc., each a closed-end diversified management
investment company traded on the New York Stock Exchange.
Boatmen's serves as investment sub-adviser to the Government Bond Fund,
pursuant to a Sub-Advisory Agreement dated July 31, 1997. TradeStreet serves as
investment sub-adviser to the Small Company Growth Fund pursuant to a
Sub-Advisory Agreement dated January 1, 1996, as supplemented on July 1, 1997.
Gartmore serves as investment sub-adviser to the International Growth Fund
pursuant to a Sub-Advisory Agreement dated April 10, 1996, as supplemented on
July 11, 1997.
Boatmen's is an indirect wholly owned subsidiary of NationsBank
Corporation, a bank holding company organized as a North Carolina corporation.
Boatmen's principal office is located at 100 North Broadway, St. Louis, Missouri
63178. TradeStreet and Gartmore both have principal offices located at One
NationsBank Plaza, Charlotte, North Carolina 28255.
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 twelve of NationsBank personnel are involved
in stock and bond research.
Pursuant to the terms of the Investment Advisory Agreement and
Sub-Advisory Agreements (at times, the "Advisory Agreements") with NBAI,
Boatmen's, TradeStreet and Gartmore, respectively, and 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, Boatmen's, 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 each provide that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties thereunder on the part of the Adviser, or any of their respective
officers, directors, employees or agents, the Adviser shall not be subject to
liability to the Company or to any shareholder of the Company for any act or
omission in the course of, or connected with, rendering services thereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
The Advisory Agreements shall become effective with respect to such 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. Each Advisory
Agreement will terminate automatically in the event of its assignment, and is
terminable with respect to a Fund at any time without penalty by the Company (by
vote of the Board of Directors or by vote of a majority of the outstanding
voting securities of the Fund) or by the Adviser on 60 days' written notice.
The Advisory Agreements provide that the Adviser shall not be liable to
the Company or to its shareholders for any act or omission by such Adviser or
for any loss sustained by the Company or by its shareholders except in the case
of such Adviser's willful misfeasance, bad faith, gross negligence or reckless
disregard of duty on the part of such Adviser, as the case may be.
The Adviser may waive a portion of their fees; however, any such waiver
may be discontinued at any time. As discussed under the caption "Expenses," each
Adviser will be required to reduce their fees from the Funds, in direct
proportion to the fees payable by the Funds to such Adviser and the
Administrator, if the expenses of the
37
<PAGE>
Funds exceed the applicable expense limitation of any state in which the Funds'
shares are registered or qualified for sale.
The indicated Fund paid the following advisory and sub-advisory fees under
a prior advisory agreement during the periods indicated.
ADVISORY AND SUB-ADVISORY FEES PAID
SEPTEMBER 1, 1996 - MAY 16, 1997
<TABLE>
<CAPTION>
Basis Advisory
Points Fee
<S> <C> <C>
Pilot International Fund
Boatmen's Advisory Fee 0.48% $2,306,596
Kleinwort Sub-Advisory 0.32% $1,544,789
------------------------------------
Total 0.80% $3,861,385
------------------------------------
Pilot US Government Fund
Advisory Fee 0.55% $552,504
Advisory Waiver -0.15% $(125,674)
0.40% $426,830
----------------------------------
Pilot Small Capitalization Fund
Advisory Fee 1.00% $731,622
Advisory Waiver -0.25% $(250,320)
0.75% $481,302
----------------------------------
</TABLE>
ADVISORY FEES PAID
<TABLE>
<CAPTION>
SEPTEMBER 1, 1995 - SEPTEMBER 1, 1994 -
AUGUST 31, 1996 AUGUST 31, 1995
<S> <C> <C>
Pilot International Fund $2,175,540 $1,197,182
Pilot US Government Fund $555,098 $415,164
Pilot Small Capitalization Fund $178,877 $0*
* Fund inception 12/12/95
SUB-ADVISORY FEES PAID
SEPTEMBER 1, 1995 - AUGUST 31, 1994 - AUGUST
AUGUST 31, 1996 31, 1995
Pilot International Fund $1,697,973 $1,631,446
Pilot US Government Fund N/A N/A
Pilot Small Capitalization Fund N/A N/A
</TABLE>
INVESTMENT STYLES
When you invest in any Fund in the Nations Funds Family, you can be
assured your money is managed according to a disciplined investment style; one
that remains constant regardless of particular styles coming in an out of favor.
The Adviser believes this structured approach to managing portfolio securities
may provide you with consistent performance over time. These investment styles
consist of (i) the Small Company Growth Style, and (ii) the International Equity
Style. The Investment Styles described below relate to the Small Company Growth
Fund and International Growth Fund.
38
<PAGE>
SMALL COMPANY GROWTH STYLE. The Small Company Growth Fund is managed by
the Adviser using the Small Company Growth Style. The Small Company Growth 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). Small Company Growth 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 Small Company Growth 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 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 Small Company Growth Style Group senior portfolio managers working closely
with in-house industry specialists, as well as expert Wall Street sources.
INTERNATIONAL GROWTH STYLE. The International Growth Fund is managed by
the Adviser using the International Equity Style. The International Growth Style
investment philosophy is premised on the belief that a diversified portfolio of
equity securities of established, non-United States issuers can provide
long-term growth of capital and income.
This style focuses on the country selection process by utilizing
macroeconomic forecasts to identify areas of the world which will exhibit
relatively strong growth within the context of a modest inflation and low
interest rate environment. The political factors and market liquidity
constraints which can affect stock market valuations are also taken into
consideration by the Adviser prior to making stock selections.
The stock selection process begins with the elimination of equity
securities with a market capitalization of less than $250 million. The next step
in the process is the ranking of each country and industry sector by relative
price/earnings ratio using an historical range of not less than ten years from
an universe of approximately 1000 stocks. In addition to the relative historical
price/earnings ratio the portfolio managers also employ a fundamental analysis
of growth opportunities, management and future direction of these stocks.
The International Growth 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).
39
<PAGE>
ADMINISTRATOR AND CO-ADMINISTRATOR
Stephens Inc. (the "Administrator") serves as administrator of the Company
and First Data Investors Services Group, Inc. (the "Co-Administrator") serves as
the co-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 Feb. 6, 1997. 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 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.
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.
The indicated Fund paid the following administration fees under a prior
Administration Agreement during the periods indicated:
For the Funds' fiscal period from September 1, 1996 to May 16, 1997:
Small Company Growth Fund $16,390
Government Bond Fund $117,089
International Growth Fund $530,382
For the fiscal period ended August 31, 1996:
40
<PAGE>
Small Company Growth Fund $0*
Government Bond Fund $133,452
International Growth Fund $536,016
For the fiscal period ended August 31, 1995:
Small Company Growth Fund $0*
Government Bond Fund $11,784
International Growth Fund $386,949
* Administration fee waivers
DISTRIBUTION PLANS AND SHAREHOLDER SERVICING ARRANGEMENTS FOR INVESTOR SHARES
INVESTOR A SHARES OF THE FUNDS. The Company has adopted an Amended and
Restated Shareholder Servicing and Distribution Plan (the "Investor A Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to each Fund's Investor A
Shares. The Investor A Plan provides that each Fund may pay the Distributor or
banks, broker/dealers or other financial institutions that offer shares of the
Fund and that have entered into a Sales Support Agreement with the Distributor
("Selling Agents") or a Shareholder Servicing Agreement with the Company,
("Servicing Agents"), up to 0.10% (on an annualized basis) of the average daily
net asset value of Investor A Shares of the Money Market Funds and up to 0.25%
(on an annualized basis) of the average daily net asset value of the Non-Money
Market Funds.
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 Fund. Such shareholder
support services provided by Servicing Agents to holders of Investor A Shares of
the 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.
During the fiscal period ended May 16, 1997, the Distributor received
$55,013 from Rule 12b-1 fees in connection with Investor A Shares of the Funds.
The Distributor retained $0, and paid the balance to selling dealers.
INVESTOR B SHARES OF THE FUNDS(FORMERLY INVESTOR N SHARES). The Directors
have approved a Distribution Plan (the "Investor B Distribution Plan") with
respect to Investor B Shares of the Funds. Pursuant to the Investor B
41
<PAGE>
Distribution Plan, a Fund may compensate or reimburse the Distributor for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor B Shares, including for sales related services provided by banks,
broker/dealers or other financial institutions that have entered into a Sales
Support Agreement relating to the Investor B Shares with the Distributor
("Selling Agents"). Payments under a Fund's Investor B Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Directors provided that the annual rate may not exceed 0.75% of the
average daily net asset value of each Fund's Investor B Shares.
The fees payable under the Investor B Distribution Plan are used primarily
to compensate or reimburse the Distributor for distribution services provided by
it, and related expenses incurred, including payments by the Distributor to
compensate or reimburse Selling Agents, for sales support services provided, and
related expenses incurred, by such Selling Agents. Payments under the Investor B
Distribution Plan may be made with respect to preparation, printing and
distribution of prospectuses, sales literature and advertising materials by the
Distributor or, as applicable, Selling Agents, attributable to distribution or
sales support activities, respectively, commissions, incentive compensation or
other compensation to, and expenses of, account executives or other employees of
the Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; overhead and other office expenses of the Distributor
relating to the foregoing (which may be calculated as a carrying charge in the
Distributor's or Selling Agents' unreimbursed expenses), incurred in connection
with distribution or sales support activities. The overhead and other office
expenses referenced above may include, without limitation, (i) the expenses of
operating the Distributor's or Selling Agents' offices in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefit
costs of administrative, operations and support personnel, utility costs,
communication costs and the costs of stationery and supplies, (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 B Shares of the Funds ( "Investor B Servicing Plan").
