As filed with the Securities and Exchange Commission
on June 1, 1998
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. 36 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 37 |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
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It is proposed that this filing will become effective (check appropriate box):
|_| Immediately upon filing pursuant to Rule 485(b); or |_| on (date), pursuant to Rule
485(b), or
|X| 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
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 36 to the Registration Statement of
Nations Fund, Inc. (the "Company") is being provided in order to add performance
information with respect to a Fund of the Company: Nations International Value
Fund.
<PAGE>
NATIONS FUND, INC.
CROSS REFERENCE SHEET
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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
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13. Investment Objectives and
Policies.................................................... Additional Information On Fund
Investments
14. Management of the Registrant................................ Directors And Officers
15. Control Persons and Principal
Holders of Securities....................................... Miscellaneous -- Certain Record
Holders
16. Investment Advisory and Other
Services.................................................... Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing And
Distribution Agreements
17. Brokerage Allocation ....................................... Fund Transactions And Brokerage
-- General Brokerage Policy
18. Capital Stock and Other
Securities.................................................. Description Of Shares; Investment
Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing And
Distribution Agreements -- The
Company And Its Common Stock
19. Purchase, Redemption and Pricing
of Securities Being Offered................................. Net Asset Value -- Purchases
And Redemptions
20. Tax Status.................................................. Additional Information Concerning
Taxes
21. Underwriters................................................ Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing And
Distribution Agreements --
Distributor
<PAGE>
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22. Calculation of Performance Data............................. Additional Information On
Performance
23. Financial Statements........................................ Independent Accountant And
Reports
</TABLE>
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, 1998
This Prospectus describes NATIONS INTERNATIONAL Nations International
VALUE FUND (the "Fund") of Nations Fund, Inc., an Value Fund
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 -- Primary A Shares.
This Prospectus sets forth concisely the information
about the Fund that a prospective purchaser of
Primary A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund, Inc. 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 for Nations Fund, Inc., dated August 1, 1998, 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 investment adviser to the Fund.
Brandes Investment Partners, L.P. ("Brandes") is
investment sub-adviser to the Fund. As used herein
the term "Adviser" shall mean NBAI and/or Brandes 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 For Fund information call:
SERVICES TO NATIONS FUNDS, FOR WHICH THEY ARE 1-800-765-2668
COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED
WITH NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR Nations Funds
AND SERVES AS THE DISTRIBUTOR FOR NATIONS FUNDS. c/o Stephens Inc.
One NationsBank Plaza
THESE SECURITIES HAVE NOT BEEN APPROVED OR 33rd Floor
DISAPPROVED BY THE SECURITIES AND EXCHANGE Charlotte, NC 28255
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY NATIONS
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY FUNDS
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Table Of Contents
About The Prospectus Summary 3
----------------------------------------------------
Fund Expenses Summary 4
----------------------------------------------------
Financial Highlights 5
----------------------------------------------------
Objective 6
----------------------------------------------------
How The Objective Is Pursued 6
----------------------------------------------------
How Performance Is Shown 8
----------------------------------------------------
How The Fund Is Managed 9
----------------------------------------------------
Organization And History 11
----------------------------------------------------
About Your How To Buy Shares 12
----------------------------------------------------
Investment How To Redeem Shares 12
----------------------------------------------------
How To Exchange Shares 13
----------------------------------------------------
How The Fund Values Its Shares 13
----------------------------------------------------
How Dividends And Distributions Are Made;
Tax Information 14
----------------------------------------------------
Appendix A -- Portfolio Securities 15
----------------------------------------------------
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 International Value Fund's investment objective is to
seek long-term capital appreciation by investing primarily in
equity securities of foreign issuers, including emerging
markets countries.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 60
investment company portfolios in the Nations Funds Family. Brandes
provides sub-advisory services to the Fund. See "How The Fund Is
Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Fund declares and pays dividends from
net investment income annually. 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. Investments in the Fund are not insured against loss of principal.
Investments by the 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 Fund is 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 The Objective Is Pursued -- Special
Risk Considerations Relevant to an Investment in the Fund."
(Bullet) MINIMUM PURCHASE: $250,000 minimum initial investment per record
holder. See "How To Buy Shares."
3
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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
Primary A Shares of the Fund. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
PRIMARY A SHARES
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Nations
International
SHAREHOLDER TRANSACTION EXPENSES Value Fund
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) None
- -----------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
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Management Fees (After Fee Waiver) .90%
- -----------------------------------------------------------------------------------------------------
Other Expenses .41%
- -----------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waiver) 1.31%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
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<S> <C>
Nations
International
Value Fund
1 Year $13
- -----------------------------------------------------------------------------------------------------
3 Years $42
</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
Primary A Shares will bear either directly or indirectly. The "Other Expenses"
figure contained in the above table is based on estimates. 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 Fund's operating
expenses, see "How The Fund Is Managed."
Absent fee waivers and/or reimbursements, "Management Fees" and "Total Operating
Expenses" for Primary A Shares of the Fund would have been 1.00% and 1.41%,
respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
4
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
Information for Nations International Value Fund's Primary A Shares has been
derived from the audited financial statements prepared by KPMG Peat Marwick LLP,
dated November 30, 1997, for the Institutional Shares of the Emerald
International Equity Fund, the predecessor portfolio to Nations International
Value Fund.
FOR AN INSTITUTIONAL SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS INTERNATIONAL VALUE FUND
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YEAR
ENDED
PRIMARY A SHARES* 11/30/97
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.29
- -------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09
- -------------------------------------------------------------------------------------------
Net realized and unrealized gains on securities 1.91
- -------------------------------------------------------------------------------------------
Total income from investment operations 2.00
- -------------------------------------------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.09)
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.01)
- -------------------------------------------------------------------------------------------
Distributions from net realized gains on securities (0.02)
- -------------------------------------------------------------------------------------------
Total dividends and distributions (0.12)
- -------------------------------------------------------------------------------------------
Net change in net asset value 1.88
- -------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.17
- -------------------------------------------------------------------------------------------
Total return 17.75%
- -------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000's) $ 54,277
- -------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.21%
- -------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.89%
- -------------------------------------------------------------------------------------------
Ratio of expenses to average net assets*** 1.21%
- -------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets*** 0.89%
- -------------------------------------------------------------------------------------------
Portfolio turnover 29%
- -------------------------------------------------------------------------------------------
Average commission rate paid (a) $ 0.0410
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PERIOD
ENDED
PRIMARY A SHARES* 11/30/96**(b)
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00
- ----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06
- ----------------------------------------------------------------------------------------
Net realized and unrealized gains on securities 1.29
- ----------------------------------------------------------------------------------------
Total income from investment operations 1.35
- ----------------------------------------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.06)
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income --
- ----------------------------------------------------------------------------------------
Distributions from net realized gains on securities --
- ----------------------------------------------------------------------------------------
Total dividends and distributions (0.06)
- ----------------------------------------------------------------------------------------
Net change in net asset value 1.29
- ----------------------------------------------------------------------------------------
Net asset value, end of period $ 11.29
- ----------------------------------------------------------------------------------------
Total return 13.47%++
- ----------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000's) $ 17,528
- ----------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.00%+
- ----------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.99%+
- ----------------------------------------------------------------------------------------
Ratio of expenses to average net assets*** 3.46%+
- ----------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets*** (1.47%)+
- ----------------------------------------------------------------------------------------
Portfolio turnover 50%
- ----------------------------------------------------------------------------------------
Average commission rate paid (a) $ 0.0463
</TABLE>
* Primary A Shares of Nations International Value Fund were formerly
Institutional Shares of the Emerald International Equity Fund.
** For the period December 27, 1995 (commencement of operations) through
November 30, 1996.
*** During the period, certain fees were voluntarily reduced, reimbursed and/or
paid by third party. If such voluntary fee reductions and/or reimbursements
had not occurred, the ratios would have been as indicated.
(a) Represents the total dollar amount of commissions paid on portfolio equity
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged.
(b) Effective August 19, 1996, Brandes Investment Partners, L.P. became the
Fund's Investment Sub-Adviser.
+ Annualized.
++ Not annualized.
5
<PAGE>
- --------------------------------------------------------------------------------
Objective
NATIONS INTERNATIONAL VALUE FUND: Nations International Value Fund's investment
objective is to seek long-term capital appreciation by investing primarily in
equity securities of foreign issuers, including emerging markets countries.
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. The net asset value of the shares of the Fund will fluctuate based on
market conditions. Therefore, investors should not rely upon the Fund for
short-term financial needs, nor is the Fund meant to provide a vehicle for
participating in short-term swings in the stock market. Investments in the Fund
are not insured against loss of principal.
- --------------------------------------------------------------------------------
How The Objective Is Pursued
NATIONS INTERNATIONAL VALUE FUND: The Fund will pursue its investment objective,
under normal market conditions, by investing its assets in the securities of
issuers located in at least three different foreign countries. Although the Fund
may earn income from dividends, interest and other sources, income will be
incidental to the Fund's investment objective. The Fund emphasizes investments
in established companies, although it may invest in companies of various sizes
as measured by assets, sales and capitalization.
The Fund intends to invest at least 65% of its total assets in equity securities
of non-U.S. issuers whose market capitalizations exceed $1 billion at the time
of purchase. These securities may include common stocks, preferred stocks,
securities convertible into common stocks, shares of closed-end investment
companies, American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs"), and/or Global Depository Receipts ("GDRs"). Although the Fund intends
to invest primarily in equity securities listed on stock exchanges, the Fund may
also invest in equity securities traded in over the counter markets and in
private placements. The Fund is not subject to any specific geographic
diversification requirements. Countries in which the Fund may invest include,
but are not limited to, the nations of Western Europe, North and South America,
Australia, Africa, and Asia.
The Adviser's approach in selecting investments for the Fund is oriented to
individual stock selection and is value driven as described below. Typically, no
more than 5% of total Fund assets will be invested in any one security at the
time of purchase. With respect to Fund investments in any particular country or
industry, the Fund may typically invest up to the greater of either (a) 20% of
total Fund assets in any particular country or industry at the time of purchase
or (b) 150% of the weighting of such country or industry as represented in the
Morgan Stanley Capital International ("MSCI") EAFE Index at the time of
purchase, but in no event may the Fund invest more than 25% of its total assets,
calculated at the time of purchase and taken at market value, in any one
industry (other than U.S. Government securities). Generally, no more than 20% of
the value of the Fund's total assets, measured at the time of purchase, may be
invested in securities of companies located in emerging or developing countries.
As used in this Prospectus, the term "emerging" or "developing" country applies
to any country which is generally considered to be an emerging or developing
country by the international financial community, which includes the
International Bank for Reconstruction and Development (more commonly known as
the World Bank) and the International Finance Corporation. There are currently
over 130 countries which are generally considered to be emerging or developing
countries by the international financial community, approximately 40 of which
currently have stock markets. These countries generally include every nation in
the world except the United States, Canada, Japan, Australia, New Zealand and
most nations located in Western Europe. Currently, investing in many emerging
countries is not feasible or may involve unacceptable political risks. Emerging
markets securities pose greater liquidity and other risks than securities of
companies located in developed countries and traded in more established markets.
The Adviser to the Fund is committed to the use of the Graham and Dodd-style
value investing approach as introduced in the classic book SECURITY ANALYSIS.
Using this philosophy, the Adviser views stocks as small pieces of businesses
which are for sale. It seeks to purchase a diversified group of these businesses
at prices its research indicates are below their true long-term, or intrinsic,
value. By purchasing stocks whose current prices are believed to be below their
intrinsic values, the Adviser seeks to secure not only a possible margin of
safety against price declines, but also an attractive opportunity for profit
over the business cycle.
In analyzing a company's long-term value, the Adviser uses sources of
information such as company reports, filings with the SEC, computer databases,
industry publications, general and business publications, brokerage firm
research reports, and interviews with company management. Its focus is on
fundamental characteristics of a company, including, but not limited to, book
value, cash flow and capital structure, as well as management's record and broad
industry issues. Once the intrinsic value of a company is estimated, this value
is compared to the current price of the stock. If the price is appreciably lower
than the indicated intrinsic value, the stock may be purchased.
6
<PAGE>
During temporary defensive periods in response to unusual and adverse conditions
affecting the equity markets, the Fund's assets may be invested without
limitation in short-term debt instruments and in securities of United States
issuers. In addition, when the Fund experiences large cash inflows from the
issuance of new shares or the sale of portfolio securities, and desirable equity
securities that are consistent with the Fund's investment objective are
unavailable in sufficient quantities, the Fund may hold more than 35% of its
assets in short-term debt instruments for a limited time pending availability of
suitable equity securities. During normal market conditions, no more than 35% of
the Fund's total assets will be invested in short-term debt instruments.
Subject to applicable securities regulations, the Fund may, for the purpose of
hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indices listed on foreign and domestic stock exchanges. See "Appendix A"
for additional information concerning the investment practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUND: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, the Fund presents unique risks of which investors should
be aware.
Investments by the 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 the 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.
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.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in developing countries and fledgling
democracies, and emerging market countries. Political and economic structures in
many emerging markets countries may be undergoing significant evolution and
rapid development, and may lack the social, political and economic stability
characteristic of more developed countries.
Investing in emerging markets securities involves risks which are in addition to
the usual risks inherent in foreign investments. Some emerging markets countries
may have fixed or managed currencies that are not free-floating against the U.S.
dollar. Further, certain currencies may not be traded internationally. Certain
of these currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluation in the currencies in which the Fund's securities are
denominated may have a detrimental impact on the Fund.
Some countries with emerging securities markets have experienced substantial,
and in some periods extremely high, rates of inflation for many years. Inflation
and rapid fluctuation in inflation rates have had and may continue to have
negative effects on the economies and securities markets of certain countries.
Moreover, the economies of some countries may differ favorably or unfavorably
from the U.S. economy in such respects as rate of growth of gross domestic
product, the rate of inflation, capital reinvestment, resource self-sufficiency,
number and depth of industries forming the economy's base, governmental controls
and investment restrictions that are subject to political change and balance of
payments position. Further, there may be greater difficulties or restrictions
with respect to investments made in emerging markets countries.
Emerging markets typically have substantially less volume than U.S. markets. In
addition, securities in many of such markets are less liquid, and their prices
often are more volatile, than securities of comparable U.S. companies. Such
markets often have different clearance and settlement procedures for securities
transactions, and in some markets there have been times when settlements have
been unable to keep pace with the volume of transactions, making it difficult to
conduct transactions. Delays in settlement could result in temporary periods
when assets may be uninvested. Settlement problems in emerging markets countries
also could cause the Fund to miss attractive investment opportunities.
Satisfactory custodial services may not be available in some emerging markets
countries, which may result in the Fund incurring additional costs and delays in
the transportation and custody of such securities.
Although the Fund will invest in securities denominated in foreign currencies,
the Fund values its securities and other assets in U.S. dollars. As a result,
the net asset value of the Fund's shares will fluctuate with U.S. dollar
exchange rates, as well as with price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the U.S.
dollar
7
<PAGE>
compared to the currencies in which the Fund makes its investments could reduce
the effect of increases and magnify the effect of decreases in the prices of the
Fund's securities in their local markets. Conversely, a decrease in the value of
the U.S. dollar will have the opposite effect of magnifying the effect of
increases and reducing the effect of decreases in the prices of the Fund's
securities in their local markets. In addition to favorable and unfavorable
currency exchange-rate developments, the Fund is subject to the possible
imposition of exchange control regulations or freezes on convertibility of
currency.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Fund offers a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
In addition, the Fund may from time to time invest more than 20% of the total
value of its assets in securities of issuers located in particular countries
and/or associated with particular industries. During such periods, the Fund may
be more susceptible to risks associated with a single economic, political or
regulatory occurrence than more diversified funds.
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation and not for short-term trading profits. While it is not
possible to predict exactly annual portfolio turnover rates, it is expected that
under normal market conditions, the annual turnover rate for the Fund will not
exceed 100%. If the Fund's portfolio turnover rate exceeds 100%, it may result
in higher costs to the Fund, including brokerage commissions or dealer mark-ups
and other transaction costs on the sale of securities and the reinvestment in
other securities. Portfolio turnover also can generate short-term capital gains
tax consequences.
INVESTMENT LIMITATIONS: The 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
Fund's SAI.
The Fund may not:
1. Invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry (with certain
exceptions).
2. Purchase securities of any one issuer (with certain exceptions, including
U.S. Government securities) if more than 5% of the Fund's total assets will be
invested in the securities of any one issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to the 5% limitation.
The Fund may not purchase more than 10% of the outstanding voting securities of
any one issuer subject, however, to the foregoing 25% exception.
3. Borrow money except for temporary purposes in amounts up to one-third of the
value of its total assets at the time of such borrowing. Whenever borrowings
exceed 5% of the Fund's total assets, the Fund will not make any investments.
If a percentage limitation has been met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
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 current position and needs.
- --------------------------------------------------------------------------------
How Performance Is Shown
From time to time the 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 of the 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 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 the Fund by
the maximum public offering price per share on the last day of that period.
Set forth below is certain performance data relating to: the composite of
international equity accounts of clients of Brandes and the Brandes
Institutional International Equity Fund, an open-end management investment
company, (the "Brandes Composite"), all with investment objectives and policies
that are substantially similar to those of the Fund, using substantially
similar, though not identical, investment strategies, policies and techniques as
those used in managing the Fund; and the Morgan Stanley Capital International
European, Australasian and Far Eastern Index (the "MSCI EAFE Index"). The data
below regarding the Brandes Composite and the MSCI EAFE Index do not represent
the perfor-
<PAGE>
mance of the Fund and an investor should not consider this performance data as
an indication of future performance of the Fund or of Brandes. The accounts that
are included in the Brandes Composite are not subject to the same types of
expenses to which the Fund is subject nor to the diversification requirements,
specific tax restrictions and investment limitations imposed on the Fund by the
1940 Act or Subchapter M of the Internal Revenue Code (the "Code").
Consequently, the performance results for the Brandes Composite could have been
adversely affected if the accounts included in the Brandes Composite had been
regulated as investment companies. In addition, the results presented below for
the Brandes Composite may not necessarily equate with the return experienced by
any particular account of Brandes.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS INDICATED THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
---------- ----------
<S> <C> <C> <C> <C>
Since
One Year Three Year Five Year Inception
- ---------------------------------------------------------------------------
Brandes Composite* 32.81% 23.15% 18.85% 18.56%
- ---------------------------------------------------------------------------
MSCI EAFE Index** 18.61% 10.57% 11.93% 6.98%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
---------- ----------
<S> <C> <C>
MSCI
Brandes EAFE
Year Composite* Index**
- ------------------------------------------------------------
1997 20.00% 1.78%
- ------------------------------------------------------------
1996 16.34% 6.05%
- ------------------------------------------------------------
1995 13.75% 11.21%
- ------------------------------------------------------------
1994 -2.98% 7.78%
- ------------------------------------------------------------
1993 40.86% 32.56%
- ------------------------------------------------------------
1992 6.28% -12.17%
- ------------------------------------------------------------
1991 40.17% 12.13%
- ------------------------------------------------------------
</TABLE>
* The returns above were calculated on a time-weighted asset-weighted total
return basis, including investment of all dividends, interest and income,
realized and unrealized gains or losses and are net of applicable investment
advisory fees, brokerage commission and execution costs, custodial fees and
any applicable foreign withholding taxes, without provision of any federal
or state income taxes, if any. The Brandes Composite results include all
actual, fee-paying and non fee-paying, fully discretionary accounts under
management by Brandes for at least one month beginning 7/1/90, having
substantially the same investment objectives policies, techniques and
restrictions, other than client accounts denominated in currencies other
than U.S. dollars.
** The MSCI EAFE Index is an unmanaged index consisting of securities listed on
exchanges in European, Australasian and Far Eastern markets and includes
dividends and distributions, but does not reflect fees, brokerage
commissions or other expenses of investing.
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 the Fund's investment objective and policies. These factors
should be considered when comparing the 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 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 Primary A Shares, the Fund offers Investor A Shares, Investor B
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 Fund's shares. Any fees charged by a Selling Agent or Servicing Agent
directly to its customers' accounts in connection with investments in the Fund
will not be included in calculations of total return or yield. The Fund's annual
report contains additional performance information and is available upon request
without charge from the Fund's distributor or your 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. The Nations Fund, Inc.'s SAI contains the names of
and general background information concerning each Director of Nations Fund,
Inc.
Nations Funds and each 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 pursuant to an Investment Advisory Agreement with Nations Fund,
9
<PAGE>
Inc. (the "Investment Advisory Agreement"). 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.
Brandes Investment Partners, L.P., with principal offices at 12750 High Bluff
Drive, San Diego, California 92130, serves as investment sub-adviser to the Fund
pursuant to a Sub-Advisory Agreement.
Subject to the general supervision of Nations Fund, Inc.'s Board of Directors,
NBAI and in accordance with the Fund's investment policies, Brandes 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. Brandes
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 NBAI or which have sold shares
in the Fund, if Brandes 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, the 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 1.00% of the Fund's average daily net
assets.
For services provided and expenses assumed pursuant to sub-advisory agreements,
Brandes is entitled to receive from NBAI sub-advisory fees, computed daily and
paid monthly, at the annual rate of .50% of the Fund's average daily net assets.
From time to time, NBAI (and/or Brandes) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Fund.
The Fund is team-managed by the Brandes' Investment Committee.
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 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 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 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 a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Fund including
performing the calculations necessary to determine net asset value per share and
dividends of each class of the Fund, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the 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.
NBAI serves as sub-administrator for Nations Funds pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NBAI assists Stephens in supervising, coordinating and monitoring
various aspects of the Fund's administrative operations. For providing such
services, NBAI 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 Fund,
Inc. has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Fund. Stephens may
pay service fees or commissions to Institutions which assist customers in
purchasing Primary A Shares of the Fund.
10
<PAGE>
The Bank of New York (the "Custodian"), Avenue des Arts, 35 1040 Brussels,
Belgium, serves as Custodian for the assets of the Fund.
First Data serves as the Transfer Agent for the Fund's Primary A Shares.
NationsBank serves as the sub-transfer agent for the Fund's Primary A Shares.
The sub-transfer agent is located at 1401 Elm Street, Dallas, Texas 75202. In
return for providing sub-transfer agency services for the Primary A Shares of
Nations Funds, NationsBank 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 the Fund are deducted from the Fund's total
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; 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. 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 a member of the Nations Funds Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations Institutional
Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc. The Nations
Funds Family currently has more than 60 distinct investment portfolios and total
assets in excess of $30 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 460,000,000,000 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 Fund. 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 class have equal rights with respect to voting, except that the
holders of shares of a particular class will have the exclusive right to vote on
matters affecting only the rights of the holders of such 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 class or allocated among the classes based on the respective
liquidation value of each 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 May 22, 1998, 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 Investment Company Act of 1940, as amended (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.
11
<PAGE>
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 Fund 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 and Stephens reserve the right to reject any purchase order. The
issuance of Primary A Shares is recorded on the books of the Fund 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 Fund
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.
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 Fund 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.
12
<PAGE>
- --------------------------------------------------------------------------------
How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of the 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 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.
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 Fund Values Its 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
Board of Directors.