Pursuant to the Investor B Servicing Plan, a Fund may compensate or reimburse
banks, broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Company ("Servicing Agents") for
certain activities or expenses of the Servicing Agents in connection with
shareholder services that are provided by the Servicing Agents. Payments under
the Investor B Servicing Plan will be calculated daily and paid monthly at a
rate or rates set from time to time by the Board of Directors, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor B Shares of the Funds.
The fees payable under the Investor B Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for such Investor B Shares from Customers and
transmitting promptly net purchase and redemption orders to the Distributor or
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Investor 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 such Investor B Shares; (v) arranging
for bank wires; (vi) responding to Customers' inquiries concerning their
investment in such Investor B Shares; (vii) providing sub-accounting with
respect to such Investor B Shares beneficially owned by Customers or providing
the information to us necessary for sub-accounting; (viii) if required by law,
forwarding shareholder communications from the 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 B
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 B Distribution Plan and Investor B
Servicing Plan (together, the "Investor B Plans") are treated by the Funds as an
expense in the year they are accrued. At any given time, a Selling Agent and/or
Servicing Agent may incur expenses in connection with services provided pursuant
to its
42
<PAGE>
agreements with the Distributor under the Investor B Plans which exceed the
total of (i) the payments made to the Selling Agents and Servicing Agents by the
Distributor or the Company and reimbursed by the Fund pursuant to the Investor B
Plans, and (ii) the proceeds of contingent deferred sales charges paid to the
Distributor and reallowed to the Selling Agent, upon the redemption of their
Customers' Investor B Shares. Any such excess expenses may be recovered in
future years, so long as the Investor B Plans are in effect. Because there is no
requirement under the Investor B Plans that the Distributor be paid or the
Selling Agents and Servicing Agents be compensated or reimbursed for all their
expenses or any requirement that the Investor B Plans be continued from year to
year, such excess amount, if any, does not constitute a liability to a Fund or
the Distributor. Although there is no legal obligation for the Fund to pay
expenses incurred by the Distributor, a Selling Agent or a Servicing Agent in
excess of payments previously made to the Distributor under the Investor B Plans
or in connection with contingent deferred sales charges, if for any reason the
Investor B Plans are terminated, the Directors will consider at that time the
manner in which to treat such expenses.
During the fiscal period ended May 16, 1997, the Distributor received
$31,069 from Rule 12b-1 fees in connection with Investor B Shares of the Funds.
The Distributor retained $0, and paid the balance to selling dealers.
INVESTOR C SHARES OF THE 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 C Shares of the Funds (the "Investor C Plan").
Pursuant to the Investor 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 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 Fund. Payments to the Distributor pursuant to the Investor 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 C Shares, for promotional activities intended to result in
the sale of 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 C Shares. Currently, substantially all fees paid pursuant to the
Investor 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 C Shares. Fees received by the Distributor pursuant to the
Investor 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.
Pursuant to the Investor 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 C Shares of
the 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 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 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 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 C Plan is in effect. If the Investor 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 C
Shares of the Funds (the "Investor C Servicing Plan"). Pursuant to the
43
<PAGE>
Investor C Servicing Plan, each Fund may pay banks, broker/dealers or other
financial institutions that have entered into a Shareholder Servicing Agreement
with Nations Funds ("Servicing Agents") for certain expenses that are incurred
by the Servicing Agents in connection with shareholder support services that are
provided by the Servicing Agents. Payments under the Investor 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 Funds' Investor C Shares. The shareholder
services provided by the Servicing Agents may include (i) aggregating and
processing purchase and redemption requests for 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 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 Investor C Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their investment in
Investor C Shares; (vii) providing sub-accounting with respect to 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.
INFORMATION APPLICABLE TO INVESTOR A, INVESTOR B, AND INVESTOR C SHARES.
The Investor A Plan, the Investor B Plan, the Investor B Servicing Plan, the
Investor C Plan, and the Investor C 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 Investor
B Servicing Plan, and the Investor C Servicing Plan is subject to, among other
things, the National Association of Securities Dealers, Inc. ("NASD") Rules of
Conduct governing receipt by NASD members of shareholder servicing plan fees
from registered investment companies (the "NASD Servicing Plan Rule"), which
became effective on July 7, 1993. Such compensation shall only be paid for
services determined to be permissible under the NASD Servicing Plan Rule.
Each Plan requires the officers of the Company or the Distributor to
provide the Board of Directors at least quarterly with a written report of the
amounts expended pursuant to the Plan and the purposes for which such
expenditures were made. The Board of Directors reviews these reports in
connection with their decisions with respect to the Plans.
As required by Rule 12b-1 under the 1940 Act, each Plan was approved by
the Board of Directors, including a majority of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("Qualified Directors") on February 6, 1997. 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.
The Investor A Plan, Investor B Plan and Investor C Plan may be terminated
with respect to their respective shares by vote of a majority of the Qualified
Directors, or by vote of a majority of the holders of the outstanding voting
securities of the Investor A, Investor B or Investor C Shares, as appropriate.
Any change in such a Plan that would increase materially the distribution
expenses paid by the Investor A, Investor B, or Investor C Shares requires
shareholder approval; otherwise, each Plan may be amended by the directors,
including a majority of the Qualified Directors, by vote cast in person at a
meeting called for the purpose of voting upon such amendment. The Investor B
Servicing Plan and the Investor C 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
44
<PAGE>
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.
FEES PAID PURSUANT TO SHAREHOLDER SERVICING/DISTRIBUTION PLANS
Fees paid pursuant to the Company's Shareholder Servicing and
Distribution Plans for Investor A Shares of the Funds during the fiscal period
ended May 16, 1997 were as follows:
<TABLE>
<CAPTION>
Shareholder Servicing
12b-1 Component Component Fees Paid
Fees Paid Fees Waived Net Fees Paid
<S> <C> <C> <C>
International Growth Fund $59,370 N/A $11,824 $47,496
Small Company Growth Fund $7,270 N/A $1,454 $5,816
Government Bond Fund $2,126 N/A $425 $1,701
</TABLE>
Fees paid pursuant to the Company's Rule 12b-1 Distribution Plan and
Shareholder Servicing Plan for Investor B Shares of the Funds during the fiscal
period ended May 16, 1997 were as follows:
<TABLE>
<CAPTION>
Shareholder Shareholder
Net 12b-1 Fees Net 12b-1 Fees Servicing Fees Servicing Net Fees Paid
Paid Waived Paid Fees Waived
<S> <C> <C> <C>
International Growth Fund $2,465 N/A $821 N/A $3,286
Small Company Growth Fund $12,945 N/A $4,315 N/A $17,260
Government Bond Fund $8,297 N/A $2,766 N/A $11,063
</TABLE>
SHAREHOLDER ADMINISTRATION PLAN (PRIMARY B SHARES)
As stated in the Prospectus for the 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 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
45
<PAGE>
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 incremental expenses of
printing and distributing prospectuses used by the Distributor or furnished by
the Distributor to investors in connection with the public offering of the
Company's shares and the costs of any other promotional or sales literature,
except that to the extent permitted under the Plans relating to the Investor A,
Investor B and Investor C Shares of each Fund, sales-related expenses incurred
by the Distributor may be reimbursed by the Company.
The Company pays or causes to be paid all other expenses of the Company,
including, without limitation: the fees of the Adviser, the Administrator and
Co-Administrator; the charges and expenses of any registrar, any custodian or
depository appointed by the Company for the safekeeping of its cash, fund
securities and other property, and any stock transfer, dividend or accounting
agent or agents appointed by the Company; brokerage commissions chargeable to
the Company in connection with fund securities transactions to which the Company
is a party; all taxes, including securities issuance and transfer taxes;
corporate fees payable by the Company to federal, state or other governmental
agencies; all costs and expenses in connection with the registration and
maintenance of registration of the Company and its shares with the SEC and
various states and other jurisdictions (including filing fees, legal fees and
disbursements of counsel); the costs and expenses of typesetting prospectuses
and statements of additional information of the Company (including supplements
thereto) and periodic reports and of printing and distributing such prospectuses
and statements of additional information (including supplements thereto) to the
Company's shareholders; all expenses of shareholders' and directors' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; fees and travel expenses of directors or director members of any
Advisory board or committee; all expenses incident to the payment of any
dividend or distribution, whether in shares or cash; charges and expenses of any
outside service used for pricing of the Company's shares; fees and 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
pro-rated 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.
46
<PAGE>
The Advisory Agreements and the Administration Agreement require NBAI,
Boatmen's, Kleinwort Benson 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, Boatmen's,
Kleinwort Benson or the Administrator shall be deducted from the monthly
investment Advisory and administration fees otherwise payable to NBAI,
Boatmen's, Kleinwort Benson and the Administrator during such fiscal year. If
required pursuant to such state securities regulations, NBAI, Boatmen's,
Kleinwort Benson 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. 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 A Shares and Primary B Shares.
NationsBank of Texas, N.A., also serves as custodian for the portfolio
securities and cash of the Small Company Growth Fund and the Government Bond
Fund. As such custodian, NationsBank of Texas, N.A., maintains custody of such
Funds' securities cash and other property, delivers securities against payment
upon sale and pays for securities against delivery upon purchase, makes payments
on behalf of such Funds for payments of dividends, distributions and
redemptions, endorses and collects on behalf of such Funds all checks, and
receives all dividends and other distributions made on securities owned by such
Funds.
Bank of New York, Avenues de Arts, 35 1040 Brussels, Belgium serves as
custodian for the portfolio securities and cash of the International Growth
Fund.
The Bank of New York, 90 Washington Street, New York, New York 10286,
serves as sub-custodian for the portfolio securities and cash of the Small
Company Growth Fund and the Government Bond Fund.