- --------------------------------------------------------------------------------
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid annually by the Fund. The Fund's net realized capital gains (including
net short-term capital gains) are distributed at least annually. Primary A
Shares of the 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
13
<PAGE>
including the day before the redemption order is executed.
The net asset value of Primary A Shares in the 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 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 the Fund.
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 to the extent its earnings are 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 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 Fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
the 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 net realized long-term capital gains of the Fund, if
any, will be distributed at least annually to the Fund's shareholders. The Fund
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 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 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 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 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 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 Fund to
withhold tax on dividends, distributions and proceeds from the disposition of
Fund shares paid to certain foreign shareholders.
Portions of the 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 the 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 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 Fund and its
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.
14
<PAGE>
- --------------------------------------------------------------------------------
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How The Objective Is Pursued" section of this
Prospectus identifies the Fund's permissible investments, and the SAI contains
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.
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 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
its 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, 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. 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.
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 the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objectives. In addition, the 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 The Objective Is Pursued," the 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
the 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 the Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. The 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 The Objective
Is Pursued," the Fund may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. dollar. The 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 the 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 the 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
15
<PAGE>
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 the Fund's portfolio
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
The 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 the 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 Fund may be subject to greater
fluctuation in price than securities of domestic companies.
The Fund may invest up to 100% of its total assets in sponsored or unsponsored
ADRs, EDRs and GDRs. ADRs are receipts issued in registered form by a U.S. bank
or trust company evidencing ownership of underlying securities issued by a
foreign issuer. EDRs and GDRs are receipts issued by non-U.S. banks or trust
companies and foreign branches of U.S. banks that evidence ownership of the
underlying foreign or U.S. securities. Unsponsored ADRs, EDRs and GDRs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored
ADRs, EDRs and GDRs may be more volatile than if such instruments were sponsored
by the issuer. ADRs may be listed on a national securities exchange or may be
traded in the over-the-counter market. EDRs and GDRs are generally designed for
use in foreign exchanges and over-the-counter markets. ADRs, EDRs and GDRs
traded in the over-the-counter market which do not have an active or substantial
secondary market will be considered illiquid and therefore will be subject to a
Fund's limitation with respect to such securities. ADR prices are denominated in
U.S. dollars although the underlying securities are denominated in a foreign
currency. Investments in ADRs, EDRs and GDRs involve risks similar to those
accompanying direct investments in foreign securities.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How The Objective Is Pursued," the Fund 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,
16
<PAGE>
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes the 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, the 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. The 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 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 guaranteed investment contracts
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 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 the Fund holding such securities may
increase during such period.
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: 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. The
Fund may also purchase shares of investment companies investing primarily in
foreign securities, including so-called "country funds". Country funds have
portfolios consisting exclusively of issuers located in one foreign country.
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.
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 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 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.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Fund may purchase
and sell futures contracts and related options with respect to non-U.S.
17
<PAGE>
stock indices, non-U.S. interest rates and foreign currencies for the purpose of
hedging against changes in values of the Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. These contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of the 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 the 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 the
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.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
18
<PAGE>
Prospectus
INVESTOR A SHARES
AUGUST 1, 1998
This Prospectus describes Nations International Nations International
Value Fund (the "Fund") of Nations Fund, Inc., an Value Fund
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 -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Fund 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, 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 for Nations
Fund, Inc. dated August 1, 1998, 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. Brandes Investment
Partners, L.P. ("Brandes") is investment sub-
adviser to the Fund. As used herein the term
"Adviser" shall mean NBAI, and/or Brandes 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 For Fund information call:
SERVICES TO NATIONS FUNDS, FOR WHICH THEY ARE 1-800-321-7854
COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED
WITH NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR Nations Funds
AND SERVES AS THE DISTRIBUTOR FOR NATIONS FUNDS. c/o Stephens Inc.
One NationsBank Plaza
THESE SECURITIES HAVE NOT BEEN APPROVED OR 33rd Floor
DISAPPROVED BY THE SECURITIES AND EXCHANGE Charlotte, NC 28255
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 NATIONS
OFFENSE. FUNDS
<PAGE>
Table Of Contents
About The Prospectus Summary 3
---------------------------------------------------
Fund Expenses Summary 4
---------------------------------------------------
Financial Highlights 5
---------------------------------------------------
Objective 6
---------------------------------------------------
How The Objective Is Pursued 6
---------------------------------------------------
How Performance Is Shown 9
---------------------------------------------------
How The Fund Is Managed 11
---------------------------------------------------
Organization And History 13
---------------------------------------------------
About Your How To Buy Shares 14
---------------------------------------------------
Investment How To Redeem Shares 16
---------------------------------------------------
How To Exchange Shares 18
---------------------------------------------------
Shareholder Servicing And Distribution Plan 19
---------------------------------------------------
How The Fund Values Its Shares 20
---------------------------------------------------
How Dividends And Distributions Are Made;
Tax Information 20
---------------------------------------------------
Appendix A -- Portfolio Securities 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>
<PAGE>
About The Fund
- --------------------------------------------------------------------------------
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES:
(Bullet) Nations International Value Fund's investment objective is to
seek long-term capital appreciation by investing primarily in
equity securities of foreign issuers, including emerging
markets countries.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 60
investment company portfolios in the Nations Funds Family. Brandes
provides sub-advisory services to the Fund. See "How The Fund Is
Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Fund declares and pays dividends from
net investment income annually. 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. Investments in the Fund are not insured against loss of principal.
Investments by the 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 Fund is 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 The Objective Is Pursued -- Special Risk
Considerations Relevant to an Investment in the 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."
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
Investor A Shares of the Fund. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor A Shares of the
Fund over specified periods.
<TABLE>
<CAPTION>
INVESTOR A SHARES
---------------
<S> <C>
Nations
International
SHAREHOLDER TRANSACTION EXPENSES Value 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) None
- ------------------------------------------------------------------------------------------------------------------------
Redemption Fees Payable to the Fund1 1.00%
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees (After Fee Waiver) .90%
- ------------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Fees (including shareholder servicing fees) .25%
- ------------------------------------------------------------------------------------------------------------------------
Other Expenses .41%
- ------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waiver) 1.56%
</TABLE>
1 There is a 1% redemption fee retained by the Fund 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 Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
---------------
<S> <C>
Nations
International
Value Fund
1 Year $ 16
- ------------------------------------------------------------------------------------------------------------------------
3 Years $ 49
</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
Investor A Shares of the Fund will bear either directly or indirectly. The
"Other Expenses" figure contained in the above table is based on estimates.
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 Fund's operating expenses, see "How The Fund Is Managed."
Absent fee waivers and/or reimbursements, "Management Fees" and "Total Operating
Expenses" for Investor A Shares of the Fund would have been 1.00% and 1.66%,
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.
4
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
Information for Nations International Value Fund's Investor A Shares has been
derived from the audited financial statements prepared by KPMG Peat Marwick LLP,
dated November 30, 1997, for the Retail Shares of the Emerald International
Equity Fund, the predecessor portfolio to Nations International Value Fund.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS INTERNATIONAL VALUE FUND
<TABLE>
<CAPTION>
---------------------------------
<S> <C> <C>
YEAR PERIOD
ENDED ENDED
INVESTOR A SHARES* 11/30/97 11/30/96**(b)
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.29 $ 10.00
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01 0.04
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gains on securities 1.91 1.31
- -----------------------------------------------------------------------------------------------------
Total Income from investment operations 1.92 1.35
- -----------------------------------------------------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income (0.01) (0.04)
- -----------------------------------------------------------------------------------------------------
Dividends in excess of net investment income (0.05) --
- -----------------------------------------------------------------------------------------------------
Distributions from net realized gains on securities (0.02) (0.02)
- -----------------------------------------------------------------------------------------------------
Total dividends and distributions (0.08) (0.06)
- -----------------------------------------------------------------------------------------------------
Net change in net asset value 1.84 1.29
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.13 $ 11.29
- -----------------------------------------------------------------------------------------------------
Total return 17.11% 13.54%++
- -----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $ 4,259 $ 115
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.73% 0.00%+
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.26% 1.83%+
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets*** 1.93% 57.40%+
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets*** 0.06% (55.57%)+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 29% 50%
- -----------------------------------------------------------------------------------------------------
Average commission rate paid (a) $ 0.0410 $ 0.0463
</TABLE>
* Investor A Shares of Nations International Value Fund were formerly Retail
Shares of the Emerald International Equity Fund, a predecessor portfolio.
** For the period December 27, 1995 (commencement of operations) through
November 30, 1996.
*** During the period, certain fees were voluntarily reduced, reimbursed and/or
paid by third party. If such voluntary fee reductions and/or reimbursements
had not occurred, the ratios would have been as indicated.
(a) Represents the total dollar amount of commissions paid on portfolio equity
transactions divided by total number of portfolio shares purchased and sold
by the Fund for which commissions were charged.
(b) Effective August 19, 1996, Brandes Investment Partners, L.P. became the
Fund's Investment Sub-Adviser.
+ Annualized.
++ Not annualized.
5
<PAGE>
- --------------------------------------------------------------------------------
Objective
NATIONS INTERNATIONAL VALUE FUND: Nations International Value Fund's investment
objective is to seek long-term capital appreciation by investing primarily in
equity securities of foreign issuers, including emerging markets countries.
Although the Adviser of the Fund 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. The net asset value of the shares of the Fund will fluctuate based
on market conditions. Therefore, investors should not rely upon the Fund for
short-term financial needs nor is the Fund meant to provide a vehicle for
participating in short-term swings in the market. Investments in the Fund are
not insured against loss of principal.
- --------------------------------------------------------------------------------
How The Objective Is Pursued
NATIONS INTERNATIONAL VALUE FUND: The Fund will pursue its investment objective,
under normal market conditions, by investing its assets in the securities of
issuers located in at least three different foreign countries. Although the Fund
may earn income from dividends, interest and other sources, income will be
incidental to the Fund's investment objective. The Fund emphasizes investments
in established companies, although it may invest in companies of various sizes
as measured by assets, sales and capitalization.
The Fund intends to invest at least 65% of its total assets in equity securities
of non-U.S. issuers whose market capitalizations exceed $1 billion at the time
of purchase. These securities may include common stocks, preferred stocks,
securities convertible into common stocks, shares of closed-end investment
companies, American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs"), and/or Global Depository Receipts ("GDRs"). Although the Fund intends
to invest primarily in equity securities listed on stock exchanges, the Fund may
also invest in equity securities traded in over the counter markets and in
private placements. The Fund is not subject to any specific geographic
diversification requirements. Countries in which the Fund may invest include,
but are not limited to, the nations of Western Europe, North and South America,
Australia, Africa, and Asia.
The Adviser's approach in selecting investments for the Fund is oriented to
individual stock selection and is value driven as described below. Typically, no
more than 5% of total Fund assets will be invested in any one security at the
time of purchase. With respect to Fund investments in any particular country or
industry, the Fund may typically invest up to the greater of either (a) 20% of
total Fund assets in any particular country or industry at the time of purchase
or (b) 150% of the weighting of such country or industry as represented in the
Morgan Stanley Capital International ("MSCI") EAFE Index at the time of
purchase, but in no event may the Fund invest more than 25% of its total assets,
calculated at the time of purchase and taken at market value, in any one
industry (other than U.S. Government securities). Generally, no more than 20% of
the value of the Fund's total assets, measured at the time of purchase, may be
invested in securities of companies located in emerging or developing countries.
As used in this Prospectus, the term "emerging" or "developing" country applies
to any country which is generally considered to be an emerging or developing
country by the international financial community, which includes the
International Bank for Reconstruction and Development (more commonly known as
the World Bank) and the International Finance Corporation. There are currently
over 130 countries which are generally considered to be emerging or developing
countries by the international financial
commu-
<PAGE>
nity, approximately 40 of which currently have stock markets. These countries
generally include every nation in the world except the United States, Canada,
Japan, Australia, New Zealand and most nations located in Western Europe.
Currently, investing in many emerging countries is not feasible or may involve
unacceptable political risks. Emerging markets securities pose greater liquidity
and other risks than securities of companies located in developed countries and
traded in more established markets.
The Adviser to the Fund is committed to the use of the Graham and Dodd-style
value investing approach as introduced in the classic book SECURITY ANALYSIS.
Using this philosophy, the Adviser views stocks as small pieces of businesses
which are for sale. It seeks to purchase a diversified group of these businesses
at prices its research indicates are below their true long-term, or intrinsic,
value. By purchasing stocks whose current prices are believed to be below their
intrinsic values, the Adviser seeks to secure not only a possible margin of
safety against price declines, but also an attractive opportunity for profit
over the business cycle.
In analyzing a company's long-term value, the Adviser uses sources of
information such as company reports, filings with the SEC, computer databases,
industry publications, general and business publications, brokerage firm
research reports, and interviews with company management. Its focus is on
fundamental characteristics of a company, including, but not limited to, book
value, cash flow and capital structure, as well as management's record and broad
industry issues. Once the intrinsic value of a company is estimated, this value
is compared to the current price of the stock. If the price is appreciably lower
than the indicated intrinsic value, the stock may be purchased.
During temporary defensive periods in response to unusual and adverse conditions
affecting the equity markets, the Fund's assets may be invested without
limitation in short-term debt instruments and in securities of United States
issuers. In addition, when the Fund experiences large cash inflows from the
issuance of new shares or the sale of portfolio securities, and desirable equity
securities that are consistent with the Fund's investment objective are
unavailable in sufficient quantities, the Fund may hold more than 35% of its
assets in short-term debt instruments for a limited time pending availability of
suitable equity securities. During normal market conditions, no more than 35% of
the Fund's total assets will be invested in short-term debt instruments.
Subject to applicable securities regulations, the Fund may, for the purpose of
hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indices listed on foreign and domestic stock exchanges. See "Appendix A"
for additional information concerning the investment practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUND: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, the Fund presents unique risks of which investors should
be aware. Investments by the 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 the 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.
7
<PAGE>
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.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in developing countries and fledgling
democracies, and emerging market countries. Political and economic structures in
many emerging markets countries may be undergoing significant evolution and
rapid development, and may lack the social, political and economic stability
characteristic of more developed countries.
Investing in emerging markets securities involves risks which are in addition to
the usual risks inherent in foreign investments. Some emerging markets countries
may have fixed or managed currencies that are not free-floating against the U.S.
dollar. Further, certain currencies may not be traded internationally. Certain
of these currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluation in the currencies in which the Fund's securities are
denominated may have a detrimental impact on the Fund.
Some countries with emerging securities markets have experienced substantial,
and in some periods extremely high, rates of inflation for many years. Inflation
and rapid fluctuation in inflation rates have had and may continue to have
negative effects on the economies and securities markets of certain countries.
Moreover, the economies of some countries may differ favorably or unfavorably
from the U.S. economy in such respects as rate of growth of gross domestic
product, the rate of inflation, capital reinvestment, resource self-sufficiency,
number and depth of industries forming the economy's base, governmental controls
and investment restrictions that are subject to political change and balance of
payments position. Further, there may be greater difficulties or restrictions
with respect to investments made in emerging markets countries.
Emerging markets typically have substantially less volume than U.S. markets. In
addition, securities in many of such markets are less liquid, and their prices
often are more volatile, than securities of comparable U.S. companies. Such
markets often have different clearance and settlement procedures for securities
transactions, and in some markets there have been times when settlements have
been unable to keep pace with the volume of transactions, making it difficult to
conduct transactions. Delays in settlement could result in temporary periods
when assets may be uninvested. Settlement problems in emerging markets countries
also could cause the Fund to miss attractive investment opportunities.
Satisfactory custodial services may not be available in some emerging markets
countries, which may result in the Fund incurring additional costs and delays in
the transportation and custody of such securities.
Although the Fund will invest in securities denominated in foreign currencies,
the Fund values its securities and other assets in U.S. dollars. As a result,
the net asset value of the Fund's shares will fluctuate with U.S. dollar
exchange rates, as well as with price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the U.S.
dollar compared to the currencies in which the Fund makes its investments could
reduce the effect of increases and magnify the effect of decreases in the prices
of the Fund's securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar will have the opposite effect of magnifying the effect
of increases and reducing the effect of decreases in the prices of the Fund's
securities in their local markets. In addition to favorable and unfavorable
currency
8
<PAGE>
exchange-rate developments, the Fund is subject to the possible imposition of
exchange control regulations or freezes on convertibility of currency.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Fund offers a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
In addition, the Fund may from time to time invest more than 20% of the total
value of its assets in securities of issuers located in particular countries
and/or associated with particular industries. During such periods, the Fund may
be more susceptible to risks associated with a single economic, political or
regulatory occurrence than more diversified funds.
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation, and not for short-term trading profits. While it is not
possible to predict exactly annual portfolio turnover rates, it is expected that
under normal market conditions, the annual portfolio turnover rate for the Fund
will not exceed 100%. If the Fund's portfolio turnover rate exceeds 100%, it may
result in higher costs to the Fund, including brokerage commissions or dealer
mark-ups and other transaction costs on the sale of securities and the
reinvestment in other securities. Portfolio turnover also can generate
short-term capital gains tax consequences.
INVESTMENT LIMITATIONS: The 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.
The Fund may not:
1. Invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry (with certain
exceptions).
2. Purchase securities of any one issuer (with certain exceptions, including
U.S. Government securities) if more than 5% of the Fund's total assets will be
invested in the securities of any one issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to the 5% limitation.
The Fund may not purchase more than 10% of the outstanding voting securities of
any issuer subject, however, to the foregoing 25% exception.
3. Borrow money except for temporary purposes in amounts up to one-third of the
value of its total assets at the time of such borrowing. Whenever borrowings
exceed 5% of the Fund's total assets, the Fund will not make any investments.
If a percentage limitation has been met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
The investment objective and policies of the Fund, unless otherwise specified
are non-fundamental and 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
current position and needs.
- --------------------------------------------------------------------------------
How Performance Is Shown
From time to time the 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 of the 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,
9
<PAGE>
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 the Fund by
the maximum public offering price per share on the last day of that period.
Set forth below is certain performance data relating to: the composite of
international equity accounts of clients of Brandes and the Brandes
Institutional International Equity Fund, an open-end management investment
company, (the "Brandes Composite") all with investment objectives and policies
that are substantially similar to those of the Fund, using substantially
similar, though not identical, investment strategies, policies and techniques as
those used in managing the Fund; and the Morgan Stanley Capital International
European, Australasian and Far Eastern Index (the "MSCI EAFE Index"). The data
below regarding the Brandes Composite and the MSCI EAFE Index do not represent
the performance of the Fund and an investor should not consider this performance
data as an indication of future performance of the Fund or of Brandes. The
accounts that are included in the Brandes Composite are not subject to the same
types of expenses to which the Fund is subject nor to the diversification
requirements, specific tax restrictions and investment limitations imposed on
the Fund by the 1940 Act or Subchapter M of the Internal Revenue Code (the
"Code"). Consequently, the performance results for the Brandes Composite could
have been adversely affected if the accounts included in the Brandes Composite
had been regulated as investment companies. In addition, the results presented
below for the Brandes Composite may not necessarily equate with the return
experienced by any particular account of Brandes.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS INDICATED THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
---------- ----------
<S> <C> <C> <C> <C>
Since
One Year Three Year Five Year Inception
- ------------------------------------------------------------------
Brandes
Composite* 32.81% 23.15% 18.85% 18.56%
- ------------------------------------------------------------------
MSCI EAFE
Index** 18.61% 10.57% 11.93% 6.98%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
---------- ----------
<S> <C> <C>
MSCI
Brandes EAFE
Year Composite* Index**
- -------------------------------------------------
1997 20.00% 1.78%
- -------------------------------------------------
1996 16.34% 6.05%
- -------------------------------------------------
1995 13.75% 11.21%
- -------------------------------------------------
1994 -2.98% 7.78%
- -------------------------------------------------
1993 40.86% 32.56%
- -------------------------------------------------
1992 6.28% -12.17%
- -------------------------------------------------
1991 40.17% 12.13%
- -------------------------------------------------
</TABLE>
* The returns above were calculated on a time-weighted asset-weighted total
return basis, including investment of all dividends, interest and income,
realized and unrealized gains or losses and are net of applicable investment
advisory fees, brokerage commission and execution costs, custodial fees and
any applicable foreign withholding taxes, without provision of any federal
or state income taxes, if any. The Brandes Composite results include all
actual, fee-paying and non fee-paying, fully discretionary accounts under
management by Brandes for at least one month beginning 7/1/90, having
substantially the same investment objectives policies, techniques and
restrictions, other than client accounts denominated in currencies other
than U.S. dollars.
10
<PAGE>
** The MSCI EAFE Index is an unmanaged index consisting of securities listed on
exchanges in European, Australasian and Far Eastern markets and includes
dividends and distributions, but does not reflect fees, brokerage
commissions or other expenses of investing.
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 the Fund's investment objective and policies. These factors
should be considered when comparing the 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 Fund with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Fund offers Primary A Shares, Investor B
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 the Fund's
shares. Any fees charged by an institution directly to its customers' accounts
in connection with investments in the Fund will not be included in calculations
of total return or yield. 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 each 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 pursuant to an Investment Advisory Agreement with Nations Fund, Inc.
(the "Investment Advisory Agreement"). 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.
Brandes Investment Partners, L.P., with principal offices at 12750 High Bluff
Drive, San Diego, California 92130, serves as investment sub-adviser to the Fund
pursuant to a sub-advisory agreement.
Subject to the general supervision of Nations Fund, Inc.'s Board of Directors,
NBAI, and in accordance with the Fund's investment policies, Brandes 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. Brandes
is authorized to
11
<PAGE>
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 NBAI or which have sold shares in the
Fund, if Brandes 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, the 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 1.00% of the Fund's average daily net
assets.
For services provided pursuant to a Sub-Advisory agreement, NBAI will pay
Brandes sub-advisory fees computed daily and paid monthly, at the annual rate of
.50% of the Fund's average daily net assets.
From time to time, NBAI (and/or Brandes) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees or
expenses payable by the Fund.
The Fund is team-managed by the Brandes' Investment Committee.
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 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 Fund pursuant to a
Co-Administration Agreement. Under the terms of the Co-Administration Agreement,
First Data provides various administrative and accounting services to the Fund,
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 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.
NBAI serves as sub-administrator for Nations Funds pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NBAI assists Stephens in supervising, coordinating and monitoring
various aspects of the Fund's administrative operations. For providing such
services, NBAI 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.
12
<PAGE>
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 Fund,
Inc. has entered into distribution agreements with Stephens which provide that
Stephens has the exclusive right to distribute shares of the Fund. Stephens may
pay service fees or commissions to Agents (as defined below) which assist
customers in purchasing Investor A Shares of the Fund.
The Bank of New York (the "Custodian"), Avenue des Arts, 35 1040 Brussels,
Belgium, serves as Custodian for the assets of the Fund.
First Data serves as transfer agent (the "Transfer Agent") for the 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, Massachuetts 02110.
EXPENSES: The accrued expenses of the Fund, as well as certain expenses
attributable to Investor A 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; 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. 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, Inc. 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, Inc. in such other manner as
the Board of Directors deems appropriate.
- --------------------------------------------------------------------------------
Organization And History
The Fund is a member of the Nations Funds Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations Institutional
Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc. The Nations
Funds Family currently has more than 60 distinct investment portfolios and total
assets in excess of $30 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 460,000,000,000 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 Fund. 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 class have equal rights with respect to voting, except that the
holders of shares of a particular class will have the exclusive right to vote on
matters affecting only the rights of the holders of such 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 class or allocated among the
13
<PAGE>
classes based on the respective liquidation value of each 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 May 22, 1998, 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 Investment Company Act of 1940, as
amended (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.
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
14
<PAGE>
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 Fund, except that the
minimum initial investment is:
(Bullet) $500 IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs"), 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. Purchases of the
Fund 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 Fund, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH THE FUND: Certain investors may open a regular
(non-retirement) account directly with the 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.
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EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares of the Fund
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 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 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 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 the Fund,
redemption orders should be communicated to the 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
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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 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 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.
REINSTATEMENT PRIVILEGE: Within 120 days after a redemption of Investor A 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 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 for the benefit of the remaining shareholders
and is intended to encourage long-term investment in the Fund and to avoid
transaction and other expenses associated with short-term investments. The Fund
reserves 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 Fund 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 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. A
qualifying exchange is based on the next calculated net asset value per share of
each fund after the exchange order is received.
For shareholders who maintain an account directly with the Fund, exchange
requests should be communicated to the Fund by calling 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 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 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 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 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 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.
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Shareholder Servicing And Distribution
Plan
The Fund's Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits the 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.
Aggregate payments under the Investor A Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Fund, provided that the
annual rate may not exceed .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 the 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.
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 Fund during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 1.00% of the offering
price per share on all sales of Investor A Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Investor A Plan. Any such
additional consideration or incentive program may be terminated at any time by
Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the 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 Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAI for more details on the Investor A Plan.
Nations Funds understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services pro-
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<PAGE>
vided in connection with a Customer's account. These fees would be in addition
to any amounts received by a Selling Agent under its Sales Support Agreement
with Stephens or by a Servicing Agent under its Servicing Agreement with Nations
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.
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How The Fund Values Its 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 Fund 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
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 annually by the Fund. The 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 Fund 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 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.
The 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. The
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.
The 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.
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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 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 Fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
the 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 Fund's net realized long-term capital gains will be
distributed at least annually. The Fund 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 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.
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.
Portions of the 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 the 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.
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 Fund and its
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.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How The Objective Is Pursued" section of this
Prospectus identifies the Fund's permissible investments, and the SAI contains
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 that they do not exceed 25% of the Fund's total assets at
the time of purchase.
The 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 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 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
its 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, 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. 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 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
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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.
COMMERCIAL INSTRUMENTS: Commercial in-
struments consist of short-term U.S. dollar-denominated obligations issued by
domestic corporations or foreign corporations and foreign commercial banks.
Investments by the Fund in commercial paper will consist of issues rated in a
manner consistent with the Fund's investment policies and objective. In
addition, the 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: The 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
the 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 the Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. The Fund's share
price and yield depend, in part, on the maturity and quality of its debt
instruments.
FOREIGN CURRENCY TRANSACTIONS: The Fund may enter into foreign currency exchange
transactions to convert foreign currencies to and from the U.S. dollar. The 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 the 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 the 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 the
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
The Fund will generally enter into forward currency exchange contracts only
under two circum-
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stances: (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 the 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 the Fund may be subject to greater
fluctuation in price than securities of domestic companies.
The Fund may invest up to 100% of its total assets in sponsored or unsponsored
ADRs, EDRs and GDRs. ADRs are receipts issued in registered form by a U.S. bank
or trust company evidencing ownership of underlying securities issued by a
foreign issuer. EDRs and GDRs are receipts issued by non-U.S. banks or trust
companies and foreign branches of U.S. banks that evidence ownership of the
underlying foreign or U.S. securities. Unsponsored ADRs, EDRs and GDRs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current as for sponsored ADRs, EDRs, and GDRs, and the prices of unsponsored
ADRs, EDRs and GDRs may be more volatile than if such instruments were sponsored
by the issuer. ADRs may be listed on a national securities exchange or may be
traded in the over-the-counter market. EDRs and GDRs are generally designed for
the use in foreign exchanges and over-the-counter markets. ADRs, EDRs and GDRs
traded in the over-the-counter market which do not have an active or substantial
secondary market will be considered illiquid and therefore will be subject to a
Fund's limitation with respect to such securities. ADR prices are denominated in
U.S. dollars although the underlying securities are denominated in a foreign
currency. Investments in ADRs, EDRs and GDRs involve risks similar to those
accompanying direct investments in foreign securities.
24
<PAGE>
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Fund may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect the 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 the 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, the 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. The 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 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 the Fund sells
its shares. Repurchase agreements, time deposits 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 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 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 the Fund holding such securities may
increase during such period.
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: 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. The
Fund may also purchase shares of investment companies investing primarily in
foreign securities, including so-called "country funds". Country funds have
portfolios consisting exclusively
25
<PAGE>
of securities of issuers located in one foreign country.
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
idle 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.
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.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The 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 the 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
the 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 the 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 the
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
26
<PAGE>
the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
27
<PAGE>
Prospectus
INVESTOR B SHARES
AUGUST 1, 1998
This Prospectus describes NATIONS INTERNATIONAL Nations International
VALUE FUND (the "Fund") of Nations Fund, Inc., an Value Fund
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 -- Investor B Shares.
This Prospectus sets forth concisely the
information about the Fund 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, 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 for Nations
Fund, Inc., dated August 1, 1998, 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 Funds. Brandes Investment
Partners, L.P. ("Brandes") is investment
sub-adviser to the Funds. As used herein the term
"Adviser" shall mean NBAI and/or Brandes 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 For Fund information call:
AND SERVES AS THE DISTRIBUTOR FOR NATIONS FUNDS. 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 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
OFFENSE.
<PAGE>
Table Of Contents
About The Prospectus Summary 3
---------------------------------------------------
Fund Expenses Summary 4
---------------------------------------------------
Objective 5
---------------------------------------------------
How The Objective Is Pursued 5
---------------------------------------------------
How Performance Is Shown 9
---------------------------------------------------
How The Fund Is Managed 11
---------------------------------------------------
Organization And History 13
---------------------------------------------------
About Your How To Buy Shares 13
---------------------------------------------------
Investment How To Redeem Shares 15
---------------------------------------------------
How To Exchange Shares 18
---------------------------------------------------
Shareholder Servicing And Distribution Plans 19
---------------------------------------------------
How The Fund Values Its Shares 20
---------------------------------------------------
How Dividends And Distributions Are Made;
Tax Information 21
---------------------------------------------------
Appendix A -- Portfolio Securities 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 International Value Fund's investment objective is to
seek long-term capital appreciation by investing primarily in
equity securities of foreign issuers, including emerging
markets countries.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 60
investment company portfolios in the Nations Fund Family. Brandes
provides sub-advisory services to the Fund. See "How The Fund Is
Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Fund declares and pays dividends from
net investment income annually. 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. Investments in the Fund are not insured against loss of principal.
Investments by the 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 Fund is 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 The Objective Is Pursued -- Special
Risk Considerations Relevant to an Investment in the 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."
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
Investor B Shares of the Fund. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
INVESTOR B SHARES
<TABLE>
<CAPTION>
---------------
<S> <C>
Nations
International
Value
Fund
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) None
- --------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a percentage of the lower of the original purchase price or
redemption proceeds)1 5.00%
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees (After Fee Waiver) .90%
- --------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Fees .75%
- --------------------------------------------------------------------------------------------------------------------
Shareholder Servicing Fees .25%
- --------------------------------------------------------------------------------------------------------------------
Other Expenses .41%
- --------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waiver) 2.31%
</TABLE>
1 Investor B Shares 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>
---------------
<S> <C>
Nations
International Value
Fund
1 Year $ 73
- --------------------------------------------------------------------------------------------
3 Years $ 102
</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>
---------------
<S> <C>
Nations
International Value
Fund
1 Year $ 23
- ------------------------------------------------------------------------------------------------------------------------
3 Years $ 72
</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. 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 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 Fund's
operating expenses, see "How The Fund Is Managed."
Absent fee waivers and/or reimbursements, "Management Fees" and "Total Operating
Expenses" for Investor B Shares of the Fund would have been 1.00% and 2.41%,
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.
- --------------------------------------------------------------------------------
Objective
NATIONS INTERNATIONAL VALUE FUND: Nations International Value Fund's investment
objective is to seek long-term capital appreciation by investing primarily in
equity securities of foreign issuers, including emerging markets countries.
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. The net asset value of the shares of the Fund will fluctuate based on
market conditions. Therefore, investors should not rely upon the Fund for
short-term financial needs, nor is the Fund meant to provide a vehicle for
participating in short-term swings in the stock market. Investments in the Fund
are not insured against loss of principal.
- --------------------------------------------------------------------------------
How The Objective Is Pursued
NATIONS INTERNATIONAL VALUE FUND: The Fund will pursue its investment objective,
under normal market conditions, by investing its assets in the securities of
issuers located in at least three different foreign countries. Although the Fund
may earn income from dividends, interest and other sources, income will be
incidental to the Fund's investment objective. The Fund emphasizes investments
in established companies, although it may invest in companies of various sizes
as measured by assets, sales and capitalization.
5
<PAGE>
The Fund intends to invest at least 65% of its total assets in equity securities
of non-U.S. issuers whose market capitalizations exceed $1 billion at the time
of purchase. These securities may include common stocks, preferred stocks,
securities convertible into common stocks, shares of closed-end investment
companies, American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs"), and/or Global Depository Receipts ("GDRs"). Although the Fund intends
to invest primarily in equity securities listed on stock exchanges, the Fund may
also invest in equity securities traded in over the counter markets and in
private placements. The Fund is not subject to any specific geographic
diversification requirements. Countries in which the Fund may invest include,
but are not limited to, the nations of Western Europe, North and South America,
Australia, Africa, and Asia.
The Adviser's approach in selecting investments for the Fund is oriented to
individual stock selection and is value driven as described below. Typically, no
more than 5% of total Fund assets will be invested in any one security at the
time of purchase. With respect to Fund investments in any particular country or
industry, the Fund may typically invest up to the greater of either (a) 20% of
total Fund assets in any particular country or industry at the time of purchase
or (b) 150% of the weighting of such country or industry as represented in the
Morgan Stanley Capital International ("MSCI") EAFE Index at the time of
purchase, but in no event may the Fund invest more than 25% of its total assets,
calculated at the time of purchase and taken at market value, in any one
industry (other than U.S. Government securities). Generally, no more than 20% of
the value of the Fund's total assets, measured at the time of purchase, may be
invested in securities of companies located in emerging or developing countries.
As used in this Prospectus, the term "emerging" or "developing" country applies
to any country which is generally considered to be an emerging or developing
country by the international financial community, which includes the
International Bank for Reconstruction and Development (more commonly known as
the World Bank) and the International Finance Corporation. There are currently
over 130 countries which are generally considered to be emerging or developing
countries by the international financial community, approximately 40 of which
currently have stock markets. These countries generally include every nation in
the world except the United States, Canada, Japan, Australia, New Zealand and
most nations located in Western Europe. Currently, investing in many emerging
countries is not feasible or may involve unacceptable political risks. Emerging
markets securities pose greater liquidity and other risks than securities of
companies located in developed countries and traded in more established markets.
The Adviser to the Fund is committed to the use of the Graham and Dodd-style
value investing approach as introduced in the classic book SECURITY ANALYSIS.
Using this philosophy, the Adviser views stocks as small pieces of businesses
which are for sale. It seeks to purchase a diversified group of these businesses
at prices its research indicates are below their true long-term, or intrinsic,
value. By purchasing stocks whose current prices are believed to be below their
intrinsic values, the Adviser seeks to secure not only a possible margin of
safety against price declines, but also an attractive opportunity for profit
over the business cycle.
In analyzing a company's long-term value, the Adviser uses sources of
information such as company reports, filings with the SEC, computer databases,
industry publications, general and business publications, brokerage firm
research reports, and interviews with company management. Its focus is on
fundamental characteristics of a company, including, but not limited to, book
value, cash flow and capital structure, as well as management's record and broad
industry issues. Once the intrinsic value of a company is estimated, this value
is compared to the current price of the stock. If the price is appreciably lower
than the indicated intrinsic value, the stock may be purchased.
During temporary defensive periods in response to unusual and adverse conditions
affecting the equity markets, the Fund's assets may be invested without
limitation in short-term debt instruments and in securities of United States
issuers. In addition, when the Fund experiences large cash inflows from the
issuance of new shares or the sale of portfolio securities, and desirable equity
securities that are consistent with the Fund's investment objective are
6
<PAGE>
unavailable in sufficient quantities, the Fund may hold more than 35% of its
assets in short-term debt instruments for a limited time pending availability of
suitable equity securities. During normal market conditions, no more than 35% of
the Fund's total assets will be invested in short-term debt instruments.
Subject to applicable securities regulations, the Fund may, for the purpose of
hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indices listed on foreign and domestic stock exchanges. See "Appendix A"
for additional information concerning the investment practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUND: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, the Fund presents unique risks of which investors should
be aware. Investments by the 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 the 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.
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.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in developing countries and fledgling
democracies, and emerging market countries. Political and economic structures in
many emerging markets countries may be undergoing significant evolution and
rapid development, and may lack the social, political and economic stability
characteristic of more developed countries.
Investing in emerging markets securities involves risks which are in addition to
the usual risks inherent in foreign investments. Some emerging markets countries
may have fixed or managed currencies that are not free-floating against the U.S.
dollar. Further, certain currencies may not be traded internationally. Certain
of these currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluation in the currencies in which the Fund's securities are
denominated may have a detrimental impact on the Fund.
Some countries with emerging securities markets have experienced substantial,
and in some periods extremely high, rates of inflation for many years. Inflation
and rapid fluctuation in inflation rates have had and may continue to have
negative effects on the economies and securities markets of certain countries.
Moreover, the economies of some countries may differ favorably or unfavorably
from the U.S. economy in such respects as rate of growth of gross domestic
product, the rate of inflation, capital
7
<PAGE>
reinvestment, resource self-sufficiency, number and depth of industries forming
the economy's base, governmental controls and investment restrictions that are
subject to political change and balance of payments position. Further, there may
be greater difficulties or restrictions with respect to investments made in
emerging markets countries.
Emerging markets typically have substantially less volume than U.S. markets. In
addition, securities in many of such markets are less liquid, and their prices
often are more volatile, than securities of comparable U.S. companies. Such
markets often have different clearance and settlement procedures for securities
transactions, and in some markets there have been times when settlements have
been unable to keep pace with the volume of transactions, making it difficult to
conduct transactions. Delays in settlement could result in temporary periods
when assets may be uninvested. Settlement problems in emerging markets countries
also could cause the Fund to miss attractive investment opportunities.
Satisfactory custodial services may not be available in some emerging markets
countries, which may result in the Fund incurring additional costs and delays in
the transportation and custody of such securities.
Although the Fund will invest in securities denominated in foreign currencies,
the Fund values its securities and other assets in U.S. dollars. As a result,
the net asset value of the Fund's shares will fluctuate with U.S. dollar
exchange rates, as well as with price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the U.S.
dollar compared to the currencies in which the Fund makes its investments could
reduce the effect of increases and magnify the effect of decreases in the prices
of the Fund's securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar will have the opposite effect of magnifying the effect
of increases and reducing the effect of decreases in the prices of the Fund's
securities in their local markets. In addition to favorable and unfavorable
currency exchange-rate developments, the Fund is subject to the possible
imposition of exchange control regulations or freezes on convertibility of
currency.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Fund offers a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
In addition, the Fund may from time to time invest more than 20% of the total
value of its assets in securities of issuers located in particular countries
and/or associated with particular industries. During such periods, the Fund may
be more susceptible to risks associated with a single economic, political or
regulatory occurrence than more diversified funds.
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation and not for short-term trading profits. While it is not
possible to predict exactly annual portfolio turnover rates, it is expected that
under normal market conditions, the annual portfolio turnover rate for the Fund
will not exceed 100%. If the Fund's portfolio turnover rate exceeds 100%, it may
result in higher costs to the Fund, including brokerage commissions or dealer
mark-ups and other transaction costs on the sale of securities and the
reinvestment in other securities. Portfolio turnover also can generate
short-term capital gains tax consequences.
INVESTMENT LIMITATIONS: The 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
Fund's SAI.
The Fund may not:
1. Invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry (with certain
exceptions).
2. Purchase securities of any one issuer (with certain exceptions, including
U.S. Government securities) if more than 5% of the Fund's total assets will be
invested in the securities of any one issuer, except that up to 25% of the value
of the Fund's total assets may be invested without
8
<PAGE>
regard to the 5% limitation. The Fund may not purchase more than 10% of the
outstanding voting securities of any issuer subject, however, to the foregoing
25% exception.
3. Borrow money except for temporary purposes in amounts up to one-third of the
value of its total assets at the time of such borrowing. Whenever borrowings
exceed 5% of the Fund's total assets, the Fund will not make any investments.
If a percentage limitation has been met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
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 current position and needs.
- --------------------------------------------------------------------------------
How Performance Is Shown
From time to time the Fund may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Fund 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 relating to: the composite of
international equity accounts of clients Brandes and (the "Brandes the Brandes
Institutional International Equity Fund, an open-end management investment
company, (the "Brandes Composite") all with investment objectives and policies
that are substantially similar to those of the Fund, using substantially
similar, though not identical, investment strategies, policies and techniques as
those used in managing the Fund; and the Morgan Stanley Capital International
European, Australasian and Far Eastern Index (the "MSCI EAFE Index"). The data
below regarding the Brandes Composite, and the MSCI EAFE Index do not represent
the performance of the Fund and an investor should not consider this performance
data as an indication of future performance of the Fund or of Brandes. The
accounts that are included in the Brandes Composite are not subject to the same
types of expenses to which the Fund is subject nor to the diversification
requirements, specific tax restrictions and investment limitations imposed on
the Fund by the 1940 Act or Subchapter M of the Internal Revenue Code (the
"Code"). Consequently, the performance results for the Brandes Composite could
have been adversely affected if the accounts included in the Brandes Composite
had been regulated as investment companies. In addition, the results presented
below for the Brandes Composite may not necessarily equate with the return
experienced by any particular account of Brandes.
9
<PAGE>
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS INDICATED THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
---------- ----------
<S> <C> <C> <C> <C>
Since
One Year Three Year Five Year Inception
- ------------------------------------------------------------------
Brandes
Composite* 32.81% 23.15% 18.85% 18.56%
- ------------------------------------------------------------------
MSCI EAFE
Index** 18.61% 10.57% 11.93% 6.98%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
--------- ----------
<S> <C> <C>
MSCI
Brandes EAFE
Year Composite* Index**
- -------------------------------------------------
1997 20.00% 1.78%
- -------------------------------------------------
1996 16.34% 6.05%
- -------------------------------------------------
1995 13.75% 11.21%
- -------------------------------------------------
1994 -2.98% 7.78%
- -------------------------------------------------
1993 40.86% 32.56%
- -------------------------------------------------
1992 6.28% -12.17%
- -------------------------------------------------
1991 40.17% 12.13%
- -------------------------------------------------
</TABLE>
* The returns above were calculated on a time-weighted asset-weighted total
return basis, including investment of all dividends, interest and income,
realized and unrealized gains or losses and are net of applicable investment
advisory fees, brokerage commission and execution costs, custodial fees and
any applicable foreign withholding taxes, without provision of any federal
or state income taxes, if any. The Brandes Composite results include all
actual, fee-paying and non fee-paying, fully discretionary accounts under
management by Brandes for at least one month beginning 7/1/90, having
substantially the same investment objectives policies, techniques and
restrictions, other than client accounts denominated in currencies other
than U.S. dollars.
** The MSCI EAFE Index is an unmanaged index consisting of securities listed on
exchanges in European, Australasian and Far Eastern markets and includes
dividends and distributions, but does not reflect fees, brokerage
commissions or other expenses of investing.
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 the Fund's investment objective and policies. These factors
should be considered when comparing the 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 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 B Shares, the Funds offer Primary A Shares, Investor A
Shares 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 Fund's shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges are reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in the Fund will not be included in calculations of
total return or yield. 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.
10
<PAGE>
- --------------------------------------------------------------------------------
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 each 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 pursuant to an Investment Advisory Agreement with Nations Fund, Inc.
(the "Investment Advisory Agreement"). 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.
Brandes Investment Partners, L.P., with principal offices at 12570 High Bluff
Drive, San Diego, California 92130, serves as investment sub-adviser to the Fund
pursuant to a Sub-Advisory agreement.
Subject to the general supervision of Nations Fund, Inc.'s Board of Directors,
NBAI and in accordance with the Fund's investment policies, Brandes 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. Brandes
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 NBAI, or which have sold shares
in the Fund, if Brandes 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, the 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 1.00% of the Fund's average daily net
assets.
For services provided pursuant to a Sub-Advisory agreement, NBAI will pay
Brandes sub-advisory fees, computed daily and paid monthly, at the annual rate
of: .50% of the Fund's average daily net assets.
From time to time, NBAI (and/or Brandes) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
The Fund is team-managed by the Brandes' Investment Committee.
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 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 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
pro-
11
<PAGE>
posed 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 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 a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Fund including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Fund, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
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.
NBAI serves as sub-administrator for Nations Funds pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NBAI assists Stephens in supervising, coordinating and monitoring
various aspects of the Fund's administrative operations. For providing such
services, NBAI 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 Fund,
Inc. has entered into distribution agreements with Stephens which provide that
Stephens has the exclusive right to distribute shares of the Fund. 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 Fund. 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 Fund.
First Data serves as transfer agent (the "Transfer Agent") for the Fund's
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 Fund, as well as certain expenses
attributable to Investor B 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; 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. 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. 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.
12
<PAGE>
- --------------------------------------------------------------------------------
Organization And History
The Fund is a member of the Nations Funds Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations Institutional
Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc. The Nations
Funds Family currently has more than 60 distinct investment portfolios and total
assets in excess of $30 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 460,000,000,000 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 the Fund. 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 class have equal rights with respect to voting, except that the
holders of shares of a particular class will have the exclusive right to vote on
matters affecting only the rights of the holders of such 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 class or allocated among the funds or classes based on the respective
liquidation value of each 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 May 22, 1998, 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 Investment Company Act of 1940, as amended ("the 1940
Act") or Maryland law.
About Your Investment
- --------------------------------------------------------------------------------
How To Buy Shares
The Fund has 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").
13
<PAGE>
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 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.
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 Fund, 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 Fund
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 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
14
<PAGE>
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.
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 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
15
<PAGE>
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 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 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 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:
SHARES PURCHASED 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 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>
16
<PAGE>
SHARES PURCHASED 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 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 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) 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, and (vi) 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. 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 Fund 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 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.
17
<PAGE>
REINSTATEMENT PRIVILEGE: Within 120 days after a redemption of Investor B Shares
of the Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor B Shares of the 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 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 Fund if the value of the
Investor B Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. 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 redemption is based upon the total
holding period of Investor B Shares of a fund that charges a CDSC.
18
<PAGE>
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 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 Fund's shareholder servicing plan ("Servicing
Plan") permits the Fund 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 Fund, provided that the annual rate may not exceed .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 Fund 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 SAI for more
details on the Servicing Plan.