DISTRIBUTOR
Stephens Inc. (the "Distributor") serves as the principal underwriter and
distributor of the shares of the Funds.
Pursuant to a distribution agreement (the "Distribution Agreement"), the
Distributor, as agent, sells shares of the Funds on a continuous basis and
transmits purchase and redemption orders that its receives to the 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 and
distribution 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.
47
<PAGE>
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
The Board of Directors has selected Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts, 02110 as the Company's independent accountant.
The audited financial statements and independent auditors' report for the
fiscal period ended May 16, 1997 for the predecessor portfolios are hereby
incorporated by reference in this SAI. As such, financial statements for the
Funds are not yet available. The Annual Reports for each Fund, when available,
will be sent free of charge with this SAI to any shareholder who requests this
SAI.
COUNSEL
Morrison & Foerster LLP serves as legal counsel to the Company. Their
address is 2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006.
ADDITIONAL INFORMATION ON PERFORMANCE
Yield information and other performance information for the Company's
Funds may be obtained by calling the Company at (800) 321-7854.
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. market; 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 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 April 30, 1997, the yields of the various shares of the Government
Bond Fund(1) were as follows:
<TABLE>
<CAPTION>
4/30/97 4/30/97 30-Day
30-Day Yield Without
Yield Fee Waivers
<S> <C> <C>
Government Bond Fund
Pilot Shares (Primary A Shares) 5.95% 5.80%
- --------
(1) The Small Company Growth Fund does not disclose a 30-day yield because it is
an equity fund and the International Growth Fund does not disclose a 30-day
yield because it is an international fund.
48
<PAGE>
Class A Shares (Investor A Shares) 5.52% 5.32%
Class B Shares (Investor B Shares - 4.95% 4.80%
formerly Investor N Shares)
</TABLE>
Such yield figures are determined by dividing the net investment income
per share earned during a specified 30-day period by the maximum offering price
per share on the last day of the period, according to the following formula:
Yield = 2[(a-b + 1)(6)-1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = average daily number of shares outstanding during
the period that were entitled to receive dividends
d = maximum offering price per share on the last day of
the period
For purposes of yield quotation, income is calculated in accordance with
standardized methods applicable to all stock and bond mutual funds. In general,
interest income is reduced with respect to bonds trading at a premium over their
par value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. Capital gains and losses are excluded from the
calculation.
Income calculated for the purposes of calculating a Fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions a Fund paid over the same period or the rate of income reported in
the Funds' financial statements.
TOTAL RETURN CALCULATIONS
Total return measures both the net investment income generated by, and the
effect of any realized or unrealized appreciation or depreciation of the
underlying investments in the Funds. The Fund's 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.
49
<PAGE>
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.
Based on the foregoing calculations, the Funds' average annual return (loss) for
all classes of shares were as follows for the period from inception through
April 30, 1997:
<TABLE>
<CAPTION>
10 Year Period Ended
Period Ended 4/30/97 Inception 4/30/97 or Inception
through 4/30/97 through 4/30/97
<S> <C> <C>
Small Company Growth Fund
Pilot Shares 4.60% 9.99% N/A
Class A Shares (0.39)% 5.80% N/A
Class B Shares (0.88)% 5.74% N/A
Government Bond Fund
Pilot Shares 6.42% 8.50% N/A
Class A Shares 1.31% 7.76% N/A
Class B Shares .95% 7.39% N/A
International Growth Fund
Pilot Shares 2.89% 13.14% N/A
Class A Shares (1.95)% 12.48% 6.83%
Class B Shares N/A% (2.96)% N/A
</TABLE>
50
<PAGE>
Based on the foregoing calculations, the Funds' aggregate total return (loss)
for all classes of shares were as follows for the period from inception through
April 30, 1997:
<TABLE>
<CAPTION>
5 Year Period 5 Year Period 10 Year Period 10 Year Period
Ended 4/30/97 Ended 4/30/97 Ended 4/30/97 Ended 4/30/97
or Inception or Inception or Inception or Inception
FYE FYE through through through through
4/30/97 4/30/97 4/30/97 4/30/97 4/30/97 4/30/97
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
<S> <C> <C>
Small Company
Growth Fund
Pilot Shares (4.20)% (4.20)% N/A N/A N/A N/A
Class A Shares (4.35)% (8.64)% N/A N/A N/A N/A
Class B Shares (4.60)% (8.90)% N/A N/A N/A N/A
Government Bond Fund
Pilot Shares 0.86% 0.86% N/A N/A N/A N/A
Class A Shares 0.68% (3.81)% N/A N/A N/A N/A
Class B Shares 0.43% (4.02)% N/A N/A N/A N/A
International Growth Fund
Pilot Shares 1.63% 1.63% N/A N/A N/A N/A
Class A Shares 1.59% (2.97)% 54.09% 47.15% 109.56% 100.13%
Class B Shares 1.29% (2.96)% N/A N/A N/A N/A
</TABLE>
The Primary Shares and Investor Shares of the Small Company Growth Fund,
Government Bond Fund and International Growth 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 Bond
Fund) or a three-month (in the case of the Small Company Growth Fund and
International Growth Fund) period as a percentage of the maximum offering price
per share on the last day of such period. The performance figures of the Funds
as described above will vary from time to time depending upon market and
economic conditions, the composition of their portfolios and operating expenses.
These factors should be considered when comparing the performance figures of the
Funds with those of other investment companies and investment vehicles.
The "yield" and "effective yield" of each class of shares of a Money
Market Fund may be compared to the respective averages compiled by DONOGHUE'S
MONEY FUND REPORT, a widely recognized independent publication that monitors the
performance of money market funds, or to the average yields reported by the BANK
RATE MONITOR for money market deposit accounts offered by the 50 leading banks
and thrift institutions in the top five metropolitan statistical areas. Each
Fund may quote information obtained from the Investment Company Institute,
national financial publications, trade journals and other industry sources in
its advertising and sales literature. In addition, the Funds also may compare
the performance and yield of a class or series of shares to those of other
mutual funds with similar investment objectives and to other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. Performance and yield data as
reported in national financial publications such as MONEY MAGAZINE, FORBES,
BARRON'S, THE WALL STREET JOURNAL and THE NEW YORK TIMES, OR in publications of
a local or regional nature, may also 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 the Small Company
Growth Fund and the International Growth Fund may be compared to the Standard &
Poor's 500 Stock Index, an unmanaged index of a group of common stocks, the
Consumer Price Index or the Dow Jones Industrial Average, a recognized unmanaged
index of common stocks of 30 industrial companies listed on the New York Stock
Exchange. The performance and yield of a class of shares in the International
Growth 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.
51
<PAGE>
MISCELLANEOUS
CERTAIN RECORD HOLDERS
The following indicates those persons who owned 5% or more of the
indicated class of shares as of July 2, 1997. Unless otherwise indicated, the
address for each record-holder of Primary Shares is 1401 Elm Street, 11th Floor,
Dallas, Texas 75202.
Percentage of Shares
Name and Address Held of Record Only
SMALL COMPANY GROWTH FUND
Primary A. Shares
CNOM & Co. 76.74%
P.O. Box 500409
St. Louis, MO 63150-0409
RODAC & CO. 15.26%
P.O. Box 500409
St. Louis, MO 63150-0409
Boat & Co. 6.78%
P.O. Box 14737
St. Louis, MO 63178-4737
Primary B Shares
Stephens Inc. 100.00%
Attn: Cindy Cole
111 Center Street
Little Rock, AR 72201
Investor A Shares
Donaldson Lufkin Jenrette 7.88%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Investor B Shares
Stephens Inc. for the Exclusive 11.48%
Benefit of Our Customers
P.O. Box 3507
Little Rock, AR 72203
Donaldson Lufkin Jenrette 7.44%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NY 07303-2052
Donaldson Lufkin Jenrette 6.43%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NY 07303-2052
52
<PAGE>
Investor C Shares
Test Account for Mutual Funds 50.00%
Muire Turkus and M. J. Meschino
5 World Trade Center
Operations Support, 6th Floor
New York, NY 10048-0205
Stephens Inc. 50.00%
Attn: Cindy Cole
111 Center Street
Little Rock, AR 72201
GOVERNMENT BOND FUND
Primary A Shares
CNOM & Co. 93.71%
P.O. Box 500409
St. Louis, MO 63150-0409
Primary B Shares
Stephens Inc. 100.00%
Attn: Cindy Cole
111 Center Street
Little Rock, AR 72201
Investor A Shares
Donaldson Lufkin Jenrette 11.38%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Donaldson Lufkin Jenrette 8.19%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NY 07303-2052
Thelma M. Roberts 7.36%
Trust Thelma M. Roberts Trust
DTD 2/24/94 1513 Meadowhill Dr.