19
<PAGE>
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 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 the
Fund's 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 .75% of the average
daily net asset value of the Fund's 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 SAI 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 Fund Values Its 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.
20
<PAGE>
- --------------------------------------------------------------------------------
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid annually by the Fund. The 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 Fund 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: The Fund intends to qualify as a "regulated investment company"
under the Code. Such qualification relieves the Fund of liability for Federal
income taxes on amounts distributed in accordance with the Code.
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 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 Fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
the 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 Fund's net realized long-term capital gains will be
distributed at least annually. The Fund 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 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.
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
21
<PAGE>
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 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 the 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.
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 Fund and its
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
a Fund may invest. The "How The Objective Is Pursued" section of this Prospectus
identifies the Fund's permissible investments, and the SAI contains 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.
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 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
its 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, the Fund may
borrow primarily for temporary or emergency purposes,
22
<PAGE>
including the meeting of redemption requests that otherwise might require the
untimely disposition of securities. 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.
COMMERCIAL INSTRUMENTS: Commercial in struments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objectives. In addition, the 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 The Objective Is Pursued," the 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
the 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 the Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. The 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 The Objective
Is Pursued," the Fund may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. dollar. The 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 the 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 the 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 the
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
The 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 executive 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.
23
<PAGE>
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject the 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 the Fund may be subject to greater
fluctuation in price than securities of domestic companies.
The Fund may invest up to 100% of its total assets in sponsored or unsponsored
ADRs, EDRs and GDRs. ADRs are receipts issued in registered form by a U.S. bank
or trust company evidencing ownership of underlying securities issued by a
foreign issuer. EDRs and GDRs are receipts issued by non-U.S. banks or trust
companies and foreign branches of U.S. banks that evidence ownership of the
underlying foreign or U.S. securities. Unsponsored ADRs, EDRs and GDRs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored
ADRs, EDRs and GDRs may be more volatile than if such instruments were sponsored
by the issuer. ADRs may be listed on a national securities exchange or may be
traded in the over-the-counter market. EDRs and GDRs are generally designed for
use in foreign exchanges and over-the-counter markets. ADRs, EDRs and GDRs
traded in the over-the-counter market which do not have an active or substantial
secondary market will be considered illiquid and therefore will be subject to a
Fund's limitation with respect to such securities. ADR prices are denominated in
U.S. dollars although the underlying securities are denominated in a foreign
currency. Investments in ADRs, EDRs and GDRs involve risks similar to those
accompanying direct investments in foreign securities.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How The Objective Is Pursued," the Fund may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect the 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.
24
<PAGE>
The use of futures, options, forward contracts and swaps exposes the 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, the 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. The 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 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 guaranteed investment contracts
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 objectives 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 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 the Fund holding
such securities may increase during such period.
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: 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. The
Fund may also purchase shares of investment companies investing primarily in
foreign securities, including so-called "country funds". Country funds have
portfolios consisting exclusively of securities of issuers located in one
foreign country.
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
idle 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
25
<PAGE>
stated above. The Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Fund 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 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.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The 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 the 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
the 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 the 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 the
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 banks and
26
<PAGE>
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 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
27
<PAGE>
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
28
<PAGE>
more vulnerable to adverse changes in economic conditions and circumstances
than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
29
<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.
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
busi-
30
<PAGE>
ness, 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.
31
<PAGE>
Prospectus
INVESTOR C SHARES
AUGUST 1, 1998
This Prospectus describes NATIONS INTERNATIONAL
VALUE 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 -- Investor C Shares.
This Prospectus sets forth concisely the
information about the 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. 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 for Nations
Fund, Inc., dated August 1, 1998, 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 Funds. Brandes Investment
Partners, L.P. ("Brandes") is investment sub-
adviser to the Fund. As used herein the term
"Adviser" shall mean NBAI and/or Brandes 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 International Value
Fund
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NF-98292-5/98
<PAGE>
Table Of Contents
Prospectus Summary 3
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Expenses Summary 4
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Objective 5
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How The Objective Is Pursued 5
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How Performance Is Shown 9
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How The Fund Is Managed 10
---------------------------------------------------
Organization And History 12
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About The Fund
How To Buy Shares 13
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How To Redeem Shares 15
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How To Exchange Shares 16
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Shareholder Servicing And Distribution Plan 17
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How The Fund Values Its Shares 18
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How Dividends And Distributions Are Made;
Tax Information 18
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Appendix A -- Portfolio Securities 20
---------------------------------------------------
About Your Investment
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE 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 International Equity Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of foreign issuers, including emerging markets
countries.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves
as the investment adviser to the Fund. NBAI provides
investment advice to more than 60 investment company
portfolios in the Nations Funds Family. Brandes
provides sub-advisory services to the Fund. See "How
The Fund Is Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Fund declares and pays
dividends from net investment income annually. 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. Investments in the Fund are not
insured against loss of principal. Investments by the 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 Fund is 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
The Objective Is Pursued -- Special Risk Considerations
Relevant to an Investment in the 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."
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
Investor C Shares of the Fund. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
<TABLE>
<CAPTION>
INVESTOR C SHARES
---------------
<S> <C>
Nations
International
Value Fund
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases None
- ----------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a percentage of the lower of the original purchase price or
redemption proceeds) None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waiver) .90%
- ----------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Fees .75%
- ----------------------------------------------------------------------------------------------------------------------
Shareholder Servicing Fees .25%
- ----------------------------------------------------------------------------------------------------------------------
Other Expenses .41%
- ----------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee Waiver) 2.31%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C 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
International
Value Fund
1 Year $ 23
- ------------------------------------------------------------------------------------------------------------------------
3 Years $ 72
</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
Investor C Shares of the Fund will bear either directly or indirectly. The
"Other Expenses" figure contained in the above table is based on estimates.
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 Fund's operating expenses, see "How The Fund Is Managed."
Absent fee waivers and/or reimbursements, "Management Fees" and "Total Operating
Expenses" for Investor C Shares of the Fund would have been 1.00% and 2.41%,
respectively.
4
<PAGE>
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
- --------------------------------------------------------------------------------
Objective
NATIONS INTERNATIONAL VALUE FUND: Nations International Value Fund's investment
objective is to seek long-term capital appreciation by investing primarily in
equity securities of foreign issuers, including emerging markets countries.
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. The net asset value of the shares of the Fund will fluctuate based on
market conditions. Therefore, investors should not rely upon the Fund for
short-term financial needs, nor is the Fund meant to provide a vehicle for
participating in short-term swings in the stock market. Investments in the Fund
are not insured against loss of principal.
- --------------------------------------------------------------------------------
How The Objective Is Pursued
NATIONS INTERNATIONAL VALUE FUND: The Fund will pursue its investment objective
under normal market conditions, by investing its assets in the securities of
issuers located in at least three different foreign countries. Although the Fund
may earn income from dividends, interest and other sources, income will be
incidental to the Fund's investment objective. The Fund emphasizes investments
in established companies, although it may invest in companies of various sizes
as measured by assets, sales and capitalization.
The Fund intends to invest at least 65% of its total assets in equity securities
of non-U.S. issuers whose market capitalizations exceed $1 billion at the time
of purchase. These securities may include common stocks, preferred stocks,
securities convertible into common stocks, shares of closed-end investment
companies, American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs"), and/or Global Depository Receipts ("GDRs"). Although the Fund intends
to invest primarily in equity securities listed on stock exchanges, the Fund may
also invest in equity securities traded in over the counter markets and in
private placements. The Fund is not subject to any specific geographic
diversification requirements. Countries in which the Fund may invest include,
but are not limited to, the nations of Western Europe, North and South America,
Australia, Africa, and Asia.
The Adviser's approach in selecting investments for the Fund is oriented to
individual stock selection and is value driven as described below. Typically, no
more than 5% of total Fund assets will be invested in any one security at the
time of purchase. With respect to Fund investments in any particular country or
industry, the Fund may typically invest up to the greater of either (a) 20% of
total Fund assets in any particular country or industry at the time of purchase
or (b) 150% of the weighting of such country or industry as represented in the
Morgan Stanley Capital International ("MSCI") EAFE Index at the time of
purchase, but in no event may the Fund invest more than 25% of its total assets,
calculated at the time of purchase and taken at market value, in any one
industry (other than U.S. Government securities). Generally, no more than 20% of
the value of the Fund's total assets, measured at the time of purchase, may be
invested in securities of companies located in emerging or developing countries.
As used in this Prospectus, the term "emerging" or "developing" country applies
to any country which is
5
<PAGE>
generally considered to be an emerging or developing country by the
international financial community, which includes the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and the
International Finance Corporation. There are currently over 130 countries which
are generally considered to be emerging or developing countries by the
international financial community, approximately 40 of which currently have
stock markets. These countries generally include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe. Currently, investing in many emerging countries is
not feasible or may involve unacceptable political risks. Emerging markets
securities pose greater liquidity and other risks than securities of companies
located in developed countries and traded in more established markets.
The Adviser to the Fund is committed to the use of the Graham and Dodd-style
value investing approach as introduced in the classic book SECURITY ANALYSIS.
Using this philosophy, the Adviser views stocks as small pieces of businesses
which are for sale. It seeks to purchase a diversified group of these businesses
at prices its research indicates are below their true long-term, or intrinsic,
value. By purchasing stocks whose current prices are believed to be below their
intrinsic values, the Adviser seeks to secure not only a possible margin of
safety against price declines, but also an attractive opportunity for profit
over the business cycle.
In analyzing a company's long-term value, the Adviser uses sources of
information such as company reports, filings with the SEC, computer databases,
industry publications, general and business publications, brokerage firm
research reports, and interviews with company management. Its focus is on
fundamental characteristics of a company, including, but not limited to, book
value, cash flow and capital structure, as well as management's record and broad
industry issues. Once the intrinsic value of a company is estimated, this value
is compared to the current price of the stock. If the price is appreciably lower
than the indicated intrinsic value, the stock may be purchased.
During temporary defensive periods in response to unusual and adverse conditions
affecting the equity markets, the Fund's assets may be invested without
limitation in short-term debt instruments and in securities of United States
issuers. In addition, when the Fund experiences large cash inflows from the
issuance of new shares or the sale of portfolio securities, and desirable equity
securities that are consistent with the Fund's investment objective are
unavailable in sufficient quantities, the Fund may hold more than 35% of its
assets in short-term debt instruments for a limited time pending availability of
suitable equity securities. During normal market conditions, no more than 35% of
the Fund's total assets will be invested in short-term debt instruments.
Subject to applicable securities regulations, the Fund may, for the purpose of
hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indices listed on foreign and domestic stock exchanges. See "Appendix A"
for additional information concerning the investment practices of the Fund.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE FUND: Investors
should understand and consider carefully the special risks involved in foreign
investing. In addition, the Fund presents unique risks of which investors should
be aware. Investments by the 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.
6
<PAGE>
The value of the 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.
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.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in developing countries and fledgling
democracies, and emerging market countries. Political and economic structures in
many emerging markets countries may be undergoing significant evolution and
rapid development, and may lack the social, political and economic stability
characteristic of more developed countries.
Investing in emerging markets securities involves risks which are in addition to
the usual risks inherent in foreign investments. Some emerging markets countries
may have fixed or managed currencies that are not free-floating against the U.S.
dollar. Further, certain currencies may not be traded internationally. Certain
of these currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluation in the currencies in which the Fund's securities are
denominated may have a detrimental impact on the Fund.
Some countries with emerging securities markets have experienced substantial,
and in some periods extremely high, rates of inflation for many years. Inflation
and rapid fluctuation in inflation rates have had and may continue to have
negative effects on the economies and securities markets of certain countries.
Moreover, the economies of some countries may differ favorably or unfavorably
from the U.S. economy in such respects as rate of growth of gross domestic
product, the rate of inflation, capital reinvestment, resource self-sufficiency,
number and depth of industries forming the economy's base, governmental controls
and investment restrictions that are subject to political change and balance of
payments position. Further, there may be greater difficulties or restrictions
with respect to investments made in emerging markets countries.
Emerging markets typically have substantially less volume than U.S. markets. In
addition, securities in many of such markets are less liquid, and their prices
often are more volatile, than securities of comparable U.S. companies. Such
markets often have different clearance and settlement procedures for securities
transactions, and in some markets there have been times when settlements have
been unable to keep pace with the volume of transactions, making it difficult to
conduct transactions. Delays in settlement could result in temporary periods
when assets may be uninvested. Settlement problems in emerging markets countries
also could cause the Fund to miss attractive investment opportunities.
Satisfactory custodial services may not be available in some emerging markets
countries, which may result in the Fund incurring additional costs and delays in
the transportation and custody of such securities.
Although the Fund will invest in securities denominated in foreign currencies,
the Fund values its securities and other assets in U.S. dollars.
7
<PAGE>
As a result, the net asset value of the Fund's shares will fluctuate with U.S.
dollar exchange rates, as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange-rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Fund offers a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
In addition, the Fund may from time to time invest more than 20% of the total
value of its assets in securities of issuers located in particular countries
and/or associated with particular industries. During such periods, the Fund may
be more susceptible to risks associated with a single economic, political or
regulatory occurrence than more diversified funds.
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation, and not for short-term trading profits. While it is not
possible to predict exactly annual portfolio turnover rates, it is expected that
under normal market conditions, the annual portfolio turnover rate for the Fund
will not exceed 100%. If the Fund's portfolio turnover rate exceeds 100%, it may
result in higher costs to the Fund, including brokerage commissions or dealer
mark-ups and other transaction costs on the sale of securities and the
reinvestment in other securities. Portfolio turnover also can generate
short-term capital gains tax consequences.
INVESTMENT LIMITATIONS: The 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
Fund's respective SAI.
The Fund may not:
1. Invest 25% or more of its total assets in one or more issuers conducting
their principal business activities in the same industry (with certain
exceptions).
2. Purchase securities of any one issuer (with certain exceptions, including
U.S. Government securities) if more than 5% of the Fund's total assets will be
invested in the securities of any one issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to the 5% limitation.
The Fund may not purchase more than 10% of the outstanding voting securities of
any issuer subject, however, to the foregoing 25% exception.
3. Borrow money except for temporary purposes in amounts up to one-third of the
value of its total assets at the time of such borrowing. Whenever borrowings
exceed 5% of the Fund's total assets, the Fund will not make any investments.
If a percentage limitation has been met at the time an investment is made, a
subsequent change in that percentage that is the result of a change in value of
a Fund's portfolio securities does not mean that the limitation has been
violated.
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 current positions and needs.
8
<PAGE>
- --------------------------------------------------------------------------------
How Performance Is Shown
From time to time the Fund may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the 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 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 relating to: the composite of
international equity accounts of clients of Brandes and the Brandes
Institutional International Equity Fund, an open-end management investment
company, (the "Brandes Composite"), all with investment objectives and policies
that are substantially similar to those of the Fund, using substantially
similar, though not identical, investment strategies, policies and techniques as
those used in managing the Fund; and the Morgan Stanley Capital International
European, Australasian and Far Eastern Index (the "MSCI EAFE Index"). The data
below regarding the Brandes Composite, and the MSCI EAFE Index do not represent
the performance of the Fund and an investor should not consider this performance
data as an indication of future performance of the Fund or of Brandes. The
accounts that are included in the Brandes Composite are not subject to the same
types of expenses to which the Fund is subject nor to the diversification
requirements, specific tax restrictions and investment limitations imposed on
the Fund by the 1940 Act or Subchapter M of the Internal Revenue Code (the
"Code"). Consequently, the performance results for the Brandes Composite could
have been adversely affected if the accounts included in the Brandes Composite
had been regulated as investment companies. In addition, the results presented
below for the Brandes Composite may not necessarily equate with the return
experienced by any particular account of Brandes.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS INDICATED THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
---------- ----------
<S> <C> <C> <C> <C>
Since
One Year Three Year Five Year Inception
- ------------------------------------------------------------------
Brandes
Composite* 32.81% 23.15% 18.85% 18.56%
- ------------------------------------------------------------------
MSCI EAFE
Index** 18.61% 10.57% 11.93% 6.98%
</TABLE>
ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
---------- ----------
<S> <C> <C>
MSCI
Brandes EAFE
Year Composite* Index**
- -------------------------------------------------
1997 20.00% 1.78%
- -------------------------------------------------
1996 16.34% 6.05%
- -------------------------------------------------
1995 13.75% 11.21%
- -------------------------------------------------
1994 -2.98% 7.78%
- -------------------------------------------------
1993 40.86% 32.56%
- -------------------------------------------------
1992 6.28% -12.17%
- -------------------------------------------------
1991 40.17% 12.13%
- -------------------------------------------------
</TABLE>
9
<PAGE>
* The returns above were calculated on a time-weighted asset-weighted total
return basis, including investment of all dividends, interest and income,
realized and unrealized gains or losses and are net of applicable investment
advisory fees, brokerage commission and execution costs, custodial fees and
any applicable foreign withholding taxes, without provision of any federal
or state income taxes, if any. The Brandes Composite results include all
actual, fee-paying and non fee-paying, fully discretionary accounts under
management by Brandes for at least one month beginning 7/1/90, having
substantially the same investment objectives policies, techniques and
restrictions, other than client accounts denominated in currencies other
than U.S. dollars.
** The MSCI EAFE Index is an unmanaged index consisting of securities listed on
exchanges in European, Australasian and Far Eastern markets and includes
dividends and distributions, but does not reflect fees, brokerage
commissions or other expenses of investing.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolios and the Fund's
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 the 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 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 Fund offers Primary A Shares, Investor A
Shares, and Investor B 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 Fund's shares. Any fees charged by a selling agent and/or servicing agent
directly to its customers' accounts in connection with investments in the Fund
will not be included in calculations of total return or yield. 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 each 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 pursuant to an Investment Advisory Agreement with Nations Fund, Inc.
("Investment Advisory Agreement"). NBAI is a wholly owned subsidiary of
NationsBank, which in turn is a wholly owned
10
<PAGE>
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.
Brandes Investment Partners, L.P., with principal offices at 12750 High Bluff
Drive, San Diego, California 92130, serves as investment sub-adviser to the Fund
pursuant to a Sub-Advisory Agreement.
Subject to the general supervision of Nations Fund, Inc.'s Board of Directors,
NBAI, and in accordance with the Fund's investment policies, Brandes 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. Brandes
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 NBAI or which have sold shares
in the Fund, if Brandes 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, the 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 1.00% of the Fund's average daily net
assets.
For services provided and expenses assumed pursuant to a Sub-Advisory Agreement,
Brandes is entitled to receive from NBAI sub-advisory fees, computed daily and
paid monthly, at the annual rate of .50% of the Fund's average daily net assets.
From time to time, NBAI (and/or Brandes) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Fund.
The Fund is team-managed by the Brandes' Investment Committee.
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 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 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 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 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 Agreement. Under the Co-Administration Agreement, First
11
<PAGE>
Data provides various administrative and accounting services to the Fund
including performing the calculations necessary to determine the net asset value
per share and dividends of each class of the Fund, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Fund. For the services rendered pursuant to
the Administration and Co-Administration Agreement, 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.
NBAI serves as sub-administrator for Nations Funds pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NBAI assists Stephens in supervising, coordinating and monitoring
various aspects of the Fund's administrative operations. For providing such
services, NBAI 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 Fund,
Inc. has entered into distribution agreements with Stephens which 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 Investor Shares of the Fund. 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 Fund.
First Data serves as transfer agent (the "Transfer Agent") for the 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 the Fund, as well as certain expenses
attributable to Investor C 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; taxes; interest; fees
including fees paid to Nations Funds' directors and officers; 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. 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 a member of the Nations Funds Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations Institutional
Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc. The Nations
Funds Family currently has more than 60 distinct investment portfolios and total
assets in excess of $30 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
12
<PAGE>
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 460,000,000,000 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 the
Fund. 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 class have equal rights with respect to voting, except that the
holders of shares of a particular class will have the exclusive right to vote on
matters affecting only the rights of the holders of such 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 class or allocated among the classes based on the respective
liquidation value of each 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 May 22, 1998, 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 Investment Company Act of 1940, as
amended (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.
About Your Investment
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How To Buy Shares
The Fund has established various procedures for purchasing Investor C Shares in
order to accommodate different investors. Purchase orders for Investor C Shares
may be placed through banks, broker/dealers or other financial institutions
(including certain affiliates of NationsBank) that have entered into a
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-
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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." 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 Fund
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 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. 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.
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 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.
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 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 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 Fund 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. 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 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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<PAGE>
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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 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 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 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.
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Shareholder Servicing And Distribution
Plan
Pursuant to Rule 12b-1 under the 1940 Act, the Directors have approved a
Distribution Plan with respect to Investor C 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 the Fund's
Investor C Shares. Payments under the Investor C Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Directors provided that the annual rate may not exceed .75% of the average
daily net asset value of the Fund's Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as the preparation, printing and distribution of
prospectuses to other than current shareholders, and (iii) to compensate Selling
Agents for providing sales support services with respect to their Customers who
are, from time to time, beneficial and record holders of Investor C Shares.
Currently, substantially all fees paid pursuant to the Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution Plan will not be used to
pay any interest expenses, carrying charges or other financing costs (except to
the extent permitted by the SEC) and will not be used to pay any general and
administrative expenses of Stephens.
Nations 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 SAI for more details on the
Distribution Plan.
The Directors also have approved a shareholder servicing plan ("Servicing Plan")
for the Fund which permits the Fund 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 Fund, provided that the annual rate may not exceed .25% of
the average daily net asset value of the Fund's 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 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 Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
Nations 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
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<PAGE>
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 Fund 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. 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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How The Fund Values Its Shares
The Fund calculates 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.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid annually by the Fund. The Fund's net realized capital gains (including
net short-term capital gains) are distributed at least annually. Investor C
Shares of the 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 Fund 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
addi-
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tional Investor C Shares of the same class in the 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: 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 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 Fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gains dividends) paid by
the 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 Fund's net realized long-term capital gains will be
distributed at least annually. The Fund 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 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.
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.
Portions of the 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 the 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.
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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 its
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.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How The 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 that they do not exceed 25% of the Fund's total assets at
the time of purchase.
The 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), 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 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
its 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, 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. 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.
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 the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objective. In addition, the 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
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<PAGE>
"How The Objective is Pursued," the 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
the 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 the Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. The 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 The Objective
Is Pursued," the Fund may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. dollar. The 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 the 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 the 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 the
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
The 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 the 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.
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Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by the Fund may be subject to greater
fluctuation in price than securities of domestic companies.
The Fund may invest up to 100% of its total assets in sponsored or unsponsored
ADRs, EDRs and GDRs. ADRs are receipts issued in registered form by a U.S. bank
or trust company evidencing ownership of underlying securities issued by a
foreign issuer. EDRs and GDRs are receipts issued by non-U.S. banks or trust
companies and foreign branches of U.S. banks that evidence ownership of the
underlying foreign or U.S. securities. Unsponsored ADRs, EDRs and GDRs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored
ADRs, EDRs and GDRs may be more volatile than if such instruments were sponsored
by the issuer. ADRs may be listed on a national securities exchange or may be
traded in the over-the-counter market. EDRs and GDRs are generally designed for
use in foreign exchanges and over-the-counter markets. ADRs, EDRs and GDRs
traded in the over-the-counter market which do not have an active or substantial
secondary market will be considered illiquid and therefore will be subject to a
Fund's limitation with respect to such securities. ADR prices are denominated in
U.S. dollars although the underlying securities are denominated in a foreign
currency. Investments in ADRs, EDRs and GDRs involve risks similar to those
accompanying direct investments in foreign securities.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How The Objective Is Pursued" the Fund may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect the 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 the 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, the 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. The 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
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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 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 guaranteed investment contracts
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 objectives 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, 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 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 the Fund holding
such securities may increase during such period.