Mountain Home, AR 72653-5065
Stephens Inc. FBO 7.28%
Acct. 782639141
P.O. Box 34127
Little Rock, AR 72203-4127
Donaldson Lufkin Jenrette 7.28%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NY 07303-2052
53
<PAGE>
Donaldson Lufkin Jenrette 6.32%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NY 07303-2052
Donaldson Lufkin Jenrette 5.91%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NY 07303-2052
Donaldson Lufkin Jenrette 5.07%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NY 07303-2052
Investor B Shares
Donaldson Lufkin Jenrette 14.83%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NY 07303-2052
Carla J. Worley 12.90%
CNSV William Cody Worley
P.O. Box 117
Leaseburg, MO 65535-0117
Donaldson Lufkin Jenrette 12.59%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NY 07303-2052
Donaldson Lufkin Jenrette 7.68%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NY 07303-2052
Stephens Inc. for the Exclusive 5.03%
Benefit of Our Customers
P.O. Box 3507
Little Rock, AR 72203
Investor C
Test Account for Mutual Funds 50.00%
Muire Turkus and M. J. Meschino
5 World Trade Center
Operations Support, 6th Floor
New York, NY 10048-0205
Stephens Inc. 50.00%
Attn: Cindy Cole
111 Center Street
Little Rock, AR 72201
54
<PAGE>
INTERNATIONAL GROWTH FUND
Primary A Shares
Boat & Co. 52.69%
P.O. Box 14737
St. Louis, MO 63178-4737
CNOM & Co. 30.30%
P.O. Box 500409
St. Louis, MO 63150-0409
RODAC & Co. 14.90%
P.O. Box 500409
St. Louis, MO 63150-0409
Primary B Shares
Stephens Inc. 100.00%
Attn: Cindy Cole
111 Center Street
Little Rock, AR 72201
Investor A Shares
Kleinwort Benson Investment Mgt. Ltd. 6.66%
Client Account
Attn: Andy Poile
P.O. Box 191 20 Fenchurch Street
London England EC3P 3DB
Investor B Shares
Boatmen's Cust. IRA FBO 11.76%
Richard E. Snowbarger
Box 3884
Teluride, CO 81435
Boatmen's Cust. IRA FBO 6.42%
Edward Goldsich
5115 W 81st Street
Prairie Village, KS 66208-4920
Donaldson Lufkin Jenrette 5.21%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NY 07303-2052
Investor C Shares
Test Account for Mutual Funds 50.00%
Muire Turkus and M. J. Meschino
5 World Trade Center
Operations Support, 6th Floor
New York, NY 10048-0205
55
<PAGE>
Stephens Inc. 50.00%
Attn: Cindy Cole
111 Center Street
Little Rock, AR 72201
As of July 15, 1997, 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.
56
<PAGE>
SCHEDULE A
DESCRIPTION OF RATINGS
The following summarizes the highest six ratings used by Standard & Poor's
Corporation ("S&P") for corporate and municipal bonds. The first four ratings
denote investment-grade securities.
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest and
repay principal.
AA - Debt rated AA is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in a
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B - Bonds rated BB and B are regarded, on balance as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. Debt rated
BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. Debt
rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
To provide more detailed indications of credit quality, the AA, A and BBB,
BB and B ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's Investors
Service, Inc. ("Moody's") for corporate and municipal bonds. The first four
denote investment grade securities.
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
A-1
<PAGE>
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 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 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 greater 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-2 indicates good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by Fitch
for short-term obligations each of which denotes that the securities are
investment grade.
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
A-3
<PAGE>
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of senior short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of senior
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described
above.
For commercial paper, Fitch uses the short-term debt ratings described
above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a qualitative
and quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries. BankWatch ratings do not
constitute a recommendation to buy or sell securities of any of these companies.
Further, BankWatch does not suggest specific investment criteria for individual
clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA - The highest category; indicates ability to repay principal
and interest on a timely basis is extremely high.
AA - The second highest category; indicates a very strong ability
to repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A - The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB - The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
Long-term debt ratings may include a plus (+) or minus (-) sign to
indicate where within a category the issue is placed.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high
likelihood that principal and interest will be paid
on a timely basis.
TBW-2 The second highest category; while the degree of
safety regarding timely repayment of principal and
interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that
while more susceptible to adverse developments (both
internal and external) than obligations with higher
ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
A-4
<PAGE>
TBW-4 The lowest rating category; this rating is regarded
as non-investment grade and therefore speculative.
The following summarizes the four highest long-term debt ratings used by
IBCA Limited and its affiliate, IBCA Inc. (collectively "IBCA").
AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest
is substantial such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk
significantly.
AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest
is substantial. Adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly.
A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may
lead to increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest
is adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the two highest short-term debt ratings used by
IBCA:
A1+ When issues possess a particularly strong credit feature, a
rating of A1+ is assigned.
A1 - Obligations supported by the highest capacity for timely
repayment.
A2 - Obligations supported by a good capacity for timely repayment.
A-5
<PAGE>
SCHEDULE B
ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES
As stated in the Prospectus, each 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.)
1. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Fund may use interest rate futures as a defense,
(or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it hopes
to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the off-setting purchase, the Fund is paid the
difference and thus realizes a gain. If the off-setting 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 off-setting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
off-setting 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 off-setting
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.
2. 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.
B-4
<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 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
3. 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
B-5
<PAGE>
Fund upon termination of the futures contract assuming all contractual
obligations have been satisfied. Subsequent 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-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, and thus 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.
4. 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 all. 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
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of the futures market depends on participants entering into off-setting
transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced thus producing distortions. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the Adviser still may not result in
a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if a Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have off-setting
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.
5. 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
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frequently involve less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). Although
permitted by their fundamental investment policies, the Funds do not currently
intend to write future options, and will not do so in the future absent any
necessary regulatory approvals.
6. 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
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security held for three months or more (regardless of the actual period for
which the contract or instrument is held) 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 Fund, Nations
Treasury Fund, Nations International Equity Fund, Nations Equity
Income Fund and Nations Government Securities Fund:
Schedule of Investments for March 31, 1997 Statements of Assets
and Liabilities for March 31, 1997 Statements of Operations for
the fiscal year ended March 31, 1997
Statements of Changes in Net Assets for the fiscal year ended
March 31, 1997 and the fiscal period ended March 31, 1996
Schedule of Capital Stock Activity for the fiscal year ended
March 31, 1997 Notes to Financial Statements
Report of Independent Accountants, dated May 15, 1997
The audited financial statements and independent auditors' report
for the fiscal period ended May 16, 1997 for Pilot Small
Capitalization Fund, Pilot U.S. Government Securities Fund and
Pilot International Equity Fund (the predecessor portfolios), are
hereby incorporated by reference to The Pilot Funds (SEC File No.
811-3517) Annual Report, as filed with the SEC on July 30, 1997.
Included in Part C:
Consent of Independent Accountants
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<PAGE>
(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.
(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.
2
<PAGE>
(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) Amended and Restated By-Laws shall be filed by amendment.
(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 is incorporated by reference to
Post-Effective Amended No. 31, filed July 25, 1996.
(5)(d) Form of Sub-Advisory Agreement between Boatmen's Capital
Management, Inc. ("Boatmen's") and Registrant shall be filed
by amendment.
(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 and Sub-Custody Agreement between
Registrant, NationsBank of Texas, N.A. and The Bank of New
York dated, October 18, 1996 shall be filed by amendment.
(8)(b) 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)(a) Consent of Independent Accountants -- Price Waterhouse LLP is
filed herewith.
(11)(b) Consent of Independent Accounts -- Arthur Andersen 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.
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<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 incorporated by reference to Post-Effective Amended
No. 31, filed July 25, 1996.
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 June 12, 1997.
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<PAGE>
Number of
Title of Class Record Holders
Nations Prime Fund
- Primary A Shares 54
- Primary B Shares 4
- Investor A Shares 115,313
- Investor B Shares 1,717
- Investor C Shares 1,717
- Daily Shares 445
Nations Treasury Fund
- Primary A Shares 125
- Primary B Shares 5
- Investor A Shares 1,960
- Investor B Shares 609
- Investor C Shares 79
- Daily Shares 832
Nations Equity Income Fund
- Primary A Shares 24
- Primary B Shares 2
- Investor A Shares 2,669
- Investor B Shares 6,999
- Investor C Shares 271
Nations Government Securities Fund
- Primary A Shares 2
- Primary B Shares 2
- Investor A Shares 306
- Investor B Shares 1,896
- Investor C Shares 108
Nations International Equity Fund
- Primary A Shares 49
- Primary B Shares 4
- Investor A Shares 1,009
- Investor B Shares 4,914
- Investor C Shares 99
7
<PAGE>
Nations International Growth Fund
- Primary A Shares 0
- Primary B Shares 0
- Investor A Shares 0
- Investor B Shares 0
- Investor C Shares 0
Nations Small Company Growth Fund
- Primary A Shares 0
- Primary B Shares 0
- Investor A Shares 0
- Investor B Shares 0
- Investor C Shares 0
Nations U.S. Government Bond Fund
- Primary A Shares 0
- Primary B Shares 0
- Investor A Shares 0
- Investor B Shares 0
- Investor C Shares 0
8
<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 and Sub-Custody Agreement with NationsBank
Texas and The Bank of New York;
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
9
<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
10
<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 investment sub-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>
<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>
11
<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 investment sub-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).
(d) Boatmen's performs investment sub-advisory services for the
Registrant (and certain other customers). Boatmen's 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
Boatmen's with the Securities and Exchange Commission pursuant to the Investment
Advisers Act of 1940 (file no. 801-54630).
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.
12
<PAGE>
Item 30. Location of Accounts and Records
(1) NationsBank Texas, 901 Main Street Dallas, Texas 75202 (records relating
to its function as custodian for 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).
(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) The Bank of New York, Avenue des Arts, 35 1040 Brussels, Belgium
(records relating to its function as custodian of Nations International
Equity Fund).
(10) The Bank of New York, 90 Washington Street, New York, New York 10286
(records relating to its function as sub-custodian)
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
(a) Registrant undertakes to call a meeting for the purpose of voting upon
the question or removal of a 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.
13
<PAGE>
(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.
14
<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 31st day of July, 1997.
NATIONS FUND, INC.