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: 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. The
Fund may also purchase shares of investment companies investing primarily in
foreign securities, including so-called "country funds." Country funds have
portfolios consisting exclusively of securities of issuers located in one
foreign country.
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
idle 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.
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,
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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.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The 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 the 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
the 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 the 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 the
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 banks and corporations
may carry variable or floating rates 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
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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.
25
NATIONS FUND, INC.
Statement of Additional Information
Nations International Value Fund
Investor Shares and Primary Shares
August 1, 1998
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the classes of shares representing interests in the
above listed portfolio of Nations Fund, Inc. (the "Fund"). This SAI is not a
prospectus, and should be read only in conjunction with the current prospectuses
for the Fund related to the class or series of shares in which one is
interested, dated August 1, 1998 (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>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
Page
INTRODUCTION ................................................................................ 1
FUND TRANSACTIONS AND BROKERAGE.............................................................. 1
General Brokerage Policy............................................................. 1
Section 28(e) Standards.............................................................. 3
ADDITIONAL INFORMATION ON FUND INVESTMENTS .................................................. 4
General.............................................................................. 4
Additional Investment Limitations ................................................... 4
Commercial Instruments............................................................... 6
Delayed Delivery Transactions ....................................................... 6
Equity Swap Contracts ............................................................... 7
Foreign Currency Transactions ....................................................... 7
Futures, Options and Other Derivative
Instruments ................................................................... 8
Guaranteed Investment Contracts...................................................... 14
Illiquid Securities.................................................................. 15
Interest Rate Transactions .......................................................... 15
Lower Rated Debt Securities.......................................................... 16
Options on Currencies................................................................ 17
Real Estate Investment Trusts........................................................ 17
Repurchase Agreements ............................................................... 17
Reverse Repurchase Agreements ....................................................... 17
Risk Factors Associated with Futures and Options Transactions ....................... 18
Securities Lending................................................................... 20
Short Sales.......................................................................... 20
Special Situations................................................................... 20
Stand-by Commitments ................................................................ 21
Variable- and Floating Rate Instruments ............................................. 21
When-Issued Purchases and Forward Commitments ...................................... 22
NET ASSET VALUE.............................................................................. 22
Purchases and Redemptions............................................................ 22
Investment Strategy.................................................................. 23
Net Asset Value Determination........................................................ 23
Exchanges............................................................................ 24
DESCRIPTION OF SHARES........................................................................ 24
Dividends and Distributions.......................................................... 24
ADDITIONAL INFORMATION CONCERNING TAXES...................................................... 24
General.............................................................................. 24
Excise Tax .......................................................................... 25
Private Letter Ruling................................................................ 25
Taxation of Fund Investments......................................................... 25
Foreign Taxes ....................................................................... 27
Capital Gain Distributions........................................................... 27
Other Distributions.................................................................. 27
Disposition of Fund Shares........................................................... 27
Federal Income Tax Rates............................................................. 28
Corporate Shareholders............................................................... 28
Foreign Shareholders................................................................. 28
Backup Withholding................................................................... 29
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Tax-Deferred Plans................................................................... 29
Other Matters........................................................................ 29
DIRECTORS AND OFFICERS....................................................................... 29
Nations Funds Retirement Plan........................................................ 33
Nations Funds Deferred Compensation Plan ............................................ 33
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
Administrator and Co-Administrator................................................... 38
Distribution Plans and Shareholder Servicing
Arrangements for Investor Shares................................................. 39
Expenses............................................................................. 42
Transfer Agents and Custodians....................................................... 43
DISTRIBUTOR ................................................................................. 44
INDEPENDENT ACCOUNTANT AND REPORTS........................................................... 44
COUNSEL...................................................................................... 44
ADDITIONAL INFORMATION ON PERFORMANCE........................................................ 44
Yield Calculations................................................................... 45
Total Return Calculations............................................................ 46
MISCELLANEOUS ............................................................................... 48
Certain Record Holders............................................................... 48
SCHEDULE A - Description of Ratings.......................................................... A-1
SCHEDULE B - Additional Information Concerning Options &
Futures...................................................................................... B-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. Nations
Fund, Inc. currently consists of nine different investment portfolios. This SAI
pertains to the Primary A, Investor A, Investor B and Investor C Shares of
Nations International Value Fund. The Primary A Shares are referred to herein as
"Primary A Shares" and the Investor A, Investor B, and Investor C Shares are
collectively referred to as "Investor Shares." Prospectuses relating to this
Fund 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
Fund. The Fund is sub-advised by Brandes Investment Partners, L.P. ("Brandes")
As used herein, "Adviser" shall mean NBAI and/or Brandes as the context may
require.
This SAI is intended to furnish prospective investors with additional
information concerning the Company and the Fund. Some of the information
required to be in this SAI is also included in the Fund's 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. No investment in Primary A Shares or Investor Shares
should be made without first reading the related Prospectuses.
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
the Fund, for the selection of broker/dealers, for the execution of the Fund's
securities transactions, and for the allocation of brokerage fees in connection
with such transactions. The 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, the Fund does not necessarily pay the lowest commission or
spread available. 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 the 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 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
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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, the 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 the 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 the 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 the 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. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment of brokerage commissions which are generally
fixed. Transactions in both foreign and domestic over-the-counter markets are
generally principal transactions with dealers, and the costs of such
transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, the Adviser, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances in which better prices and execution are available
elsewhere.
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 the 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 the Fund is concerned. The Company believes that over time its ability to
participate in volume transactions will produce superior executions for the
Fund.
The portfolio turnover rate for the 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 Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making portfolio
decisions.
The Fund may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Fund will engage in this practice, however, only when the Adviser, in its
sole discretion, believes such practice to be otherwise in the Fund's interests.
The Company will not execute portfolio transactions through, or
purchase or sell portfolio securities from or to the distributor, the Adviser,
the administrator, or the co-administrator, or their affiliates acting as
principal (including repurchase and reverse repurchase agreements), except to
the extent permitted by the SEC. In addition,
2
<PAGE>
the Company will not give preference to correspondents of NationsBank N.A.
("NationsBank") or its affiliates with respect to such transactions or
securities. (However, 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 NationsBank or its affiliates, and to take into account the sale of Fund
shares 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.) In addition, the Fund will not purchase securities during the existence
of any underwriting or selling group relating thereto of which the distributor,
the Adviser, administrator, or the co-administrator, or any of their affiliates,
is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Funds may be at a disadvantage because of these limitations
in comparison with other investment companies which have similar investment
objectives but are not subject to such limitations.
NationsBank or certain of its affiliates may serve as trustee, tender
agent, guarantor, placement agent, underwriter, or in some other capacity, with
respect to certain issues of municipal securities.
Under the Investment Company Act of 1940, as amended (the "1940 Act"),
persons affiliated with a Company are prohibited from dealing with such Company
as a principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the SEC. The Fund may purchase
securities from underwriting syndicates of which NationsBank or any of its
affiliates is a member under certain conditions, in accordance with the
provisions of a rule adopted under the 1940 Act and any restrictions imposed by
the Board of Governors of the Federal Reserve System.
Investment decisions for the Fund are made independently from those for
the Company's other investment portfolios, other investment companies, and
accounts advised or managed by the Adviser. Such other investment portfolios,
investment companies, and accounts may also invest in the same securities as the
Fund. When a purchase or sale of the same security is made at substantially the
same time on behalf of one or more of the Fund and another investment portfolio,
investment company, or account, the transaction will be averaged as to price and
available investments allocated as to amount, in a manner which the Adviser
believes to be equitable to the Fund and such other investment portfolio,
investment company or account. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained or sold by the Fund. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for the Fund with
those to be sold or purchased for other investment portfolios, investment
companies, or accounts in executing transactions.
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 the Fund in any transaction may be less favorable than that
available from another broker/dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
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 Fund's 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
3
<PAGE>
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 Fund.
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 Fund. 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
Fund.
ADDITIONAL INFORMATION ON FUND INVESTMENTS
General
Information concerning the Fund's investment objective is set forth in
each of the Prospectuses under the headings "About the Fund--Objective." There
can be no assurance that the Fund will achieve its objective. The principal
features of the Fund's investment programs and the primary risks associated with
those investment programs are discussed in the Prospectuses under the heading
"About the Fund--How The Objective Is Pursued" and "Appendix A--Portfolio
Securities." The values of the securities in which the Fund invests fluctuate
based upon interest rates, foreign currency rates, the financial stability of
the issuer and market factors.
Additional Investment Limitations
The most significant investment restrictions applicable to the Fund's
investment programs are set forth in the Prospectuses under the heading "How The
Objective Is Pursued - 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) the Fund will
not:
1. Purchase or sell real estate, except that the Fund may purchase
securities of issuers which deal in real estate and may purchase
securities which are secured by interest in real estate.
2. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the 1940 Act.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, as amended, except to the extent that the
purchase of obligations directly from the issuer thereof in accordance
with the Fund's investment objective, policies and limitations may be
deemed to be underwriting.
4. Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of the total
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assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets, except in connection with any such borrowing
and then in amounts not in excess of one-third of the value of the
Fund's total assets at the time of such borrowing. The Fund will not
purchase securities while its borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
Securities held in escrow or separate accounts in connection with the
Fund's investment practices described in this SAI or in the
Prospectuses are not deemed to be pledged for purposes of this
limitation.
5. Make loans, except that the Fund may purchase and hold debt instruments
and enter into repurchase agreements in accordance with its investment
objective and policies and may lend portfolio securities.
6. Purchase securities of companies for the purpose of exercising control.
7. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if, immediately after
such purchase, (a) with respect to the Fund, more than 5% of the value
of the Fund's total assets would be invested in the securities of such
issuer, or (b) more than 10% of the issuer's outstanding voting
securities would be owned by the Fund; except that up to 25% of the
value of the Fund's total assets may be invested without regard to the
foregoing limitations. For purposes of this limitation, with respect to
the Fund, a security is considered to be issued by the entity (or
entities) whose assets and revenues back the security. A guarantee of a
security shall not be deemed to be a security issued by the guarantor
when the value of all 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.
8. 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.
9. Write or sell put options, call options, straddles, spreads or any
combination thereof, except for transactions in options on securities,
securities indices, futures contracts, options on futures contracts,
financial instruments, currencies, forward currency exchange contracts
and swaps, floors and caps.
10. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation
shall not apply to the Fund's transactions in futures contracts,
currencies and related options, and (b) the Fund may obtain short-term
credit as may be necessary for the clearance of purchases and sales of
portfolio securities.
11. Purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that the Fund may, to the
extent appropriate to its investment objective, purchase publicly
traded securities of companies engaging in whole or in part in such
activities and may enter into futures contracts and related options;
and the Fund may enter into foreign currency contracts and related
options to the extent permitted by its investment objective and
policies.
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. Investments by the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objective. In addition, the 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 as previously described.
Variable-rate master demand notes are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Variable-rate instruments acquired by the Fund will be rated at a
level consistent with the 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 the Fund, the 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 the Fund to dispose of an instrument if the issuer defaulted on
its payment obligation or during periods when the Fund is not entitled to
exercise its demand rights, and the Fund could, for these or other reasons,
suffer a loss. The 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.
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.
Equity Swap Contracts
The counterparty to an Equity Swap Contract will typically be a bank,
investment banking firm or broker/dealer. For example, the counterparty will
generally agree to pay the Fund the amount, if any, by which the notional amount
of the Equity Swap Contract would have increased in value had it been invested
in the stocks
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comprising the S&P 500 Index in proportion to the composition of
the Index, plus the dividends that would have been received on those stocks. The
Fund will agree to pay to the counterparty a floating rate of interest
(typically the London InterBank Offered Rate) on the notional amount of the
Equity Swap Contract plus the amount, if any, by which that notional amount
would have decreased in value had it been invested in such stocks. Therefore,
the return to a Fund on any Equity Swap Contract should be the gain or loss on
the notional amount plus dividends on the stocks comprising the S&P 500 Index
less the interest paid by the Fund on the notional amount. A Fund will only
enter into Equity Swap Contracts on a net basis, i.e., the two parties'
obligations are netted out, with the Fund paying or receiving, as the case may
be, only the net amount of any payments. Payments under the Equity Swap
Contracts may be made at the conclusion of the contract or periodically during
its term.
If there is a default by the counterparty to an Equity Swap Contract,
the Fund will be limited to contractual remedies pursuant to the agreements
related to the transaction. There is no assurance that Equity Swap Contract
counterparties will be able to meet their obligations pursuant to Equity Swap
Contracts or that, in the event of default, a Fund will succeed in pursuing
contractual remedies. The Fund thus assumes the risk that it may be delayed in
or prevented from obtaining payments owed to it pursuant to Equity Swap
Contracts. The Fund will closely monitor the credit of Equity Swap Contract
counterparties in order to minimize this risk.
The Fund may from time to time enter into the opposite side of Equity
Swap Contracts (i.e., where the Fund is obligated to pay the increase (net of
interest) or receive the decrease (plus interest) on the contract to reduce the
amount of the Fund's equity market exposure consistent with the Fund's
objective. These positions are sometimes referred to as Reverse Equity Swap
Contracts.
Equity Swap Contracts will not be used to leverage the Fund. The Fund
will not enter into any Equity Swap Contract or Reverse Equity Swap Contract
unless, at the time of entering into such transaction, the unsecured senior debt
of the counterparty is rated at least A by Moody's or S&P. Since the SEC
considers Equity Swap Contracts and Reverse Equity Swap Contracts to be illiquid
securities, the Fund will not invest in Equity Swap Contracts or Reverse Equity
Swap Contracts if the total value of such investments together with that of all
other illiquid securities which the Fund owns would exceed 15% of the Fund's
total assets.
The Adviser does not believe that the Fund's obligations under Equity
Swap Contracts or Reverse Equity Swap Contracts are senior securities and,
accordingly, the Fund will not treat them as being subject to its borrowing
restrictions. However, the net amount of the excess, if any, of the Fund's
obligations over its respective entitlements with respect to each Equity Swap
Contract and each Reverse Equity Swap Contract will be accrued on a daily basis
and an amount of cash, U.S. Government securities or other liquid high quality
debt securities having an aggregate market value at least equal to the accrued
excess will be maintained in a segregated account by the Fund's custodian.
Foreign Currency Transactions
As described in the Prospectuses, the Fund 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. The 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. The 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. The 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
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transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Fund may enter into a forward contract, for example, when it enters
into a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when the Adviser believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency, or when the Adviser believes that the U.S. dollar may
suffer a substantial decline against the foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
(a "position hedge").
The 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 the
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.
The 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).
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 equity
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
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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 seldom made.
Generally, a futures contract is terminated by entering into an offsetting
transaction. The Fund will incur brokerage fees when it purchases and sells
futures contracts. At the time such a purchase or sale is made, the 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 the 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. The
Fund may enter into transactions in futures contracts for the purpose of hedging
a relevant portion of their portfolios. The 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 the Fund. For example, the 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. The 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 which hold or intend to acquire
long-term debt securities, is to protect the Fund from fluctuations in interest
rates without actually buying or selling long-term debt securities. For example,
if long-term bonds are held by the 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 the 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,
the 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, the 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
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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 the Fund to act in anticipation of such an interest rate decline without
having to sell its portfolio securities. To the extent the Fund enters into
futures contracts for this purpose, the segregated assets maintained by the 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. The Fund 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. 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 securities to be sold. Conversely,
the Fund may purchase stock index futures contracts in order to protect against
anticipated increases in the cost of securities to be acquired.
In addition, the Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio. For example, in the
event that the 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. The 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 purchase a
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. The Fund 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. The 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. The Fund 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. The 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, the 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.
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Further, while the 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. The 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, the Fund would pay its
"targeted" price upon the exercise of the option. In the event that the market
does not move in the direction or to the extent anticipated, however, the
targeted sale or buy might not be successful and the Fund could sustain a loss
on the transaction that may not be offset by the premium received. In addition,
the 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 the 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 the Fund will be able to utilize these instruments effectively
for the purposes stated below. Furthermore, the Fund's ability to engage in
options and futures transactions may be limited by tax considerations. Although
the 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." The Fund
will not engage in options and futures transactions leveraging purposes.
Writing Covered Options on Securities. The Fund may write covered call
options and covered put options on securities 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 the Fund give the holder the right to buy
the underlying securities from the 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.
The 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, the 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. The Fund may also write combinations of covered puts and calls on
the same underlying security.
The 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, the 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
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if the purchase price exceeds the market value plus the amount of the premium
received, unless the security subsequently appreciates in value.
The 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. The Fund will realize a
profit or loss from such transaction if the cost of such transaction is less or
more than the premium received from the writing of the option. In the case of a
put option, any loss so incurred may be partially or entirely offset by the
premium received from a simultaneous or subsequent sale of a different put
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by unrealized appreciation of the underlying security owned by the
Fund.
Purchasing Put and Call Options on Securities. The 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 the 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, the 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.
The 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, the 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. The 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, the 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 the 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 the 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.
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Purchase and Sale of Interest Rate Futures. The 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.
The 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 the Fund will
fall, thus reducing the net asset value of the Fund. This interest rate risk can
be reduced without employing futures as a hedge by selling long-term fixed
income securities and either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to a Fund in the form of dealer spreads and
brokerage commissions.
The sale of interest rate futures contracts provides an alternative
means of hedging against rising interest rates. As rates increase, the value of
the 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 the
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, the 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, the 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, the 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 the 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 the Fund will be covered.
A currency futures contract sale creates an obligation by the 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 the 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 the 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. The 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
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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
the 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 the Fund falls below 100% of the
market value of the call written by the Fund, the Fund will so segregate an
amount of cash, Treasury bills or other high grade short-term obligations equal
in value to the difference. Alternatively, the 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 the Fund. In the case of put options on
currency futures written by the Fund, the Fund will hold the aggregate exercise
price in cash, Treasury bills, or other high grade short-term obligations in a
segregated account with its custodian, or own put options on currency futures or
short currency futures, with the difference, if any, between the market value of
the put written and the market value of the puts purchased or the currency
futures sold maintained by the 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 the Fund falls below 100% of the market value of the put
options written by the Fund, the 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, the 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 the Fund's assets. The Adviser
intends to limit the Fund's writing of over-the-counter options in accordance
with the following procedure. The 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 the 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 the 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. The Fund will treat all or a
part of the formula price as illiquid for purposes of the 15% test imposed by
the SEC staff.
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, the Fund may make
cash contributions to a deposit fund of the insurance company's general or
separate accounts. The insurance company then credits to the 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.
The 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, the 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.
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Illiquid Securities
The Fund may invest up to 15% of its 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 the Fund's portfolio, with a commensurate effect
on the value of the Fund's shares. Therefore, an investment in the Fund should
not be considered as a complete investment program and may not be appropriate
for all investors.
The market prices of lower rated securities may fluctuate more than
higher rated securities and may decline significantly in periods of general
economic difficulty which may follow periods of rising interest rates. During an
economic downturn or a prolonged period of rising interest rates, the ability of
issuers of lower quality debt to service their payment obligations, meet
projected goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower rated securities, the
Adviser will try to minimize the risks inherent in investing in lower rated debt
securities by engaging in credit analysis, diversification, and attention to
current developments and trends affecting interest rates and economic
conditions. The Adviser will attempt to identify those issuers of high-yielding
securities whose financial condition is 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. The 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. The 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 the 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
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the Fund. If an issuer exercises these rights during periods of declining
interest rates, the Fund may have to replace the security with a lower yielding
security, thus resulting in a decreased return to the 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.
Options on Currencies
The 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.
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.
Repurchase Agreements
The repurchase price under the repurchase agreements described in the
Prospectuses generally equals the price paid by the Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement). Securities
subject to repurchase agreements will be held by the Company's custodian, or a
sub-custodian, in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by the
Company under the 1940 Act.
Reverse Repurchase Agreements
At the time the 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. 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). In addition, some or all of the proceeds received by the
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 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
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so. In this case, such reverse repurchase agreements will be considered
borrowings subject to the asset coverage described above.
Risk Factors Associated with Futures and Options Transactions
The effective use of options and futures strategies depends on, among
other things, the Fund's ability to terminate options and futures positions at
times when its the Adviser deems it desirable to do so. Although the 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 the Fund will be able to effect closing transactions at any particular time
or at an acceptable price. The 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, the Fund may purchase
and sell options in the over-the-counter market. The 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 the 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
Fund's futures and options transactions.
Risk of Imperfect Correlation. The 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 the 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, the 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. The 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
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able to establish hedging positions, or that any hedging strategy adopted will
be insufficient to completely protect the Fund.
The 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 the 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 the 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 the 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 the Fund's ability effectively to hedge its
securities, or the relevant portion thereof.
The liquidity of a secondary market in a futures contract or an option
on a futures contract may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the amount of fluctuation in
the price of a contract during a single trading day and prohibit trading beyond
such limits once they have been reached. The trading of futures and options
contracts also is subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of the
brokerage firm or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
Risk of Predicting Interest Rate Movements. Investments in futures
contracts on fixed income securities and related indices involve the risk that
if the Adviser's investment judgment concerning the general direction of
interest rates is incorrect, the Fund's overall performance may be poorer than
if it had not entered into any such contract. For example, if the 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 the 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 Fund's investments.
Regulations on the Use of Futures and Options Contracts. Regulations of
the CFTC require that the Fund enters 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 the 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
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positions maintained for the Fund, and accrued profits on such positions. In
addition, the 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 the Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality 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 times equal the
value of the futures contract, thereby insuring that the use of such futures is
unleveraged.
The Fund's ability to engage in the hedging transactions described
herein may be limited by the current federal income tax requirement that the
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 Fund may also
further limit 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.
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. 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 33% 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, the Fund may from time to time enter
into short sales transactions. The Fund will not make short sales of securities
nor maintain a short position unless at all times when a short position is open,
the 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.
Special Situations
As described in the Prospectuses, the Fund may invest in "special
situations." A special situation arises when, in the opinion of the Adviser, the
securities of a particular company will, within a reasonably estimable period of
time, be accorded market recognition at an appreciated value solely by reason of
a development applicable to that company, and regardless of general business
conditions or movements of the market as a whole. Developments creating special
situations might include, among others: liquidations, reorganizations,
recapitalizations, mergers, material litigation, technical breakthroughs and new
management or management policies. Although large and well known companies may
be involved, special situations more often involve comparatively small or
unseasoned companies. Investments in unseasoned companies and special situations
often involve much greater risk than is inherent in ordinary investment
securities.
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Stripped Securities
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 a 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.
Variable- and Floating-Rate Instruments
The Fund may purchase variable-rate and floating rate obligations as
described in the Prospectuses. If such instrument is not rated, the Adviser will
consider the earning power, cash flows, and other liquidity ratios of the
issuers and guarantors of such obligations and, if the obligation is subject to
a demand feature, will monitor their financial status to meet payment on demand.