By: *
A. Max Walker
President and Chairman
of the Board of Directors
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
SIGNATURES TITLE DATE
* President and Chairman July 31, 1997
- ----------------------------- of the Board of Directors
(A. Max Walker) (Principal Executive Officer)
* Treasurer July 31, 1997
----------------------------- Vice President
(Richard H. Rose) (Principal Financial and
Accounting Officer)
* Director July 31, 1997
- -----------------------------
(Edmund L. Benson, III)
* Director July 31, 1997
- -----------------------------
(James Ermer)
* Director July 31, 1997
- -----------------------------
(William H. Grigg)
* Director July 31, 1997
- -----------------------------
(Thomas F. Keller)
* Director July 31, 1997
- -----------------------------
(Carl E. Mundy, Jr.)
* Director July 31, 1997
- -----------------------------
(Charles B. Walker)
* Director July 31, 1997
- -----------------------------
(Thomas S. Word)
/s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
EX-27.011 Financial Data Schedules - Nations Treasury Fund - Primary A
EX-27.012 Financial Data Schedules - Nations Treasury Fund - Primary B
EX-27.013 Financial Data Schedules - Nations Treasury Fund - Investor A
EX-27.014 Financial Data Schedules - Nations Treasury Fund - Investor B
EX-27.015 Financial Data Schedules - Nations Treasury Fund - Investor C
EX-27.016 Financial Data Schedules - Nations Treasury Fund - Daily Shares
EX-27.021 Financial Data Schedules - Nations Prime Fund - Primary A
EX-27.022 Financial Data Schedules - Nations Prime Fund - Primary B
EX-27.023 Financial Data Schedules - Nations Prime Fund - Investor A
EX-27.024 Financial Data Schedules - Nations Prime Fund - Investor B
EX-27.025 Financial Data Schedules - Nations Prime Fund - Investor C
EX-27.026 Financial Data Schedules - Nations Prime Fund - Daily
EX-27.031 Financial Data Schedules - Nations International Equity Fund - Primary A
EX-27.032 Financial Data Schedules - Nations International Equity Fund - Primary B
EX-27.033 Financial Data Schedules - Nations International Equity Fund - Investor A
EX-27.034 Financial Data Schedules - Nations International Equity Fund - Investor C
EX-27.035 Financial Data Schedules - Nations International Equity Fund - Investor B
EX-27.041 Financial Data Schedules - Nations Government Securities Fund - Primary A
EX-27.042 Financial Data Schedules - Nations Government Securities Fund - Primary B
EX-27.043 Financial Data Schedules - Nations Government Securities Fund - Investor A
EX-27.044 Financial Data Schedules - Nations Government Securities Fund - Investor C
EX-27.045 Financial Data Schedules - Nations Government Securities Fund - Investor B
EX-27.051 Financial Data Schedules - Nations Equity Income Fund - Primary A
EX-27.052 Financial Data Schedules - Nations Equity Income Fund - Primary B
EX-27.053 Financial Data Schedules - Nations Equity Income Fund - Investor A
EX-27.054 Financial Data Schedules - Nations Equity Income Fund - Investor C
EX-27.055 Financial Data Schedules - Nations Equity Income Fund - Investor B
EX-27.061 Financial Data Schedules - Nations Small Company Growth Fund - Primary A
EX-27.062 Financial Data Schedules - Nations Small Company Growth Fund - Investor A
EX-27.063 Financial Data Schedules - Nations Small Company Growth Fund - Investor B
EX-27.071 Financial Data Schedules - Nations U.S. Government Bond Fund - Primary A
EX-27.072 Financial Data Schedules - Nations U.S. Government Bond Fund - Investor A
EX-27.073 Financial Data Schedules - Nations U.S. Government Bond Fund - Investor B
EX-27.081 Financial Data Schedules - Nations International Growth Fund - Primary A
EX-27.082 Financial Data Schedules - Nations International Growth Fund - Investor A
EX-27.083 Financial Data Schedules - Nations International Growth Fund - Investor B
EX-99.B10 COUNS OPIN
EX-99.B11a OTH CONSNT
EX-99.B11b OTH CONSNT
</TABLE>
<PAGE>
EX-99.B10
[MORRISON & FOERSTER LLP LETTERHEAD]
July 29, 1997
Nations Fund, Inc.
111 Center Street
Little Rock, AR 72201
Re: Shares of Common Stock of
Nations Fund, Inc.
Ladies and Gentlemen:
We refer to Post-Effective Amendment No. 34 and Amendment No. 35 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 year ended March 31, 1997. 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 of the
Shares by sale or in accord with the Company's dividend reinvestment plan in
accordance with the description set forth in the Registration Statement, as
amended, the Shares will be validly issued, fully paid and nonassessable.
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 Statements 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
[PRICE WATERHOUSE LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 34
under the Securities Act of 1933 to the registration statement on Form N-1A (the
"Registration Statement") of our reports dated May 15, 1997, relating to the
financial statements and financial highlights appearing in the March 31, 1997
Annual Reports to Shareholders of Nations Prime Fund, Nations Treasury Fund,
Nations International Equity Fund, Nations Government Securities Fund, and
Nations Equity Income Fund (each a series 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 "How The
Funds are Managed - 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 28, 1997
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report for Nations Fund, Inc. (formerly The Pilot Funds) dated
June 20, 1997 (and to all references to our firm) included in or incorporated by
reference to Post-Effective Amendment No. 34 and Amendment No. 35 to
Registration Statement File Nos. 33-4038 and 811-4614, respectively.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
July 15, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>011
<NAME>NATIONS FUNDS TREASURY PR-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 3,609,150,522
<INVESTMENTS-AT-VALUE> 3,609,150,522
<RECEIVABLES> 5,015,400
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 167,897
<TOTAL-ASSETS> 3,614,333,819
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 490,892,071
<TOTAL-LIABILITIES> 490,892,071
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,345,619,756
<SHARES-COMMON-STOCK> 1,345,578,004
<SHARES-COMMON-PRIOR> 821,031,279
<ACCUMULATED-NII-CURRENT> 10,103
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (38,754)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,345,584,624
<DIVIDEND-INCOME> 4,251,717
<INTEREST-INCOME> 130,669,576
<OTHER-INCOME> 0
<EXPENSES-NET> 11,832,908
<NET-INVESTMENT-INCOME> 123,088,385
<REALIZED-GAINS-CURRENT> 18,200
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 123,106,585
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (42,850,726)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,911,565,540
<NUMBER-OF-SHARES-REDEEMED> (2,387,275,346)
<SHARES-REINVESTED> 256,531
<NET-CHANGE-IN-ASSETS> 631,505,898
<ACCUMULATED-NII-PRIOR> 10,103
<ACCUMULATED-GAINS-PRIOR> (56,954)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,057,410
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,110,244
<AVERAGE-NET-ASSETS> 842,151,029
<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 FUNDS TREASURY PR-B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 3,609,150,522
<INVESTMENTS-AT-VALUE> 3,609,150,522
<RECEIVABLES> 5,015,400
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 167,897
<TOTAL-ASSETS> 3,614,333,819
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 490,892,071
<TOTAL-LIABILITIES> 490,892,071
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 55,169,657
<SHARES-COMMON-STOCK> 55,169,656
<SHARES-COMMON-PRIOR> 47,487,909
<ACCUMULATED-NII-CURRENT> 10,103
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (38,754)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 55,169,928
<DIVIDEND-INCOME> 4,251,717
<INTEREST-INCOME> 130,669,576
<OTHER-INCOME> 0
<EXPENSES-NET> 11,832,908
<NET-INVESTMENT-INCOME> 123,088,385
<REALIZED-GAINS-CURRENT> 18,200
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 123,106,585
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,347,375)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 425,279,678
<NUMBER-OF-SHARES-REDEEMED> (417,598,435)
<SHARES-REINVESTED> 504
<NET-CHANGE-IN-ASSETS> 631,505,898
<ACCUMULATED-NII-PRIOR> 10,103
<ACCUMULATED-GAINS-PRIOR> (56,954)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,057,410
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,110,244
<AVERAGE-NET-ASSETS> 69,358,489
<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> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>013
<NAME> NATIONS FUNDS TREASURY INV-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 3,609,150,522
<INVESTMENTS-AT-VALUE> 3,609,150,522
<RECEIVABLES> 5,015,400
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 167,897
<TOTAL-ASSETS> 3,614,333,819
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 490,892,071
<TOTAL-LIABILITIES> 490,892,071
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 719,197,443
<SHARES-COMMON-STOCK> 719,195,178
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<NAME>NATIONS FUNDS TREASURY INV-B
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<NAME> NATIONS FUNDS TREASURY INV-C
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<NAME> NATIONS FUNDS TREASURY INV-D
<S> <C>
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<PERIOD-END> MAR-31-1997
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<SERIES>
<NUMBER>021
<NAME>NATIONS FUNDS PRIME PR-A
<S> <C>
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
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<NAME>NATIONS FUNDS PRIME PR-B
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<NAME> NATIONS FUNDS PRIME INV-A
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<NUMBER>093
<NAME>Nations Fund Govt Securities Inv-A
<S> <C>
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<SERIES>
<NUMBER>094
<NAME>Nations Fund Govt Securities Inv-C
<S> <C>
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<NAME> NATIONS INT'L. EQUITY PR-B
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<NAME> NATIONS FUNDS PRIME INV-B
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<NAME> NATIONS INT'L. EQUITY PR-A
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<NUMBER> 113
<NAME> NATIONS INT'L. EQUITY INV-A
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<NAME> NATIONS INT'L. EQUITY INV-C
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<NAME> NATIONS INT'L. EQUITY INV-N
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<SERIES>
<NUMBER>091
<NAME>Nations Fund Govt Securities Pr-A
<S> <C>
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<SERIES>
<NUMBER>092
<NAME>Nations Fund Govt Securities Pr-B
<S> <C>
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<SERIES>
<NUMBER>095
<NAME>Nations Fund Govt Securities Inv-N
<S> <C>
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<FISCAL-YEAR-END> MAR-31-1997
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<INVESTMENTS-AT-COST> 102,487,694
<INVESTMENTS-AT-VALUE> 101,460,214
<RECEIVABLES> 25,832,571
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 25,667
<TOTAL-ASSETS> 127,318,452
<PAYABLE-FOR-SECURITIES> 21,939,520
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<OTHER-ITEMS-LIABILITIES> 1,523,736
<TOTAL-LIABILITIES> 23,463,256
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,216,696
<SHARES-COMMON-STOCK> 4,134,349
<SHARES-COMMON-PRIOR> 5,269,516
<ACCUMULATED-NII-CURRENT> (340,498)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (10,473,882)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,027,480)
<NET-ASSETS> 38,806,602
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,039,329
<OTHER-INCOME> 0
<EXPENSES-NET> 1,243,744
<NET-INVESTMENT-INCOME> 6,795,585
<REALIZED-GAINS-CURRENT> (3,826,282)
<APPREC-INCREASE-CURRENT> 478,228
<NET-CHANGE-FROM-OPS> 3,447,531
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,442,823)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (22,014)
<NUMBER-OF-SHARES-SOLD> 85,775
<NUMBER-OF-SHARES-REDEEMED> (1,373,092)
<SHARES-REINVESTED> 152,150
<NET-CHANGE-IN-ASSETS> (17,284,534)
<ACCUMULATED-NII-PRIOR> (604,959)
<ACCUMULATED-GAINS-PRIOR> (6,882,533)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 724,889
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,400,552
<AVERAGE-NET-ASSETS> 45,375,542
<PER-SHARE-NAV-BEGIN> 9.67
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> (0.30)
<PER-SHARE-DIVIDEND> (0.52)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> (0.00)
<PER-SHARE-NAV-END> 9.39
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>071
<NAME>Nations Funds Equity Income Pr-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 352,177,595
<INVESTMENTS-AT-VALUE> 369,950,311
<RECEIVABLES> 15,921,278
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,336,776
<TOTAL-ASSETS> 387,208,365
<PAYABLE-FOR-SECURITIES> 7,515,261
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,483,588
<TOTAL-LIABILITIES> 18,998,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 161,120,377
<SHARES-COMMON-STOCK> 16,319,824
<SHARES-COMMON-PRIOR> 21,548,744
<ACCUMULATED-NII-CURRENT> 146,073
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 29,953,178
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,772,716
<NET-ASSETS> 200,772,010
<DIVIDEND-INCOME> 9,968,866
<INTEREST-INCOME> 5,581,414
<OTHER-INCOME> 0
<EXPENSES-NET> 4,488,547
<NET-INVESTMENT-INCOME> 11,061,733
<REALIZED-GAINS-CURRENT> 74,322,757
<APPREC-INCREASE-CURRENT> (29,303,706)
<NET-CHANGE-FROM-OPS> 56,080,784
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,913,427)
<DISTRIBUTIONS-OF-GAINS> (37,718,705)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,493,997
<NUMBER-OF-SHARES-REDEEMED> (12,511,675)
<SHARES-REINVESTED> 1,788,758
<NET-CHANGE-IN-ASSETS> (66,176,008)
<ACCUMULATED-NII-PRIOR> 163,990
<ACCUMULATED-GAINS-PRIOR> 20,422,211
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,632,510
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,491,887
<AVERAGE-NET-ASSETS> 229,806,363
<PER-SHARE-NAV-BEGIN> 13.14
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 1.55
<PER-SHARE-DIVIDEND> (0.41)
<PER-SHARE-DISTRIBUTIONS> (2.41)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.30
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>072
<NAME>Nations Funds Equity Income Pr-B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 352,177,595
<INVESTMENTS-AT-VALUE> 369,950,311
<RECEIVABLES> 15,921,278
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,336,776
<TOTAL-ASSETS> 387,208,365
<PAYABLE-FOR-SECURITIES> 7,515,261
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,483,588
<TOTAL-LIABILITIES> 18,998,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,594,237
<SHARES-COMMON-STOCK> 527,388
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 146,073
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 29,953,178
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,772,716
<NET-ASSETS> 6,484,285
<DIVIDEND-INCOME> 9,968,866
<INTEREST-INCOME> 5,581,414
<OTHER-INCOME> 0
<EXPENSES-NET> 4,488,547
<NET-INVESTMENT-INCOME> 11,061,733
<REALIZED-GAINS-CURRENT> 74,322,757
<APPREC-INCREASE-CURRENT> (29,303,706)
<NET-CHANGE-FROM-OPS> 56,080,784
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (64,743)
<DISTRIBUTIONS-OF-GAINS> (364,882)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 581,119
<NUMBER-OF-SHARES-REDEEMED> (64,160)
<SHARES-REINVESTED> 10,429
<NET-CHANGE-IN-ASSETS> (66,176,008)
<ACCUMULATED-NII-PRIOR> 163,990
<ACCUMULATED-GAINS-PRIOR> 20,422,211
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,632,510
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,491,887
<AVERAGE-NET-ASSETS> 3,392,071
<PER-SHARE-NAV-BEGIN> 13.50
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 1.21
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> (2.41)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.30
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>073
<NAME>Nations Funds Equity Income Inv-A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 352,177,595
<INVESTMENTS-AT-VALUE> 369,950,311
<RECEIVABLES> 15,921,278
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,336,776
<TOTAL-ASSETS> 387,208,365
<PAYABLE-FOR-SECURITIES> 7,515,261
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,483,588
<TOTAL-LIABILITIES> 18,998,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,236,610
<SHARES-COMMON-STOCK> 3,906,169
<SHARES-COMMON-PRIOR> 3,249,950
<ACCUMULATED-NII-CURRENT> 146,073
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 29,953,178
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,772,716
<NET-ASSETS> 47,890,884
<DIVIDEND-INCOME> 9,968,866
<INTEREST-INCOME> 5,581,414
<OTHER-INCOME> 0
<EXPENSES-NET> 4,488,547
<NET-INVESTMENT-INCOME> 11,061,733
<REALIZED-GAINS-CURRENT> 74,322,757
<APPREC-INCREASE-CURRENT> (29,303,706)
<NET-CHANGE-FROM-OPS> 56,080,784
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,325,087)
<DISTRIBUTIONS-OF-GAINS> (7,574,248)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 681,422
<NUMBER-OF-SHARES-REDEEMED> (707,574)
<SHARES-REINVESTED> 682,371
<NET-CHANGE-IN-ASSETS> (66,176,008)
<ACCUMULATED-NII-PRIOR> 163,990
<ACCUMULATED-GAINS-PRIOR> 20,422,211
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,632,510
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,491,887
<AVERAGE-NET-ASSETS> 44,563,725
<PER-SHARE-NAV-BEGIN> 13.11
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 1.58
<PER-SHARE-DIVIDEND> (0.38)
<PER-SHARE-DISTRIBUTIONS> (2.41)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.26
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>074
<NAME>Nations Funds Equity Income Inv-C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 352,177,595
<INVESTMENTS-AT-VALUE> 369,950,311
<RECEIVABLES> 15,921,278
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,336,776
<TOTAL-ASSETS> 387,208,365
<PAYABLE-FOR-SECURITIES> 7,515,261
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<OTHER-ITEMS-LIABILITIES> 11,483,588
<TOTAL-LIABILITIES> 18,998,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,688,418
<SHARES-COMMON-STOCK> 405,405
<SHARES-COMMON-PRIOR> 349,635
<ACCUMULATED-NII-CURRENT> 146,073
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 29,953,178
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,772,716
<NET-ASSETS> 5,007,205
<DIVIDEND-INCOME> 9,968,866
<INTEREST-INCOME> 5,581,414
<OTHER-INCOME> 0
<EXPENSES-NET> 4,488,547
<NET-INVESTMENT-INCOME> 11,061,733
<REALIZED-GAINS-CURRENT> 74,322,757
<APPREC-INCREASE-CURRENT> (29,303,706)
<NET-CHANGE-FROM-OPS> 56,080,784
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (129,443)
<DISTRIBUTIONS-OF-GAINS> (811,608)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 81,457
<NUMBER-OF-SHARES-REDEEMED> (100,800)
<SHARES-REINVESTED> 75,113
<NET-CHANGE-IN-ASSETS> (66,176,008)
<ACCUMULATED-NII-PRIOR> 163,990
<ACCUMULATED-GAINS-PRIOR> 20,422,211
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,632,510
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,491,887
<AVERAGE-NET-ASSETS> 4,797,507
<PER-SHARE-NAV-BEGIN> 13.19
<PER-SHARE-NII> 0.33