In determining average weighted portfolio maturity, a variable-rate demand
instrument issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligations next interest rate adjustment. Other
variable-rate obligations will be deemed to have a maturity equal to the longer
of the period remaining to the next interest rate adjustment or the time the
Fund can recover payment of principal as specified in the instrument.
The variable- and-floating rate demand instruments that the Fund may
purchase include participations in Municipal Securities purchased from and owned
by financial institutions, primarily banks. Participation interests provide a
Fund with a specified undivided interest (up to 100%) in the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the participation interest from the institution upon a
specified number of days' notice, not to exceed 30 days. Each participation
interest is backed by an irrevocable letter of credit or guarantee of a bank
that the Adviser has determined meets the prescribed quality standards for the
Fund. The bank typically retains fees out of the interest paid on the obligation
for servicing the obligation, providing the letter of credit, and issuing the
repurchase commitment.
When-Issued Purchases and Forward Commitments
The Fund may agree to purchase securities on a when-issued basis or
enter into a forward commitment to purchase securities. When the Fund engages in
these transactions, its custodian will segregate cash, U.S. government
securities or other high quality debt obligations equal to the amount of the
commitment. Normally, the custodian will segregate portfolio securities to
satisfy a purchase commitment, and in such a case the Fund may be required
subsequently to segregate additional assets in order to ensure that the value of
the segregated assets remains equal to the amount of the Fund's commitment.
Because the Fund will segregate cash or liquid assets to satisfy its purchase
commitments in the manner described, the Fund's liquidity and ability to manage
its portfolio might be adversely affected in the event its commitments to
purchase when-issued securities ever exceeded 25% of the value of its assets. In
the case of a forward commitment to sell portfolio securities, the Fund's
custodian will hold the portfolio securities themselves in a segregated account
while the commitment is outstanding.
The Fund will make commitments to purchase securities on a when-issued
basis or to purchase or sell securities on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
the securities. If deemed advisable as a matter of investment strategy, however,
a Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a capital gain or loss.
When the Fund engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
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The value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their value, is taken into account when determining the net asset value of the
Fund starting on the date the Fund agrees to purchase the securities. The Fund
does not earn dividends on the securities it has committed to purchase until
they are paid for and delivered on the settlement date. When the Fund makes a
forward commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets. Fluctuations in the value of the
underlying securities are not reflected in the Fund's net asset value as long as
the commitment remains in effect.
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 Fund may be purchased and redeemed.
The Fund is also 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.
The Exchange is closed for business on New Years Day, Martin Luther King, Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Federal Reserve Bank observes the
following holidays: New Years Day, Martin Luther King Jr.'s Birthday, Presidents
Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day,
Thanksgiving Day and Christmas Day.
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 the 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 the of the Fund is determined at the
times and in the manner described in the Prospectuses.
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. Prices provided by the pricing service may be
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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.
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 of the
Company.
For purposes of determining the net asset value per share of the Fund,
all assets and liabilities of the 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.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment for Investor Shares or Primary A Shares during any
period when (a) trading on the Exchange is restricted by applicable rules and
regulations of the SEC; (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC. (The Fund may
also suspend or postpone the recordation of the transfer of their shares upon
the occurrence of any of the foregoing conditions.)
Exchanges
By use of the exchange privilege, the holder of Investor Shares and/or
Primary A 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 A 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 the Company upon such
notice as may be required by applicable regulatory agencies (presently 60 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 A Shares of the
Fund describe the exchange privileges available to holders of such Investor
Shares and Primary A Shares, respectively.
Primary A Shares of the Fund are offered and sold on a continuous basis
by the Distributor acting as agent. As stated in the Prospectus for the Primary
A Shares, such shares are sold to bank trust departments and other
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financial institutions (primarily to NationsBank and its affiliated and
correspondent banks) (collectively, "Institutions") acting on behalf of
customers maintaining a qualified trust account or relationship at the
Institution.
DESCRIPTION OF SHARES
Dividends and Distributions
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 Fund
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 Fund.
ADDITIONAL INFORMATION CONCERNING TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Tax Information." The Prospectuses of the
Fund describe generally the tax treatment of distributions by the Fund. This
section of the SAI includes additional information concerning income taxes.
General
The Company intends to qualify the Fund as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") as long as such qualification is in the best interest of the Fund's
shareholders. The Fund will be treated as a separate entity for tax purposes and
thus the provisions of the Code applicable to regulated investment companies
will generally be applied to the Fund, rather than to the Companies as a whole.
In addition, net capital gains, net investment income, and operating expenses
will be determined separately for the Fund. As a regulated investment company,
the Fund will not be taxed on its net investment income and capital gains
distributed to its shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) the Fund derive at least 90% of its
annual 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; and (b) the Fund diversify
its holdings so that, at the end of each quarter of the taxable year, (i) at
least 50% of the market value of the Fund's assets is represented by cash,
government securities and other securities limited in respect of any one issuer
to an amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government obligations and the securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses.
The Fund must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income earned in each taxable
year. In general, these distributions must actually or be deemed to be made in
the taxable year. However, in certain circumstances, such distributions may be
made in the 12 months following the taxable year. The Fund intends to pay out
substantially all of their net investment income and net realized capital gains
(if any) for each year.
In addition, a regulated investment company must, in general, derive
less than 30% of its gross income from the sale or other disposition of
securities or options thereon held for less than three months. However, this
restriction has been repealed with respect to a regulated investment company's
taxable years beginning after August 5, 1997.
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Excise Tax
A 4% nondeductible excise tax will be imposed on the Fund (other than
to the extent of its tax-exempt interest income) to the extent it does not meet
certain minimum distribution requirements by the end of each calendar year. The
Fund intends to actually or be deemed to distribute substantially all of its net
investment income and net capital gains by the end of each calendar year and,
thus, expects not to be subject to the excise tax.
Private Letter Ruling
In order for the Fund to maintain regulated investment company status
under the Code, its dividends, including--for this purpose--capital gain
distributions, must not constitute "preferential dividends," within the meaning
of Section 562(c) of the Code. The Company has received a private letter ruling
from the Internal Revenue Service ("IRS") generally to the effect that the
following will not give rise to preferential dividends: differing fees imposed
on the different classes of shares with respect to servicing, distribution and
administrative support services, and transfer agency arrangements; differing
sales charges on purchases and redemptions of such shares; and conversion
features resulting in the Company paying different dividends or distributions on
the different classes of shares.
Taxation of Fund Investments
Except as provided herein, gains and losses on the sale of portfolio
securities by the Fund will generally be capital gains and losses. Such gains
and losses will ordinarily be long-term capital gains and losses if the
securities have been held by the Fund for more than one year at the time of
disposition of the securities.
Gains recognized on the disposition of a debt obligation (including
tax-exempt obligations purchased after April 30, 1993) purchased by the 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 market discount which
accrued, but was not previously recognized pursuant to an available election,
during the term the Fund held the debt obligation.
If an option granted by the Fund lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund will realize a short-term capital gain or loss, depending on
whether the premium income is greater or less than the amount paid by the Fund
in the closing transaction. Some realized capital losses may be deferred if they
result from a position which is part of a "straddle," discussed below. If
securities are sold by the Fund pursuant to the exercise of a call option
written by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale.
Under Section 1256 of the Code, the Fund will be required to "mark to
market" its positions in "Section 1256 contracts," which generally include
regulated futures contracts and listed options. In this regard, Section 1256
contracts will be deemed to have been sold at market value. Sixty percent (60%)
of any net gain or loss realized on all dispositions of Section 1256 contracts,
including deemed dispositions under the mark-to-market regime, will generally be
treated as long-term capital gain or loss, and the remaining forty percent (40%)
will be treated as short-term capital gain or loss. Transactions that qualify as
designated hedges are excepted from the mark-to-market and 60%/40% rules.
Under Section 988 of the Code, the Fund will generally recognize
ordinary income or loss to the extent gain or loss realized on the disposition
of portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized 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. The Funds will attempt to monitor Section 988 transactions,
where applicable, to avoid adverse tax impact.
Offsetting positions held by a regulated investment company involving
certain financial forward, futures or options contracts may be considered, for
tax purposes, to constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of "straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256. If a
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regulated investment company were treated as entering into "straddles" by
engaging in certain financial forward, futures or option contracts, such
straddles could be characterized as "mixed straddles" if the futures, forwards,
or options comprising a part of such straddles were governed by Section 1256 of
the Code. The regulated investment company may make one or more elections with
respect to "mixed straddles." Depending upon which election is made, if any, the
results with respect to the regulated investment company may differ. Generally,
to the extent the straddle rules apply to positions established by the regulated
investment company, losses realized by the regulated investment company may be
deferred to the extent of unrealized gain in any offsetting positions. Moreover,
as a result of the straddle and the conversion transaction rules, short-term
capital loss on straddle positions may be recharacterized as long-term capital
loss, and long-term capital gain may be characterized as short-term capital gain
or ordinary income.
If the Fund enters into a "constructive sale" of any appreciated
position in stock, a partnership interest, or certain debt instruments, the Fund
must recognize gain (but not loss) with respect to that position. For this
purpose, a constructive sale occurs when the Fund enters into one of the
following transactions with respect to the same or substantially identical
property: (i) a short sale; (ii) an offsetting notional principal contract; or
(iii) a futures or forward contract.
If the Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to Federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of its PFIC shares. If the Fund invests in a PFIC, the Fund intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the difference, if any, between the fair market value of its
interest in the PFIC shares and its basis in such shares. In some circumstances,
the recognition of loss may be suspended. The Fund will adjust its basis in the
PFIC shares by the amount of income (or loss) recognized. Although such income
(or loss) will be taxable to the Fund as ordinary income (or loss)
notwithstanding any distributions by the PFIC, the Fund will not be subject to
Federal income tax or the interest charge with respect to its interest in the
PFIC.
Foreign Taxes
Income and dividends received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. If more than 50% in value of a regulated
investment company's total assets at the close of its taxable year consist of
securities of non-U.S. corporations, the regulated investment company will be
eligible to file an election with the IRS pursuant to which the regulated
investment company may pass-through to its shareholders foreign taxes paid by
the regulated investment company, which may be claimed either as a credit or
deduction by the shareholders. However, even if the Fund qualifies for the
election, foreign taxes will only pass-through to a Fund shareholder if (i) the
shareholder holds the Fund shares for at least 16 days during the 30 day period
beginning 15 days prior to the date upon which the shareholder becomes entitled
to receive Fund dividends corresponding with the pass-through of the foreign
taxes paid by the Fund, and (ii), with respect to foreign source dividends
received by the Fund on shares giving rise to foreign tax, the Fund holds the
shares during the 30 day period beginning 15 days prior to the date upon which
the Fund becomes entitled to the dividend.
Capital Gain Distributions
Distributions which are designated by the Fund as capital gain
distributions will be taxed to shareholders as long-term term capital gain (to
the extent such dividends do exceed the Fund's actual net capital gains for the
taxable year), regardless of how long a shareholder has held Fund shares. Such
distributions will be designated as capital gain distributions in a written
notice mailed by the Fund to its shareholders not later than 60 days after the
close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains
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realized on the sale of property held for greater than 18 months, and a maximum
rate of 28% on net capital gain attributable to gain realized on the sale of
property held for greater than one year and 18 months or less. The 1997 Act
retains the treatment of short term capital gain or loss (generally, gain or
loss attributable to capital assets held for 1 year or less) and did not affect
the taxation of capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations
for application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Fund. Noncorporate
stockholders of the Fund may therefore qualify for the reduced rate of tax on
capital gain dividends paid by the Fund.
Other Distributions
For Federal income tax purposes, only amounts paid out of earnings and
profits will qualify as dividends. Thus, if during a taxable year the Fund's
declared dividends (as declared daily throughout the year) exceed the Fund's net
income (as determined at the end of the year), only that portion of the year's
distributions which equals the year's earnings and profits will be deemed to
have constituted a dividend. It is expected that the Fund's net income, on an
annual basis, will equal the dividends declared during the year.
Disposition of Fund Shares
A disposition of Fund shares pursuant to redemption (including a
redemption in-kind) or exchanges will ordinarily result in a taxable capital
gain or loss, depending on the amount received for the shares (or are deemed to
receive in the case of an exchange) and the cost of the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within
90 days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. In addition, if a shareholder holds Fund shares for six months or
less, any loss on the sale or exchange of those shares will be disallowed to the
extent of the amount of exempt-interest dividends received with respect to the
shares. The Treasury Department is authorized to issue regulations reducing the
six months holding requirement to a period of not less than the greater of 31
days or the period between regular dividend distributions where the Fund
regularly distributes at least 90% of its net tax-exempt interest, if any. No
such regulations had been issued as of the date of this SAI. The loss
disallowance rules described in this paragraph do not apply to losses realized
under a periodic redemption plan.
Federal Income Tax Rates
As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6% (marginal tax rates may be higher for
some individuals to reduce or eliminate the benefit of exemptions and
deductions); the maximum individual marginal tax rate applicable to net capital
gain is 28% (however, see "Capital Gain Distributions" above); and the maximum
corporate tax rate applicable to ordinary income and net capital gain is 35%
(marginal tax rates may be higher for some corporations to reduce or eliminate
the benefit of lower marginal income tax rates). Naturally, the amount of tax
payable by an individual or corporation will be affected by a combination of tax
laws covering, for example, deductions, credits, deferrals, exemptions, sources
of income and other matters.
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Corporate Shareholders
Corporate shareholders of the Fund may be eligible for the
dividends-received deduction on dividends distributed out of the Fund's net
investment income attributable to dividends received from domestic corporations,
which, if received directly by the corporate shareholder, would qualify for such
deduction. In order to qualify for the dividends-received deduction, a corporate
shareholder must generally hold the shares upon which the dividend is made for
at least 46 days during the 90 day period beginning 45 days prior to the date
upon which the shareholder becomes entitled to the Fund's distribution
qualifying for the deduction.
Foreign Shareholders
Under the Code, distributions of net investment income by the Fund to a
nonresident alien individual, foreign trust (i.e., trust which a U.S. court is
able to exercise primary supervision over administration of that trust and one
or more U.S. persons have authority to control substantial decisions of that
trust), foreign estate (i.e., the income of which is not subject to U.S. tax
regardless of source), foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to U.S. withholding tax (at a rate of 30% or a
lower treaty rate). 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 a U.S. permanent
establishment of the foreign shareholder), in which case the reporting and
withholding requirements applicable to U.S. persons will apply. Distributions of
net capital gains are generally not subject to tax withholding, and, beginning
in 1999, the Fund will be permitted to estimate the portion of their
distributions qualifying as capital gain distributions.
Backup Withholding
The Company may be required to withhold, subject to certain exemptions,
at a rate of 31% ("backup withholding") on dividends, capital gain
distributions, and redemption proceeds (including proceeds from exchanges and
redemptions in-kind) paid or credited to an individual Fund shareholder, unless
the shareholder certifies that the Taxpayer Identification Number ("TIN")
provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies the Trust that the shareholder's TIN is
incorrect or that the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's Federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Companies could subject the investor to
penalties imposed by the IRS.
Tax-Deferred Plans
The Fund is available for a variety of tax-deferred retirement and
other plans, including Individual Retirement Accounts ("IRA"), Simplified
Employee Pension Plans ("SEP-IRA"), Savings Incentive Match Plans for Employees
("SIMPLE plans"), Roth IRAs, and Education IRAs, which permit investors to defer
some of their income from taxes. Investors should contact their Selling Agents
for details concerning retirement plans.
Other Matters
Investors should be aware that the investments to be made by the Fund
may involve sophisticated tax rules that may result in income or gain
recognition by the Fund without corresponding current cash receipts. Although
the Fund will seek to avoid significant noncash income, such noncash income
could be recognized by the Fund, in which case the Fund may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus
applicable to each shareholder address only some of the Federal tax
considerations generally affecting investments in the Fund. Each investor is
urged to consult his or her tax advisor regarding specific questions as to
Federal, state, local or foreign taxes.
27
<PAGE>
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>
<S> <C>
Principal Occupations
During Past 5 Years
Position with and Current
Name Address and Age the Company Directorships
- -------------------- ----------- -------------
Edmund L. Benson, III, 60 Director Director, President and Treasurer, Saunders &
Saunders & Benson, Inc. Benson, Inc. (Insurance); Trustee, Nations Fund
728 East Main Street Trust, Nations Institutional Reserves and Nations
Suite 400 Annuity Trust, Director, Nations LifeGoal Funds,
Richmond, VA 23219 Inc., and Nations Fund Portfolios, Inc.
James Ermer, 54 Director Senior Vice President- Finance, CSX Corporation
13705 Hickory Nut Point (transportation and natural resources);
Midlothian, VA 23112 Director, National Mine Service; Lawyers Title
Corporation, Nations LifeGoal Funds and Nations
Fund Portfolios, Inc.; Trustee, Nations Fund
Trust, Nations Institutional Reserves and
Nations Annuity Trust.
William H. Grigg, 64 Director Chairman Emeritus, Duke Power Co., since July,
Duke Power Co. 1997; April 1994 to July 1997, Chairman and
422 South Church Street Chief Executive Officer; November 1991 to April
PB04G 1994, Vice Chairman, from April 1988 to November
Charlotte, NC 28242-0001 1991, Executive Vice President -- Customer
Group, Director, Coltec Industries, 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 LifeGoal
Funds, Inc. and Nations Fund Portfolios, Inc.;
Trustee, Nations Fund Trust, Nations
Institutional Reserves and Nations Annuity
Trust.
Thomas F. Keller, 65 Director R.J. Reynolds Industries Professor of Business
Fuqua School of Business Administration and former Dean, Fuqua School of
P.O. Box 90120 Business, Duke University; Director, LADD
Duke University Furniture, Inc.; Director, Wendy's International
Durham, NC 27708 Inc., American Business Products, Dimon Inc.,
Biogen, Inc., 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 LifeGoal Funds, Inc., and Nations Fund
Portfolios, Inc.; Trustee, Nations Fund Trust,
Nations Institutional Reserves, Nations Annuity
Trust, the Mentor Funds, Mentor Institutional
Trust, Cash Resource Trust.
Carl E. Mundy, Jr., 62 Director Commandant, United States Marine
9308 Ludgate Drive Corps, from July 1991 to July 1995;
28
<PAGE>
<CAPTION>
<S> <C>
Principal Occupations
During Past 5 Years
Position with and Current
Name Address and Age the Company Directorships
- -------------------- ----------- -------------
Alexandria, VA 22309 Commanding General, Marine Forces Atlantic, from
June 1990 to June 1991; Director, Nations
LifeGoal Funds, Inc., and Nations Fund
Portfolios, Inc.; Trustee, Nations Fund Trust,
Nations Institutional Reserves and Nations
Annuity Trust.
James B. Sommers*, 58 Director President, NationsBank Trust, from January 1992
237 Cherokee Road to September 1996; Executive Vice President,
Charlotte, NC 28207 NationsBank Corporation, from January 1992 to
May 1997; Principal, Bainbridge & Associates;
Partner, Villa LLC; Chairman, Central Piedmont
Community College Foundation; Trustee, Central
Piedmont Community College; Board of
Commissioners, Charlotte/Mecklenberg Hospital
Authority; Director, Nations Fund Portfolios,
Inc. and Nations LifeGoal Funds, Inc.; Trustee,
Nations Fund Trust, Nations Institutional
Reserves and Nations Annuity Trust.
A. Max Walker*, 75 President, Director and Chairman Financial consultant; Formerly, President, A.
4580 Windsor Gate Court of the Board Max Walker, Inc.; Director and Chairman of the
Atlanta, GA 30342 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
LifeGoal Funds, Inc., and Nations Fund
Portfolios Inc.; President and Chairman of the
Board of Trustees, Nations Fund Trust, Nations
Institutional Reserves and Nations Annuity
Trust.
Charles B. Walker, 58 Director Since 1989, Director, Executive Vice President,
Ethyl Corporation Chief Financial Officer and Treasurer, Ethyl
330 South Fourth Street Corporation (chemicals, plastics, and aluminum
Richmond, VA 23219 manufacturing); since 1994, Vice Chairman, Ethyl
Corporation and Vice Chairman, Chief Financial
Officer and Treasurer, Albemarle Corporation,
Director, Nations LifeGoal Funds, Inc, and
Nations Fund Portfolios, Inc.; Trustee, Nations
Fund Trust, Nations Institutional Reserves and
Nations Annuity Trust.
Thomas S. Word, Jr.*, 59 Director Partner, McGuire Woods Battle & Boothe (law);
McGuire, Woods, Battle & Boothe Director, Vaughan Bassett Furniture Company,
One James Center Director VB Williams Furniture Company, Inc.;
Richmond, VA 23219 Director, Nations LifeGoal Funds, Inc., and
Nations Fund Portfolios, Inc.; Trustee, Nations
Fund Trust, Nations Institutional Reserves and
Nations Annuity Trust.
Richard H. Blank, Jr., 40 Secretary Since 1994, Vice President of Mutual Fund
Stephens Inc. Services, Stephens Inc. 1990 to 1994, Manager
Mutual Fund Services, Stephens Inc. 1983 to
1990, Associate in
29
<PAGE>
<CAPTION>
<S> <C>
Principal Occupations
During Past 5 Years
Position with and Current
Name Address and Age the Company Directorships
- -------------------- ----------- -------------
Corporate Finance Department, Stephens Inc.;
Secretary, Nations Institutional Reserves,
Nations Fund Trust, Nations Fund, Inc., Nations
LifeGoal Funds, Inc., Nations Annuity Trust 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.
James E. Banks, 41 Assistant Secretary Since 1993, Attorney, Stephens Inc.; Associate
Stephens Inc. 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, Division Manager,
First Data Investor Services Group, Inc. First Data Investor Services Group, Inc. since
(formerly, The Shareholder Services Group, 1988, Senior Vice President, The Boston Company
Inc.) Advisors. Inc.; Treasurer, Nations Institutional
One Exchange Place Reserves, Nations Fund Trust, Nations Fund,
Boston, MA 02109 Inc., Nations LifeGoal Funds, Inc., Nations
Annuity Trust and Nations Fund Portfolios, Inc.
Steven Levy, 32 Assistant Treasurer Since 1997, Vice President of Fund Accounting,
First Data Investor Services Group, Inc. First Data Investor Services Group, Inc.; Prior
One Exchange Place to 1997, Investment Operations Manager, Franklin
Boston, MA 02109 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 Nations Fund, Inc. is also a Trustee of Nations Fund
Trust, Nations Annuity Trust, 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, Steven Levy, Michael W. Nolte, Louise P. Newcomb
and James E. Banks. Jr. also are officers of Nations Fund Trust, Nations Annuity
Trust, Nations Institutional Reserves, Nations Fund Portfolios, Inc., and
Nations LifeGoal Funds, 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, trustee, 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 the Fund.
30
<PAGE>
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 a
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 or her 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 or she had not died. The Retirement Plan is unfunded. The
benefits owed to each Director are unsecured and subject to the general
creditors of the Fund.
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 or her deferral account, the
balance of the deferral account will be distributed to his or her 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 or her deferral account, the balance of the
amounts credited to his or her deferral account will be distributed to his or
her 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 Fund from which they are deferring
compensation.
COMPENSATION TABLE
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Pension or
Retirement Total
Aggregate Aggregate Benefits Compensation
Aggregate Compensation Compensation Accrued as Estimated Annual from Registrant
Name of Person Compensation from from Part of Fund Benefits Upon and Fund
Position (1) from NFT (2) NFI (2) NFP (2) Expenses Retirement Complex (3)(4)
------------ ------------ ------- ------- -------- --------------- --------------
Edmund L. Benson, $11,581.89 $4,894.39 $4,206.89 $23,071.34 $11,535.67 $84,042.84
III,
Director
James Ermer 21,460.49 8,085.49 6,710.49 23,071.34 11,535.67 46,716.94
Director
William H. Grigg 0.00 0.00 0.00 23,071.34 11,535.67 115,933.25
Director
Thomas F. Keller 178.90 178.90 178.90 23,071.34 11,535.67 124,575.75
Director
Carl E. Mundy, Jr. 23,054.25 9,679.25 8,304.35 23,071.34 11,535.67 52,092.00
Director
James Sommers 0.00 0.00 0.00 0.00 0.00 0.00
Director
A. Max Walker 24,861.99 11,486.99 10,111.99 23,071.34 11,535.67 75,322.94
Chairman of the Board
Charles B. Walker 22,590.83 9,215.83 7,840.83 23,071.34 11,535.67 51,238.33
--------
Director
Thomas S. Word 417.01 417.01 417.01 23,071.34 11,535.67 118,926.66
------ ------ ------ --------- --------- ----------
Director
$104,145.35 $43,957.86 $37,770.46 $184,570.68 $92,285.34 $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 ending March 31, 1999, 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 fund 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).
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING AND DISTRIBUTION AGREEMENTS
The Company and Its Common Stock
Nations Fund, Inc. ("NFI") is an open-end diversified management
investment company organized as a corporation under the laws of the State of
Maryland on December 13, 1983. NFI had no operations prior to
32
<PAGE>
December 15, 1986. Effective October 2, 1989, NFI changed its name from Silver
Star Fund, Inc. to Hatteras Funds, Inc., effective May 1, 1992, NFI began doing
business under the name Nations Fund Portfolios and effective September 24,
1992, NFI changed its name to Nations Fund, Inc. NFI's fiscal year end is March
31; prior to 1996, the NFI's fiscal year end was May 31. NFI offers shares of
common stock which represent interests in one of nine separate Funds. This SAI
relates to the International Value Fund of NFI. The Fund offers the following
separate classes of shares (Primary A Shares, Investor A Shares, Investor B
Shares and Investor C Shares). Shares of the Fund 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, the Fund or a particular class of shares of
the 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.
Investment Adviser
Effective February ___, 1998, NBAI began serving as investment adviser
to the Company, pursuant to an Investment Advisory Agreement dated January 1,
1996. Effective February ___, 1998, Brandes serves as investment sub-adviser to
the Fund, pursuant to a Sub-Advisory Agreement dated April 8, 1998
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. The principal offices of NBAI
are located at One NationsBank Plaza, Charlotte, N.C. 28255.
Brandes Investment Partners, Inc. owns a controlling interest in
Brandes Investment Partners, L.P. and serves as its General Partner. Charles
Brandes is the controlling shareholder of Brandes Investment Partners, Inc. The
principal offices of Brandes are located at 12750 High Bluff Drive, San Diego,
CA 92130.
NationsBank is successor to NationsBank of North Carolina, N.A. which
was merged with and into NationsBank of South Carolina, N.A., effective January
3, 1995. The resulting entity was renamed NationsBank, N.A. (Carolinas). Prior
to June 30, 1992, NationsBank of Georgia, N.A. served as the Investment Adviser
to the Company. On December 31, 1991 an Agreement and Plan of Consolidation
between NCNB Corporation ("NCNB") and C&S Sovran Corporation ("C&S/Sovran") was
consummated whereby C&S/Sovran was merged into and became a wholly owned
subsidiary of NCNB and NCNB changed its name to NationsBank Corporation. In
anticipation of this transaction, the prior investment adviser for the Company
was changed from Sovran Bank, N.A., to C&S/Sovran Trust Company (Georgia), N.A.
After the merger of C&S/Sovran and NCNB was completed, C&S Sovran Trust Company
(Georgia), N.A., changed its name to NationsBank Trust Company (Georgia), N.A.,
and subsequently merged into NationsBank of Georgia, N.A. which continued to
serve as the investment adviser to the Company until June 30, 1992. Prior to the
merger of NCNB and C&S/Sovran, NationsBank (formerly NCNB National Bank of North
Carolina) served and continues to serve as investment adviser to all of the
Funds of the Company pursuant to an amendment to its investment advisory
agreements. NationsBank and NationsBank of Georgia, N.A. are wholly owned
subsidiaries of NationsBank Corporation.
33
<PAGE>
Since 1874, NationsBank and its predecessors have been managing money
for foundations, universities, corporations, institutions and individuals.
Today, NationsBank affiliates collectively manage in excess of $50 billion,
including more than $27 billion in mutual fund assets. 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
affiliates organization makes available a wide range of financial services to
its over 14 million customer households through over 2500 banking and investment
centers.
Pursuant to the terms of the Investment Advisory Agreement and
Sub-Advisory Agreement (at times, the "Advisory Agreements") with NBAI and
Brandes, 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 and Brandes each selects and manages the investments of the Fund. Each such
advisory entity obtains and evaluates economic, statistical and financial
information to formulate and implement investment policies for the Fund.
The Investment Advisory Agreement for NBAI provides that in the absence
of willful misfeasance, bad faith, negligence or reckless disregard of
obligations or duties thereunder on the part of NBAI, or any of its respective
officers, directors, employees or agents, NBAI 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 was initially approved by
NFI's Board of Directors on February 4, 1998, and shall 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 the 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 respective 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 Brandes was initially approved by NFI's
Board of Directors on February 4, 1998. The Sub-Advisory Agreement will continue
in effect for an initial term of two years from its effective date and continues
in effect from year to year thereafter only if such continuance is specifically
approved at least annually by the Company's Board of Directors and the
affirmative vote of a majority of the directors who are not parties to the
Sub-Advisory Agreement or "interested persons" of any such party by votes cast
in person at a meeting called for such purpose. The Fund, NBAI or Brandes may
terminate the Sub-Advisory Agreement, on 60 days' written notice without
penalty. The Sub-Advisory Agreement terminates automatically in the event of its
"assignment," as defined in the 1940 Act. The Sub-Advisory Agreement with
Brandes provides that Brandes shall not be liable to the Company or to its
shareholders for any act or omission by Brandes or for any loss sustained by the
Company or by its shareholders except in the case of Brandes' willful
misfeasance, bad faith, gross negligence or reckless disregard of duty on the
part of Brandes, as the case may be.
NBAI and Brandes may waive a portion of their fees; however, any such
waiver may be discontinued at any time. As discussed under the caption
"Expenses," NBAI and Brandes will be required to reduce their fees from the
Fund, in direct proportion to the fees payable by the Fund to NBAI, Brandes, the
Administrator and the Co-Administrator, if the expenses of the Fund exceed the
applicable expense limitation of any state in which the Fund's shares are
registered or qualified for sale.
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.
34
<PAGE>
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 February 4, 1998. 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 the
Fund.
Pursuant to the Administration Agreement, the Administrator has agreed to,
among other things, (i) maintain office facilities for the Fund, (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 Fund, (ii) compute the 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
Fund 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 will be
required to reduce its fee from the Company, in direct proportion to the fees
payable to the Adviser, the Sub-Adviser, the Administrator and the
Co-Administrator by the Fund, if the expenses of the Fund exceed the applicable
expense limitation of any state in which the Fund's shares are registered or
qualified for sale.
Distribution Plans and Shareholder Servicing Arrangements for Investor Shares
Investor A Shares. The Company has adopted a Shareholder Servicing and
Distribution Plan (the "Investor A Plan") pursuant to Rule 12b-1 under the 1940
Act with respect to the Fund's Investor A Shares. The Investor A Plan provides
that the 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 Fund.
Payments under the Investor A Plan may be made to 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 to Servicing
Agents that have entered into a
35
<PAGE>
Shareholder Servicing Agreement with the Company for providing shareholder
support services to their Customers which hold of record or beneficially
Investor A Shares of the Fund. Such shareholder support services provided by
Servicing Agents to holders of Investor A Shares of the Fund 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 was terminated
or not continued, the Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund.
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, the Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund.
Investor B Shares. The Directors of the Company have approved a
Distribution Plan (the "Investor B Distribution Plan") with respect to Investor
B Shares of the Fund. Pursuant to the Investor B Distribution Plan, the 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 the
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 the
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, (ii) the costs of client sales seminars and
travel related to distribution and sales support activities, and (iii) other
expenses relating to distribution and sales support activities.
In addition, the Directors have approved a Shareholder Servicing Plan
with respect to Investor B Shares of the Fund ( "Investor B Servicing Plan").
Pursuant to the Investor B Servicing Plan, the Fund may compensate or
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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 Fund.
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 Companies 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 Companies 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 Fund 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 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.
Investor C Shares. The Directors of the Company have approved a
Distribution Plan in accordance with Rule 12b-1 under the 1940 Act for the
Investor C Shares of the Fund (the "Investor C Plan"). Pursuant to the Investor
C Plan, the 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 the 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
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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 Fund. 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 Fund
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 the Fund as
accrued. Expenses incurred by the Distributor pursuant to the Investor 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 was terminated or not
continued, the 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 a Shareholder Servicing Plan
("Servicing Plan") with respect to the Investor C Shares of the Fund (the
"Investor C Servicing Plan"). Pursuant to the Investor C Servicing Plan, the
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 Fund's Investor C Shares. The shareholder services provided
by the Servicing Agents may include (i) aggregating and processing purchase and
redemption requests for such 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 C Shares pursuant to specific or pre-authorized
instructions; (iii) dividend and distribution payments from the Company on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in such Investor C Shares; (v) arranging for bank wires;
(vi) responding to Customers' inquiries concerning their investment in such
Investor C Shares; (vii) providing sub-accounting with respect to such 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 Distribution 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
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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 4, 1998, with
respect to each class of shares.
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 Primary A,
Investor A, Investor B Shares or Investor C Shares and the holders of such
shares. The Plans applicable to each class of shares were approved by such
Funds' initial shareholders.
The Investor A Plan, Investor B Distribution 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 Shares, Investor B Shares 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 Board
of Governors of the Federal Reserve, 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.
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 the 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
39
<PAGE>
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, Brandes, the Administrator and the
Co-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 the 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, Brandes, the Administrator or the
Co-Administrator shall be deducted from the monthly investment advisory and
administration fees otherwise payable to NBAI, Brandes, the Administrator and
the Co-Administrator during such fiscal year. If required pursuant to such state
securities regulations, NBAI, Brandes, the Administrator and the
Co-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 is located at One Exchange Place, 53 State Street, Boston,
Massachusetts 02109, and acts as transfer agent (the "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.
The Bank of New York ("BONY"), Avenue des Arts, 35 1040 Brussels,
Belgium serves as custodian for the portfolio securities and cash of the Fund.
As such custodian, BONY maintains custody of the Fund's securities cash and
other property, delivers securities against payment upon sale and pays for
securities against delivery upon purchase, makes payments on behalf of the Fund
for payments of dividends, distributions and redemptions, endorses and collects
on behalf of the Fund all checks, and receives all dividends and other
distributions made on securities owned by the 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 Fund 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
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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 Fund, 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 the 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
Fund with a list of the investments held in the Fund and financial statements
for the Fund. The annual financial statements will be audited by the Company's
independent accountant. The Board of Directors has selected Price Waterhouse,
LLP, 160 Federal Street, Boston, Massachusetts, 02110 as the Company's
independent accountant to audit the Company's books and review the Company's tax
returns.
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 A Shares may be quoted in advertisements, shareholder
reports, and other communications to shareholders. The Fund 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 A Shares.
Yield Calculations
Yield is calculated separately for the Investor A, Investor B, Investor
C and Primary A Shares of the Fund by dividing the net investment income per
share for a particular class or series of shares (as described below) earned
during a 30-day period by the maximum offering price per share on the last day
of the period (for Primary A, maximum offering price per share is the same as
the net asset value per share) and annualizing the result on a semi-annual basis
by adding one to the quotient, raising the sum to the power of six, subtracting
one from the result and then doubling the difference. For a class or series of
shares in the Fund, net investment income per share earned
41
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during the period is based on the average daily number of shares outstanding
during the period entitled to receive dividends and includes dividends and
interest earned during the period minus expenses accrued for the period, net of
reimbursements. This calculation can be expressed as follows:
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 = the 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 (again, for Primary A Shares this is
equivalent to net asset value per share).
For the purpose of determining net investment income earned during the
period (variable- "a" in the formula), dividend income on equity securities held
by the Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the portfolio. The Fund calculates
interest earned on any debt obligations held in its portfolio by computing the
yield to maturity of each obligation held by it based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest) and dividing
the result by 360 and multiplying the quotient by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the portfolio. For purposes of this calculation, it is assumed
that each month contains 30 days. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations. In the case of tax-exempt obligations that are issued with original
issue discount, where the discount based on the current market value exceeds the
then-remaining portion of original issue discount, the yield to maturity is the
imputed rate based on the original issue discount calculation. Conversely, where
the discount based on the current market value is less than the remaining
portion of the original issue discount, the yield to maturity is based on the
market value.
Expenses accrued for the period (variable "b" in the formula) include
recurring fees charged by Nations Funds to shareholder accounts in proportion to
the length of the base period. Undeclared earned income will be subtracted from
the maximum offering price per share (which for Primary A Shares is net asset
value per share) (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared as a
dividend shortly thereafter. The Fund's maximum offering price per share for
purposes of the formula includes the maximum sales charge, if any, imposed by
the Fund, as reflected in the Fund's prospectus.
The Fund may provide additional yield calculations in communications
(other than advertisements) to the holders of Investor A, Investor B or Investor
C Shares. These may be calculated based on the Investor A, Investor B or
Investor C Shares' net asset values per share (rather than their maximum
offering prices) on the last day of the period covered by the yield
computations. That is, some communications provided to the holders of Investor
A, Investor B or Investor C Shares may also include additional yield
calculations prepared for the holders of Primary A Shares. Such additional
quotations, therefore, will not reflect the effect of the sales charges
mentioned above.
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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 Fund. 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.
The Primary A Shares and Investor Shares of the 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
Global Government Income Fund) or a three-month (in the case of the Emerging
Markets Fund and Pacific 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 Fund 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 Fund with those of other investment
companies and investment vehicles.
The 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 Fund 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 the Fund.
Ibbotson Data. Ibbotson Associates of Chicago, Illinois, ("Ibbotson")
provides historical returns of the capital markets in the United States. The
Fund may compare the performance of their share classes or series to the
long-term performance of the U.S. capital markets in order to demonstrate
general long-term risk versus reward investment scenarios. Performance
comparisons could also include the value of a hypothetical investment in common
stocks, long-term bonds or treasuries.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury Bills, and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks, the S&P is used. For small capitalization stocks,
return is based on the return achieved by Dimensional Fund Advisors (DFA) Small
Company Fund. This fund is a market-value-weighted index of the ninth and tenth
deciles of the
43
<PAGE>
Exchange, plus stocks listed on the American Stock Exchange (AMEX) and
over-the-counter (OTC) with the same or less capitalization as the upperbound of
the Exchange ninth docile. At year-end 1995, the DFA Small Company Fund
contained approximately 2,663 stocks, with a weighted average market
capitalization of $165.75 million. The unweighted average market capitalization
was $82.97 million, while the median was $56.0 million.
Unlike an investment in a common stock mutual fund, an investment in
bonds that are held to maturity provides a fixed and stated rate of return.
Bonds have a senior priority in liquidation or bankruptcy to common stocks, and
interest on bonds is generally paid from assets of the corporation before any
distributions to common shareholders. Bonds rated in the two highest rating
categories are considered high quality and to present minimal risks of default.
See Schedule A for a more complete explanation of these ratings of corporate
bonds. An advantage of investing in government bonds is that, in many cases,
they are backed by the credit and taxing power of the United States government,
and therefore, such securities may present little or no risk of default.
Although government securities fluctuate in price, they are highly liquid and
may be purchased and sold with relatively small transaction costs (direct
purchase of Treasury securities can be made with no transaction costs).
Long-term corporate bond returns are based on the performance of the
Salomon Brothers Long-Term-High-Grade Corporate Bond Index and include nearly
all "Aaa-" and "Aa-" rated bonds. Returns on intermediate-term government bonds
are based on a one-bond portfolio constructed each year, containing a bond which
is the shortest noncallable bond available with a maturity not less than 5
years. This bond is held for the calendar year and returns are recorded. Returns
on long-term government bonds are based on a one-bond portfolio constructed each
year, containing a bond that meets several criteria, including having a term of
approximately 20 years. The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury Bills are based on a one-bill portfolio
constructed each month, containing the shortest-term bill having not less than
one month to maturity. The total return on the bill is the month end price
divided by the previous month-end price, minus one. Data up to 1976 is from the
U.S. Government Bond file at the University of Chicago's Center for Research in
Security Prices; the Wall Street Journal is the source thereafter. Inflation
rates are based on the CPI. Ibbotson calculates total returns in the same method
as the Funds.
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.
The Fund may also quote its distribution rates, which express the
historical amount of income dividends paid to their shareholders during a
three-month period as a percentage of the maximum offering price per share on
the last day of such period. The performance figures of the Fund 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 Fund with those of
other investment companies and investment vehicles.
44
<PAGE>
In addition, the performance and yield of a class of shares in the 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 Value 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
As of April, 1998, NationsBank Corporation 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.
45
<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.
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
A-1
<PAGE>
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.
BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
A-2
<PAGE>
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for
short-term municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in the
preceding group.
The following summarizes the two highest ratings used by S&P for
short-term municipal notes:
SP-1 - 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 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, the Fund, may enter into futures contracts
and options for hedging purposes. Such transactions are described in this
Schedule. During the current fiscal year, the Fund 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 the 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, the 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.
The 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 the 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.
C-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. The 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 bonds might also rise
C-2
<PAGE>
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.
The 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, the 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, the Fund may utilize index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that the 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.
The 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).
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: 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
</TABLE>
If, however, the market moved in the opposite direction, that is, market
value decreased and the Fund had entered into an anticipatory purchase hedge, or
market value increased and the Fund had hedged its stock portfolio, the results
of the Fund's transactions in stock index futures would be as set forth below.
C-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: 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
</TABLE>
III. Margin Payments
Unlike when the 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
C-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 the 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 the 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 the
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, the
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, the 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 the 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 the 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
C-6
<PAGE>
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Adviser still may not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Fund
intends 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, the 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 the Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if the 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. The Fund
may have to sell securities at a time when it may be disadvantageous to do so.
V. Options on Futures Contracts.
The Fund 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 options (plus transaction costs).
C-7
<PAGE>
Although permitted by their fundamental investment policies, the Fund does 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
the 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 the 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, the 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, the 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 the 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 the Fund must derive less than 30% of its gross income
from investments held for less than three months. With respect to futures
contracts and other financial instruments subject to the marking-to-market
rules, the Internal Revenue Service has ruled in private letter rulings that a
gain realized from such a futures contract or financial instrument will be
treated as being derived from a security held for three months or more
(regardless of the actual period for which the contract or instrument is held)
if the gain arises as a result of a constructive sale under the
marking-to-market rules, and will be treated as being
C-8
<PAGE>
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 the Fund's futures contracts and other investments
that qualify as part of a "designated hedge," as defined in the Code, may be
netted.
<PAGE>
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
<TABLE>
<S> <C>
Included in Part B:
Audited financial statements for Nations Prime Fund, Nations
Treasury Fund, Nations International Equity Fund, Nations Equity
Income Fund, Nations International Growth Fund, Nations Small
Company Growth Fund, Nations U.S. Government Bond Fund and Nations
Government Securities Fund:
Schedule of Investments for March 31, 1998
Statements of Assets and Liabilities for March 31, 1998
Statements of Operations for the fiscal year ended March 31, 1998
Statements of Changes in Net Assets for the fiscal year ended
March 31, 1998 and the fiscal period ended March 31, 1997
Schedule of Capital Stock Activity for the fiscal year ended March 31, 1998
Notes to Financial Statements
Report of Independent Accountants, dated May __, 1998
</TABLE>
Included in Part C:
Consent of Independent Accountants to be filed by amendment.
(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
<PAGE>
(1)(b) Articles of Amendment dated March 10, 1986 and filed March 11,
1986 are incorporated by reference to Post-Effective Amendment
No. 29 filed on March 19, 1996.
(1)(c) Articles of Amendment dated July 31, 1986 are incorporated by
reference to Post-Effective Amendment No. 29 filed on March
19, 1996.
(1)(d) Articles Supplementary dated July 31, 1986 are incorporated by
reference to Post-Effective Amendment No. 29 filed on March
19, 1996.
(1)(e) Articles of Amendment dated October 4, 1989 are incorporated
by reference to Post-Effective Amendment No. 29 filed on March
19, 1996.
(1)(f) Articles Supplementary dated November 30, 1989 are
incorporated by reference to Post-Effective Amendment No. 29
filed on March 19, 1996.
(1)(g) Articles Supplementary dated March 26, 1991 are incorporated
by reference to Post-Effective Amendment No. 29 filed on March
19, 1996.
(1)(h) Articles Supplementary dated April 15, 1992 and filed April
24, 1992, are incorporated by reference to Post-Effective
Amendment No. 29 filed on March 19, 1996.
(1)(i) Articles Supplementary filed September 22, 1992 are
incorporated by reference to Post-Effective Amendment No. 29
filed on March 19, 1996.
(1)(j) Articles Supplementary dated February 18, 1993 are
incorporated by reference to Post-Effective Amendment No. 29
filed on March 19, 1996.
(1)(k) Articles Supplementary dated July 9, 1993 and filed July 12,
1993 are incorporated by reference to Post-Effective Amendment
No. 29 filed on March 19, 1996.
(1)(l) Articles Supplementary dated March 21, 1994 are incorporated
by reference to Post-Effective Amendment No. 29 filed on March
19, 1996.
(1)(m) Articles Supplementary filed December 21, 1994 are
incorporated by reference to Post-Effective Amendment No. 29
filed on March 19, 1996.
(1)(n) Articles Supplementary dated March 18, 1996 are incorporated
by reference to Post-Effective Amendment No. 29 filed on March
19, 1996.
(1)(o) Articles Supplementary dated March 1, 1998, filed herewith.
2
<PAGE>
(2)(a) Amended and Restated By-Laws, filed herewith.
(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) Sub-Advisory Agreement between Boatmen's Capital Management,
Inc. ("Boatmen's") and Registrant, filed herewith.
(5)(e) Sub-Advisory Agreement between Brandes Investment Partners,
L.P. and Registrant, filed herewith.
(6)(a) Distribution Agreement between Registrant and Stephens Inc.
dated March 31, 1993, is incorporated by reference to
Post-Effective Amendment No. 18, filed March 26, 1993.
(7) None.
(8)(a) Mutual Fund Custody and Sub-Custody Agreement between
Registrant, NationsBank of Texas, N.A. and The Bank of New
York dated, October 18, 1996, filed herewith.