<PER-SHARE-GAIN-APPREC> 1.59
<PER-SHARE-DIVIDEND> (0.35)
<PER-SHARE-DISTRIBUTIONS> (2.41)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.35
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>075
<NAME>Nations Funds Equity Income Inv-N
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 352,177,595
<INVESTMENTS-AT-VALUE> 369,950,311
<RECEIVABLES> 15,921,278
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,336,776
<TOTAL-ASSETS> 387,208,365
<PAYABLE-FOR-SECURITIES> 7,515,261
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,483,588
<TOTAL-LIABILITIES> 18,998,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 103,697,907
<SHARES-COMMON-STOCK> 8,821,776
<SHARES-COMMON-PRIOR> 7,939,860
<ACCUMULATED-NII-CURRENT> 146,073
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 29,953,178
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,772,716
<NET-ASSETS> 108,055,132
<DIVIDEND-INCOME> 9,968,866
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<OTHER-INCOME> 0
<EXPENSES-NET> 4,488,547
<NET-INVESTMENT-INCOME> 11,061,733
<REALIZED-GAINS-CURRENT> 74,322,757
<APPREC-INCREASE-CURRENT> (29,303,706)
<NET-CHANGE-FROM-OPS> 56,080,784
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,623,184)
<DISTRIBUTIONS-OF-GAINS> (18,346,111)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 347,847
<NUMBER-OF-SHARES-REDEEMED> (1,111,287)
<SHARES-REINVESTED> 1,645,356
<NET-CHANGE-IN-ASSETS> (66,176,008)
<ACCUMULATED-NII-PRIOR> 163,990
<ACCUMULATED-GAINS-PRIOR> 20,422,211
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,632,510
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,491,887
<AVERAGE-NET-ASSETS> 106,971,518
<PER-SHARE-NAV-BEGIN> 13.10
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 1.57
<PER-SHARE-DIVIDEND> (0.32)
<PER-SHARE-DISTRIBUTIONS> (2.41)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.25
<EXPENSE-RATIO> 1.66
<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
<CIK> 0000790569
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 12
<NAME> PILOT SMALL CAPITALIZATION EQUITY FUND
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-15-1997
<INVESTMENTS-AT-COST> 118478630
<INVESTMENTS-AT-VALUE> 149222562
<RECEIVABLES> 104310
<ASSETS-OTHER> 448742
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 119031682
<PAYABLE-FOR-SECURITIES> 445881
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2802949
<TOTAL-LIABILITIES> 3248830
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 103018854
<SHARES-COMMON-STOCK> 9065316<F1>
<SHARES-COMMON-PRIOR> 6617289<F1>
<ACCUMULATED-NII-CURRENT> 890
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1479742
<ACCUM-APPREC-OR-DEPREC> 14242850
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<EXPENSES-NET> 1032031
<NET-INVESTMENT-INCOME> 364419
<REALIZED-GAINS-CURRENT> (1681500)
<APPREC-INCREASE-CURRENT> 13621363
<NET-CHANGE-FROM-OPS> 12304282
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 361933<F1>
<DISTRIBUTIONS-OF-GAINS> 357391<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 41498279
<NUMBER-OF-SHARES-REDEEMED> 12369674
<SHARES-REINVESTED> 127206
<NET-CHANGE-IN-ASSETS> 29255811
<ACCUMULATED-NII-PRIOR> 7331
<ACCUMULATED-GAINS-PRIOR> 581207
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 731622
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1032031
<AVERAGE-NET-ASSETS> 94420067<F1>
<PER-SHARE-NAV-BEGIN> 10.65<F1>
<PER-SHARE-NII> .04<F1>
<PER-SHARE-GAIN-APPREC> 1.47<F1>
<PER-SHARE-DIVIDEND> .04<F1>
<PER-SHARE-DISTRIBUTIONS> .05<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 12.07<F1>
<EXPENSE-RATIO> .98<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000790569
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 12
<NAME> PILOT SMALL CAPITALIZATION EQUITY FUND
<S> <C>
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<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
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<GROSS-EXPENSE> 1032031
<AVERAGE-NET-ASSETS> 3267036<F2>
<PER-SHARE-NAV-BEGIN> 10.64<F2>
<PER-SHARE-NII> .03<F2>
<PER-SHARE-GAIN-APPREC> 1.46<F2>
<PER-SHARE-DIVIDEND> .03<F2>
<PER-SHARE-DISTRIBUTIONS> .05<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.05<F2>
<EXPENSE-RATIO> 1.23<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000790569
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 12
<NAME> PILOT SMALL CAPITALIZATION EQUITY FUND
<S> <C>
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<FISCAL-YEAR-END> AUG-31-1997
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<PAID-IN-CAPITAL-COMMON> 103018854
<SHARES-COMMON-STOCK> 219116<F3>
<SHARES-COMMON-PRIOR> 176356<F3>
<ACCUMULATED-NII-CURRENT> 890
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1479742
<ACCUM-APPREC-OR-DEPREC> 14242850
<NET-ASSETS> 115782852
<DIVIDEND-INCOME> 933976
<INTEREST-INCOME> 150185
<OTHER-INCOME> 0
<EXPENSES-NET> 1032031
<NET-INVESTMENT-INCOME> 364419
<REALIZED-GAINS-CURRENT> (1681500)
<APPREC-INCREASE-CURRENT> 13621363
<NET-CHANGE-FROM-OPS> 12304282
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 591<F3>
<DISTRIBUTIONS-OF-GAINS> 9752<F3>
<DISTRIBUTIONS-OTHER> 0<F3>
<NUMBER-OF-SHARES-SOLD> 41498279
<NUMBER-OF-SHARES-REDEEMED> 12369674
<SHARES-REINVESTED> 127206
<NET-CHANGE-IN-ASSETS> 29255811
<ACCUMULATED-NII-PRIOR> 7331
<ACCUMULATED-GAINS-PRIOR> 581207
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 731622
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1032031
<AVERAGE-NET-ASSETS> 2424254<F3>
<PER-SHARE-NAV-BEGIN> 10.65<F3>
<PER-SHARE-NII> (.03)<F3>
<PER-SHARE-GAIN-APPREC> 1.46<F3>
<PER-SHARE-DIVIDEND> 0<F3>
<PER-SHARE-DISTRIBUTIONS> .05<F3>
<RETURNS-OF-CAPITAL> 0<F3>
<PER-SHARE-NAV-END> 12.03<F3>
<EXPENSE-RATIO> 1.97<F3>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F3>Class C Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000790569
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 060
<NAME> PILOT U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-15-1997
<INVESTMENTS-AT-COST> 104378315
<INVESTMENTS-AT-VALUE> 149254289
<RECEIVABLES> 1630899
<ASSETS-OTHER> 270
<OTHER-ITEMS-ASSETS> 2093
<TOTAL-ASSETS> 150887551
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 542291
<TOTAL-LIABILITIES> 542291
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 149664474
<SHARES-COMMON-STOCK> 14529997<F1>
<SHARES-COMMON-PRIOR> 13780940<F1>
<ACCUMULATED-NII-CURRENT> 22072
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 626987
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31727
<NET-ASSETS> 150345260
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6646384
<OTHER-INCOME> 0
<EXPENSES-NET> 674274
<NET-INVESTMENT-INCOME> 5972110
<REALIZED-GAINS-CURRENT> 923301
<APPREC-INCREASE-CURRENT> 1506806
<NET-CHANGE-FROM-OPS> 8404217
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5885069<F1>
<DISTRIBUTIONS-OF-GAINS> 7085032<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 24856233
<NUMBER-OF-SHARES-REDEEMED> 17296033
<SHARES-REINVESTED> 634343
<NET-CHANGE-IN-ASSETS> 3409791
<ACCUMULATED-NII-PRIOR> 22071
<ACCUMULATED-GAINS-PRIOR> 6920545
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 552504
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 799948
<AVERAGE-NET-ASSETS> 147607529<F1>
<PER-SHARE-NAV-BEGIN> 10.53<F1>
<PER-SHARE-NII> .41<F1>
<PER-SHARE-GAIN-APPREC> .17<F1>
<PER-SHARE-DIVIDEND> .41<F1>
<PER-SHARE-DISTRIBUTIONS> .51<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.19<F1>
<EXPENSE-RATIO> .62<F1>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000790569
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 060
<NAME> PILOT U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-15-1997
<INVESTMENTS-AT-COST> 104378315
<INVESTMENTS-AT-VALUE> 149254289
<RECEIVABLES> 1630899
<ASSETS-OTHER> 270
<OTHER-ITEMS-ASSETS> 2093
<TOTAL-ASSETS> 150887551
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 542291
<TOTAL-LIABILITIES> 542291
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 149664474
<SHARES-COMMON-STOCK> 71959<F2>
<SHARES-COMMON-PRIOR> 70393<F2>
<ACCUMULATED-NII-CURRENT> 22072
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 626987
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31727
<NET-ASSETS> 150345260
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6646384
<OTHER-INCOME> 0
<EXPENSES-NET> 674274
<NET-INVESTMENT-INCOME> 5972110
<REALIZED-GAINS-CURRENT> 923301
<APPREC-INCREASE-CURRENT> 1506806
<NET-CHANGE-FROM-OPS> 8404217
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 36240<F2>
<DISTRIBUTIONS-OF-GAINS> 55087<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 24856233
<NUMBER-OF-SHARES-REDEEMED> 17296033
<SHARES-REINVESTED> 634343
<NET-CHANGE-IN-ASSETS> 3409791
<ACCUMULATED-NII-PRIOR> 22071
<ACCUMULATED-GAINS-PRIOR> 6920545
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 552504
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 799948
<AVERAGE-NET-ASSETS> 957141<F2>
<PER-SHARE-NAV-BEGIN> 10.54<F2>
<PER-SHARE-NII> .39<F2>
<PER-SHARE-GAIN-APPREC> .17<F2>
<PER-SHARE-DIVIDEND> .39<F2>
<PER-SHARE-DISTRIBUTIONS> .51<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 10.20<F2>
<EXPENSE-RATIO> .87<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000790569
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 060
<NAME> PILOT U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-15-1997
<INVESTMENTS-AT-COST> 104378315
<INVESTMENTS-AT-VALUE> 149254289
<RECEIVABLES> 1630899
<ASSETS-OTHER> 270
<OTHER-ITEMS-ASSETS> 2093
<TOTAL-ASSETS> 150887551
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 542291
<TOTAL-LIABILITIES> 542291
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 149664474
<SHARES-COMMON-STOCK> 150064<F3>
<SHARES-COMMON-PRIOR> 117601<F3>
<ACCUMULATED-NII-CURRENT> 22072
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 626987
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31727
<NET-ASSETS> 150345260
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6646384
<OTHER-INCOME> 0
<EXPENSES-NET> 674274
<NET-INVESTMENT-INCOME> 5972110
<REALIZED-GAINS-CURRENT> 923301
<APPREC-INCREASE-CURRENT> 1506806
<NET-CHANGE-FROM-OPS> 8404217
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 50801<F3>
<DISTRIBUTIONS-OF-GAINS> 76740<F3>
<DISTRIBUTIONS-OTHER> 0<F3>
<NUMBER-OF-SHARES-SOLD> 24856233
<NUMBER-OF-SHARES-REDEEMED> 17296033
<SHARES-REINVESTED> 634343
<NET-CHANGE-IN-ASSETS> 3409791
<ACCUMULATED-NII-PRIOR> 22071
<ACCUMULATED-GAINS-PRIOR> 6920545
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 552504
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 799948
<AVERAGE-NET-ASSETS> 1554346<F3>
<PER-SHARE-NAV-BEGIN> 10.52<F3>
<PER-SHARE-NII> .34<F3>
<PER-SHARE-GAIN-APPREC> .18<F3>
<PER-SHARE-DIVIDEND> .34<F3>
<PER-SHARE-DISTRIBUTIONS> .51<F3>
<RETURNS-OF-CAPITAL> 0<F3>
<PER-SHARE-NAV-END> 10.19<F3>
<EXPENSE-RATIO> 1.62<F3>
<AVG-DEBT-OUTSTANDING> 0<F3>
<AVG-DEBT-PER-SHARE> 0
<FN>
<F3>Class C Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000790569
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 080
<NAME> PILOT INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-15-1997
<INVESTMENTS-AT-COST> 617562551
<INVESTMENTS-AT-VALUE> 749452866
<RECEIVABLES> 10035235
<ASSETS-OTHER> 187684
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 759675785
<PAYABLE-FOR-SECURITIES> 21841522
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9511564
<TOTAL-LIABILITIES> 31353086
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 590534525
<SHARES-COMMON-STOCK> 38039778<F1>
<SHARES-COMMON-PRIOR> 33969619<F1>
<ACCUMULATED-NII-CURRENT> 2415558
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10560333
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 124812283
<NET-ASSETS> 728322699
<DIVIDEND-INCOME> 7926604
<INTEREST-INCOME> 802520
<OTHER-INCOME> (786594)
<EXPENSES-NET> 5738422
<NET-INVESTMENT-INCOME> 2204108
<REALIZED-GAINS-CURRENT> 13208101
<APPREC-INCREASE-CURRENT> 58688545
<NET-CHANGE-FROM-OPS> 74100754
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6573825<F1>
<DISTRIBUTIONS-OF-GAINS> 12568191<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 143162653
<NUMBER-OF-SHARES-REDEEMED> 88537960
<SHARES-REINVESTED> 13572706
<NET-CHANGE-IN-ASSETS> 122389134
<ACCUMULATED-NII-PRIOR> 7013267
<ACCUMULATED-GAINS-PRIOR> 10459434
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3861385
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5738422
<AVERAGE-NET-ASSETS> 701033000<F1>
<PER-SHARE-NAV-BEGIN> 17.05<F1>
<PER-SHARE-NII> .05<F1>
<PER-SHARE-GAIN-APPREC> 1.84<F1>
<PER-SHARE-DIVIDEND> .17<F1>
<PER-SHARE-DISTRIBUTIONS> .34<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 18.43<F1>
<EXPENSE-RATIO> 1.18<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Pilot Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000790569
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 080
<NAME> PILOT INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-15-1997
<INVESTMENTS-AT-COST> 617562551
<INVESTMENTS-AT-VALUE> 749452866
<RECEIVABLES> 10035235
<ASSETS-OTHER> 187684
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 759675785
<PAYABLE-FOR-SECURITIES> 21841522
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9511564
<TOTAL-LIABILITIES> 31353086
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 590534525
<SHARES-COMMON-STOCK> 1463251<F1>
<SHARES-COMMON-PRIOR> 1581654<F1>
<ACCUMULATED-NII-CURRENT> 2415558
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10560333
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 124812283
<NET-ASSETS> 728322699
<DIVIDEND-INCOME> 7926604
<INTEREST-INCOME> 802520
<OTHER-INCOME> (786594)
<EXPENSES-NET> 5738422
<NET-INVESTMENT-INCOME> 2204108
<REALIZED-GAINS-CURRENT> 13208101
<APPREC-INCREASE-CURRENT> 58688545
<NET-CHANGE-FROM-OPS> 74100754
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 224687<F1>
<DISTRIBUTIONS-OF-GAINS> 530391<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 143162653
<NUMBER-OF-SHARES-REDEEMED> 88537960
<SHARES-REINVESTED> 13572706
<NET-CHANGE-IN-ASSETS> 122389134
<ACCUMULATED-NII-PRIOR> 7013267
<ACCUMULATED-GAINS-PRIOR> 10459434
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3861385
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5738422
<AVERAGE-NET-ASSETS> 26730000<F1>
<PER-SHARE-NAV-BEGIN> 16.90<F1>
<PER-SHARE-NII> (.05)<F1>
<PER-SHARE-GAIN-APPREC> 1.90<F1>
<PER-SHARE-DIVIDEND> .14<F1>
<PER-SHARE-DISTRIBUTIONS> .34<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 18.27<F1>
<EXPENSE-RATIO> 1.42<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000790569
<NAME> THE PILOT FUNDS
<SERIES>
<NUMBER> 080
<NAME> PILOT INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-15-1997
<INVESTMENTS-AT-COST> 617562551
<INVESTMENTS-AT-VALUE> 749452866
<RECEIVABLES> 10035235
<ASSETS-OTHER> 187684
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 759675785
<PAYABLE-FOR-SECURITIES> 21841522
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9511564
<TOTAL-LIABILITIES> 31353086
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 590534525
<SHARES-COMMON-STOCK> 30587<F1>
<SHARES-COMMON-PRIOR> 10822<F1>
<ACCUMULATED-NII-CURRENT> 2415558
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10560333
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 124812283
<NET-ASSETS> 728322699
<DIVIDEND-INCOME> 7926604
<INTEREST-INCOME> 802520
<OTHER-INCOME> (786594)
<EXPENSES-NET> 5738422
<NET-INVESTMENT-INCOME> 2204108
<REALIZED-GAINS-CURRENT> 13208101
<APPREC-INCREASE-CURRENT> 58688545
<NET-CHANGE-FROM-OPS> 74100754
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3305<F1>
<DISTRIBUTIONS-OF-GAINS> 8620<F1>
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 143162653
<NUMBER-OF-SHARES-REDEEMED> 88537960
<SHARES-REINVESTED> 13572706
<NET-CHANGE-IN-ASSETS> 122389134
<ACCUMULATED-NII-PRIOR> 7013267
<ACCUMULATED-GAINS-PRIOR> 10459434
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3861385
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5738422
<AVERAGE-NET-ASSETS> 560000<F1>
<PER-SHARE-NAV-BEGIN> 17.04<F1>
<PER-SHARE-NII> (.05)<F1>
<PER-SHARE-GAIN-APPREC> 1.79<F1>
<PER-SHARE-DIVIDEND> .12<F1>
<PER-SHARE-DISTRIBUTIONS> .34<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 18.32<F1>
<EXPENSE-RATIO> 2.18<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 026
<NAME> NATIONS FUNDS PRIME INV-D
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 4,355,759,191
<INVESTMENTS-AT-VALUE> 4,355,759,191
<RECEIVABLES> 46,383,113
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 311,930
<TOTAL-ASSETS> 4,402,454,234
<PAYABLE-FOR-SECURITIES> 14,378,381
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,939,534
<TOTAL-LIABILITIES> 43,317,915
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,010,834
<SHARES-COMMON-STOCK> 9,010,833
<SHARES-COMMON-PRIOR> 40,474
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (469,796)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 9,009,888
<DIVIDEND-INCOME> 2,758,523
<INTEREST-INCOME> 227,095,179
<OTHER-INCOME> 0
<EXPENSES-NET> 17,938,272
<NET-INVESTMENT-INCOME> 211,915,430
<REALIZED-GAINS-CURRENT> 2,522
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 211,917,952
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (47,920)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,949,550
<NUMBER-OF-SHARES-REDEEMED> (4,027,111)
<SHARES-REINVESTED> 47,920
<NET-CHANGE-IN-ASSETS> 257,362,958
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (469,985)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,428,901
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19,937,546
<AVERAGE-NET-ASSETS> 1,009,413
<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> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 025
<NAME> NATIONS FUNDS PRIME INV-C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 4,355,759,191
<INVESTMENTS-AT-VALUE> 4,355,759,191
<RECEIVABLES> 46,383,113
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 311,930
<TOTAL-ASSETS> 4,402,454,234
<PAYABLE-FOR-SECURITIES> 14,378,381
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,939,534
<TOTAL-LIABILITIES> 43,317,915
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 93,688,330
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<SHARES-COMMON-PRIOR> 74,830,596
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (469,796)
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 93,678,454
<DIVIDEND-INCOME> 2,758,523
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<OTHER-INCOME> 0
<EXPENSES-NET> 17,938,272
<NET-INVESTMENT-INCOME> 211,915,430
<REALIZED-GAINS-CURRENT> 2,522
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 211,917,952
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,133,462)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 244,058,874
<NUMBER-OF-SHARES-REDEEMED> (229,209,603)
<SHARES-REINVESTED> 4,008,416
<NET-CHANGE-IN-ASSETS> 257,362,958
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (469,985)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,428,901
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19,937,546
<AVERAGE-NET-ASSETS> 83,369,726
<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> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