(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 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
3
<PAGE>
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 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
4
<PAGE>
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 to be filed by amendment.
(11) Consent of Independent Accountants -- Price Waterhouse LLP is
to be filed by amendment.
(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.
(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
5
<PAGE>
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 May 30, 1998.
<TABLE>
<S> <C>
Title of Class Number of Record Holders
Nations Prime Fund
- Primary A Shares 24
- Primary B Shares 1
- Investor A Shares 141,061
- Investor B Shares 1,941
- Investor C Shares 1,830
- Daily Shares 431
6
<PAGE>
<CAPTION>
<S> <C>
Nations Treasury Fund
- Primary A Shares 12
- Primary B Shares 1
- Investor A Shares 2,654
- Investor B Shares 575
- Investor C Shares 70
- Daily Shares 666
Nations Equity Income Fund
- Primary A Shares 15
- Primary B Shares 2
- Investor A Shares 2,769
- Investor B Shares 6,835
- Investor C Shares 537
Nations Government Securities Fund
- Primary A Shares 4
- Primary B Shares 3
- Investor A Shares 309
- Investor B Shares 1,676
- Investor C Shares 87
Nations International Equity Fund
- Primary A Shares 38
- Primary B Shares 3
- Investor A Shares 971
- Investor B Shares 4,537
- Investor C Shares 99
Nations International Growth Fund
- Primary A Shares 26
- Primary B Shares 1
- Investor A Shares 1,031
- Investor B Shares 24
- Investor C Shares 61
Nations Small Company Growth Fund
- Primary A Shares 17
- Primary B Shares 1
- Investor A Shares 702
- Investor B Shares 220
- Investor C Shares 259
Nations U.S. Government Bond Fund
7
<PAGE>
<CAPTION>
<S> <C>
- Primary A Shares 5
- Primary B Shares 1
- Investor A Shares 54
- Investor B Shares 13
- Investor C Shares 49
Nations International Value Fund
- Primary A Shares 0
- Investor A Shares 0
- Investor B Shares 0
- Investor C Shares 0
</TABLE>
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
8
<PAGE>
(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 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,
9
<PAGE>
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 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>
<S> <C>
Position with
Name Gartmore Capital Principal Occupation
- --------- -------------------- ----------------------
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
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
10
<PAGE>
<CAPTION>
<S> <C>
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>
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).
(d) Brandes performs investment sub-advisory services for the
Registrant (and certain other customers). Information with respect to each
director and officer of the sub-investment adviser is incorporated by reference
to Forms filed by Brandes with the Securities and Exchange Commission pursuant
to the Investment Advisers Act of 1940 (file no. 801-24896).
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,
11
<PAGE>
Managed Series Investment Trust, Life & Annuity Trust and Master
Investment Portfolio, all of which are registered open-end management
investment companies, and has acted as principal underwriter for the
Liberty Term Trust, Inc., Nations Government Income Term Trust 2003,
Inc., Nations Government Income Term Trust 2004, Inc. and Managed
Balanced Target Maturity Fund, Inc., closed-end management investment
companies.
(b) Information with respect to each director and officer of the principal
underwriter is incorporated by reference to Form ADV filed by Stephens
Inc. with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (file #501-15510).
(c) Not applicable.
Item 30. Location of Accounts and Records
(1) NationsBank Texas, 901 Main Street Dallas, Texas 75202 (records
relating to its function as custodian for Nations Prime, Nations
Treasury, Nations Government Securities and Nations Equity Income
Funds, and records relating to its function as transfer agent for the
Primary A and B Shares).
(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
12
<PAGE>
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.
(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.
13
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
-------- -----------
EX-99.B1(o) CHARTER
EX-99.B2(a) BYLAWS
EX-99.B5(d) ADVSR CONTR
EX-99.B5(e) ADVSR CONTR
EX-99.B8(a) CUST CONTR
EX-99.B1(o)
NATIONS FUND, INC.
ARTICLES SUPPLEMENTARY
ESTABLISHING NEW SERIES
OF CAPITAL STOCK OF THE CORPORATION
FIRST: The Board of Directors, pursuant to a resolution duly
adopted by a majority of the Corporation's Board of Directors at a meeting of
the Board held on February 4, 1998, and pursuant to Article EIGHTH of the
Corporation's Articles of Incorporation and in accordance with Sections 2-105
(c) and 2-208.1 of the Code, authorized the appropriate Officers of the
Corporation to take such action as necessary to increase the number of
authorized shares of common stock of the Corporation from four hundred twenty
billion (420,000,000,000) shares to four hundred sixty billion (460,000,000,000)
shares, all of which have a par value of one-tenth of one cent ($.001) per
share, having an aggregate par value of four hundred sixty million dollars
($460,000,000.00).
SECOND: The Board of Directors has duly classified forty billion
(40,000,000,000) shares of the authorized, unissued and unclassified shares of
common stock of the Corporation into the following classes and has provided for
the issuance of such shares:
(a) ten billion (10,000,000,000) authorized, unissued and
unclassified shares are classified as Primary A Shares of
Nations International Value Fund;
(b) ten billion (10,000,000,000) authorized, unissued and
unclassified shares are classified as Investor A Shares of
Nations International Value Fund;
(c) ten billion (10,000,000,000) authorized, unissued and
unclassified shares are classified as Investor B Shares of
Nations International Value Fund;
(d) ten billion (10,000,000,000) authorized, unissued and
unclassified shares are classified as Investor C Shares of
Nations International Value Fund;
THIRD: The classes of shares of Nations International Value Fund
of the Corporation referred to in Articles FIRST and SECOND shall have the
following preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemptions:
(a) All considerations received by the Corporation for the issue or
sale of shares of each class of Shares ("Class") of each Fund,
together with all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange
or liquidation thereof, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may
be, shall irrevocably belong to such Class for all purposes,
subject only to the rights of creditors, and shall be so
<PAGE>
recorded upon the books of account of the Corporation. Such
consideration, income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same may be,
are herein referred to as "assets belong to" each such Class.
The assets belonging to each other Class of such Fund and, if
so, the income, earnings, profits and proceeds thereof shall be
allocated to each Class of the Fund in the proportion that the
assets belonging to each Class bear to the total assets of the
Fund or as otherwise determined by the Board of Directors;
(b) Dividends or distributions on each Class of each Fund, whether
payable in stock or cash, shall be paid only out of earnings,
surplus or other assets belonging to each such Class;
(c) In the event of the liquidation or dissolution of the
Corporation, the holders of each Class of each Fund shall each
be entitled to receive, as a Class, out of the assets of the
Corporation available for distribution to stockholders, other
than general assets not belonging to any particular Class,
assets belonging to such Class of such Fund. The assets so
distributable to the holders of each Class of each Fund shall be
distributed among such stockholders in proportion to the number
of shares of each such Class held by them and recorded on the
books the Corporation;
(d) The assets belonging to each Class of each Fund shall be charged
with the expenses and liabilities of the Corporation in respect
of such Class as well as with such Class' share of the general
expenses and liabilities of the Fund and/or the Corporation as
determined by the Board of Directors. The expenses and
liabilities so charged to each Class are herein referred to as
"expenses and liabilities belonging to" such Class. The
determination of the Board of Directors shall be conclusive as
to the allocation of expenses and liabilities, including accrued
expenses and reserves, and assets to a given Class or Classes;
(e) On each matter submitted to a vote of the stockholders, each
holder of shares of a Class shall be entitled to one vote for
each such share standing in his or her name on the books of the
Corporation and shall vote together with the holders of all
Classes of stock of the Corporation as a single Class; provided,
however, that holders of a Class of a Fund shall have the
exclusive right to vote on any agreement, investment restriction
or other matter requiring shareholder vote that relates only to
such Class or Classes of such Fund ("Class Voting"), that
holders of all Classes of a Fund shall have the exclusive right
to vote on any agreement or other matter requiring shareholder
vote that relates only to that Fund ("Fund Voting"), and that to
the extent Class Voting or Fund Voting is required by the
Investment Company Act of 1940 or Maryland Law as to any matter,
those requirements shall apply. Any fractional share, if any
such fractional share is outstanding, shall carry
proportionately all the rights of a whole share, including the
right to vote and the
2
<PAGE>
right to receive dividends, but excluding the right to receive a
stock certificate evidencing a fractional share;
(f) The net asset value of each Class of each Fund shall be computed
separately from that of each other Class of that Fund or any
other class of stock of the Corporation; and
(g) Except as otherwise provided herein, the preferences, conversion
and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption
applicable to the Corporation's stock as set forth in the
Corporation's Articles of Incorporation, as it may be amended
from time to time, shall apply.
FOURTH: Immediately before the issuance of the forty billion
(40,000,000,000) shares as set forth in Articles FIRST and SECOND hereto, the
Corporation was authorized to issue four hundred twenty billion
(420,000,000,000) shares of authorized common stock, which were classified as
follows:
(a) ten billion (10,000,000,000) shares are classified as Primary A
Shares of Nations U.S. Government Bond Fund;
(b) ten billion (10,000,000,000) shares are classified as Primary B
Shares of Nations U.S. Government Bond Fund;
(c) ten billion (10,000,000,000) shares are classified as Investor A
Shares of Nations U.S. Government Bond Fund;
(d) ten billion (10,000,000,000) shares are classified as Investor B
Shares of Nations U.S. Government Bond Fund;
(e) ten billion (10,000,000,000) shares are classified as Investor C
Shares of Nations U.S. Government Bond Fund;
(f) ten billion (10,000,000,000) shares are classified as Primary A
Shares of Nations International Growth Fund; and
(g) ten billion (10,000,000,000) shares are classified as Primary B
Shares of Nations International Growth Fund;
(h) ten billion (10,000,000,000) shares are classified as Investor A
Shares of National International Growth Fund;
(i) ten billion (10,000,000,000) shares are classified as Investor B
Shares of Nations International Growth Fund.
3
<PAGE>
(j) ten billion (10,000,000,000) shares are classified as Investor C
Shares of Nations International Growth Fund;
(k) ten billion (10,000,000,000) shares are classified as Primary A
Shares of Nations Small Company Growth Fund;
(l) ten billion (10,000,000,000) shares are classified as Primary B
Shares of Nations Small Company Growth Fund;
(m) ten billion (10,000,000,000) shares are classified as Investor A
Shares of nations Small Company Growth Fund;
(n) ten billion (10,000,000,000) shares are classified as Investor B
Shares of Nations Small Company Growth Fund;
(o) ten billion (10,000,000,000) shares are classified as Investor C
Shares of Nations Small Company Growth Fund.
(p) ten billion (10,000,000,000) shares are classified as Primary A
Shares of Nations Prime Fund;
(q) ten billion (10,000,000,000) shares are classified as Primary B
Shares of Nations Prime Fund;
(r) ten billion (10,000,000,000) shares are classified as Investor A
Shares of Nations Prime Fund;
(s) ten billion (10,000,000,000) shares are classified as Investor B
Shares of Nations Prime Fund;
(t) ten billion (10,000,000,000) shares are classified as Investor C
Shares of Nations Prime Fund;
(u) ten billion (10,000,000,000) shares are classified as Daily
Shares of Nations Prime Fund;
(v) ten billion (10,000,000,000) shares are classified as Primary A
Shares of Nations Treasury Fund;
(w) ten billion (10,000,000,000) shares are classified as Primary B
Shares of Nations Treasury Fund;
(x) ten billion (10,000,000,000) shares are classified as Investor A
Shares of Nations Treasury Fund;
4
<PAGE>
(y) ten billion (10,000,000,000) shares are classified as Investor B
Shares of Nations Treasury Fund;
(z) ten billion (10,000,000,000) shares are classified as Investor C
Shares of Nations Treasury Fund;
(y) ten billion (10,000,000,000) shares are classified as Daily
Shares of Nations Treasury Fund;
(aa) ten billion (10,000,000,000) shares are classified as Primary A
Shares of Nations Equity Income Fund;
(bb) ten billion (10,000,000,000) shares are classified as Primary B
Shares of Nations Equity Income Fund;
(cc) ten billion (10,000,000,000) shares are classified as Investor A
Shares of Nations Equity Income Fund;
(dd) ten billion (10,000,000,000) shares are classified as Investor B
Shares of Nations Equity Income Fund;
(ee) ten billion (10,000,000,000) shares are classified as Investor C
Shares of Nations Equity Income Fund;
(ff) ten billion (10,000,000,000) shares are classified as Primary A
Shares of Nations Government Securities Fund;
(gg) ten billion (10,000,000,000) shares are classified as Primary B
Shares of Nations Government Securities Fund;
(hh) ten billion (10,000,000,000) shares are classified as Investor A
Shares of Nations Government Securities Fund;
(ii) ten billion (10,000,000,000) shares are classified as Investor B
Shares of Nations Government Securities Fund;
(jj) ten billion (10,000,000,000) shares are classified as Investor C
Shares of Nations Government Securities Fund;
(kk) ten billion (10,000,000,000) shares are classified as Primary A
Shares of Nations International Equity Fund;
(ll) ten billion (10,000,000,000) shares are classified as Primary B
Shares of Nations International Equity Fund;
5
<PAGE>
(mm) ten billion (10,000,000,000) shares are classified as Investor A
Shares of Nations International Equity Fund;
(nn) ten billion (10,000,000,000) shares are classified as Investor B
Shares of Nations International Equity Fund; and
(oo) ten billion (10,000,000,000) shares are classified as Investor C
Shares of Nations International Equity Fund.
FIFTH: Following the issuance of the forty billion
(40,000,000,000) shares as set forth in Articles FIRST and SECOND, the
Corporation's four hundred sixty billion (460,000,000,000) total authorized
common stock, all of which have a par value of one tenth of one cent ($.001) per
share, having an aggregate par value of four hundred sixty million dollars
($460,000,000.00), are classified as follows:
(a) ten billion (10,000,000,000) shares are classified as
Primary A Shares of Nations International Value Fund;
(b) ten billion (10,000,000,000) shares are classified as
Investor A Shares of Nations International Value Fund;
(c) ten billion (10,000,000,000) shares are classified as
Investor B Shares of Nations International Value Fund;
(d) ten billion (10,000,000,000) shares are classified as
Investor C Shares of Nations International Value Fund;
(e) ten billion (10,000,000,000) shares are classified as
Primary A Shares of Nations U.S. Government Bond Fund;
(f) ten billion (10,000,000,000) shares are classified as
Primary B Shares of Nations U.S. Government Bond Fund;
(g) ten billion (10,000,000,000) shares are classified as
Investor A Shares of Nations U.S. Government Bond Fund;
(h) ten billion (10,000,000,000) shares are classified as
Investor B Shares of Nations U.S. Government Bond Fund;
(i) ten billion (10,000,000,000) shares are classified as
Investor C Shares of Nations U.S. Government Bond Fund;
(j) ten billion (10,000,000,000) shares are classified as
Primary A Shares of Nations International Growth Fund; and
6
<PAGE>
(k) ten billion (10,000,000,000) shares are classified as
Primary B Shares of Nations International Growth Fund;
(l) ten billion (10,000,000,000) shares are classified as
Investor A Shares of National International Growth Fund;
(m) ten billion (10,000,000,000) shares are classified as
Investor B Shares of Nations International Growth Fund;
(n) ten billion (10,000,000,000) shares are classified as
Investor C Shares of Nations International Growth Fund;
(o) ten billion (10,000,000,000) shares are classified as
Primary A Shares of Nations Small Company Growth Fund; and
(p) ten billion (10,000,000,000) shares are classified as
Primary B Shares of Nations Small Company Growth Fund;
(q) ten billion (10,000,000,000) shares are classified as
Investor A Shares of National Small Company Growth Fund;
(r) ten billion (10,000,000,000) shares are classified as
Investor B Shares of Nations Small Company Growth Fund;
(s) ten billion (10,000,000,000) shares are classified as
Investor C Shares of Nations Small Company Growth Fund;
(t) ten billion (10,000,000,000) shares are classified as
Primary A Shares of Nations Prime Fund;
(u) ten billion (10,000,000,000) shares are classified as
Primary B Shares of Nations Prime Fund;
(v) ten billion (10,000,000,000) shares are classified as
Investor A Shares of Nations Prime Fund;
(w) ten billion (10,000,000,000) shares are classified as
Investor B Shares of Nations Prime Fund;
(x) ten billion (10,000,000,000) shares are classified as
Investor C Shares of Nations Prime Fund;
(y) ten billion (10,000,000,000) shares are classified as Daily
Shares of Nations Prime Fund;
7
<PAGE>
(z) ten billion (10,000,000,000) shares are classified as
Primary A Shares of Nations Treasury Fund;
(aa) ten billion (10,000,000,000) shares are classified as
Primary B Shares of Nations Treasury Fund;
(bb) ten billion (10,000,000,000) shares are classified as
Investor A Shares of Nations Treasury Fund;
(cc) ten billion (10,000,000,000) shares are classified as
Investor B Shares of Nations Treasury Fund;
(cc) ten billion (10,000,000,000) shares are classified as
Investor C Shares of Nations Treasury Fund;
(ee) ten billion (10,000,000,000) shares are classified as Daily
Shares of Nations Treasury Fund;
(ff) ten billion (10,000,000,000) shares are classified as
Primary A Shares of Nations Equity Income Fund;
(gg) ten billion (10,000,000,000) shares are classified as
Primary B Shares of Nations Equity Income Fund;
(hh) ten billion (10,000,000,000) shares are classified as
Investor A Shares of Nations Equity Income Fund;
(ii) ten billion (10,000,000,000) shares are classified as
Investor B Shares of Nations Equity Income Fund;
(jj) ten billion (10,000,000,000) shares are classified as
Investor C Shares of Nations Equity Income Fund;
(kk) ten billion (10,000,000,000) shares are classified as
Primary A Shares of Nations Government Securities Fund;
(ll) ten billion (10,000,000,000) shares are classified as
Primary B Shares of Nations Government Securities Fund;
(mm) ten billion (10,000,000,000) shares are classified as
Investor A Shares of Nations Government Securities Fund;
(nn) ten billion (10,000,000,000) shares are classified as
Investor B Shares of Nations Government Securities Fund;
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(oo) ten billion (10,000,000,000) shares are classified as
Investor C Shares of Nations Government Securities Fund;
(pp) ten billion (10,000,000,000) shares are classified as
Primary A Shares of Nations International Equity Fund;
(qq) ten billion (10,000,000,000) shares are classified as
Primary B Shares of Nations International Equity Fund;
(rr) ten billion (10,000,000,000) shares are classified as
Investor A Shares of Nations International Equity Fund;
(ss) ten billion (10,000,000,000) shares are classified as
Investor B Shares of Nations International Equity Fund; and
(tt) ten billion (10,000,000,000) shares are classified as
Investor C Shares of Nations International Equity Fund.
The summary and restatement of the total outstanding shares of the
Corporation's common stock in this Article FIFTH has not otherwise changed the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemptions of such classes of shares.
SIXTH: The Corporation is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended.
SEVENTH: The Board of Directors has duly authorized the filing of
these Articles Supplementary.
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IN WITNESS WHEREOF, NATIONS FUND, INC. has caused these Articles
Supplementary to be executed by its President and its corporate seal to be
affixed and attested by its Secretary on this 1st day of May, 1998. The
President of the Corporation who signed these Articles Supplementary
acknowledges them to be the act of the Corporation, and states under the
penalties of perjury that to the best of his knowledge, information and belief,
the matters and facts relating to approval hereof are true in all material
respects.
NATIONS FUND, INC.
By: /s/ A. Max Walker
---------------------
A. Max Walker
President
ATTEST:
/s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
Secretary
EX-99.B2(a)
NATIONS FUND, INC.
MARYLAND
AMENDED AND RESTATED
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. TIME AND PLACE OF MEETING. Meetings of the stockholders need
not be held except as required under the general laws of the State of Maryland,
as the same may be amended from time to time. Such meetings of the stockholders
shall be held from time to time at a place designated by the Board of Directors
and stated in the notice of the meeting.
Section 2. ANNUAL MEETINGS. If a meeting of the stockholders of the
Corporation is required by the Investment Company Act of 1940, as amended, to
take action on (1) the election of directors, (2) the approval of the investment
advisory agreement, (3) the ratification of the selection of independent public
accountants, or (4) the approval of a distribution agreement, then there shall
be submitted to the stockholders at such meeting the question of the election of
directors, and a special meeting called for any of the foregoing purposes shall
be deemed the annual meeting of stockholders for that year. In other years in
which no action by stockholders is required for any of the foregoing purposes,
no annual meeting need be held.
Section 3. SPECIAL OR EXTRAORDINARY MEETINGS. Special or extraordinary
meetings of the stockholders for any purpose or purposes may be called by the
Chairman of the Board of Directors, if any, or by the President or by the Board
of Directors. In addition, such special or extraordinary meetings shall be
called by the Secretary upon receipt of a request in writing signed by
stockholders entitled to cast at least 10% of all the votes entitled to be cast
at the meeting stating the purpose of the meeting and the matters proposed to be
acted on and upon payment by such stockholders of the estimated cost of
preparing and mailing a notice of the meeting. Unless
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requested by stockholders entitled to cast a majority of all of the votes
entitled to be cast at the meeting, a special meeting need not be called to
consider any matter which is substantially the same as a matter voted on at a
special meeting of the stockholders held during the preceding 12 months.
Section 4. NOTICE OF MEETING OF STOCKHOLDERS. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof (and the purpose of any special
or extraordinary meeting), shall be given to each stockholder entitled to vote
thereat and each other stockholder entitled to notice, by leaving the same with
him or at his residence or usual place of business or by mailing it, postage
prepaid, and addressed to him at his address as it appears upon the books of the
Corporation.
Each person who is entitled to notice of any meeting waives notice if
he is present at the meeting, or attends in person or by proxy or either before
or after the meeting signs a waiver of notice which is filed with the records of
stockholders meetings.
Section 5. CLOSING OF TRANSFER BOOKS, RECORD DATES. The Board of
Directors may direct that the stock transfer books of the Corporation be closed
for a stated period not exceeding twenty days for the purpose of making any
proper determination with respect to stockholders, including which stockholders
are entitled to notice of and to vote at the meeting, receive a dividend or be
allotted other rights. If such books are closed for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of stockholders, such
books shall be closed for at least ten days immediately preceding such meeting.
In lieu of providing for the closing of the stock transfer books, the Board of
Directors may set a date, not exceeding ninety days and not less than ten days
preceding the date of any meeting of stockholders, and not exceeding ninety days
preceding any dividend payment date or any date for the allotment of rights, as
a record date for the determination of the stockholders entitled to notice of
and to vote at such meeting, or entitled to receive such dividends or rights, as
the case may be; and only stockholders of record on such date shall be entitled
to notice of and to vote at such meeting or to receive such dividends or rights,
as the case may be.
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Section 6. QUORUM, ADJOURNMENT OF MEETINGS. The presence in person or
by proxy of stockholders entitled to cast a majority of all votes entitled to be
cast at the meeting shall constitute a quorum at all meetings of the
stockholders; and a majority of all votes cast at a meeting at which a quorum is
present is sufficient to approve any matter which properly comes before the
meeting, unless otherwise provided by applicable law, the Articles of
Incorporation or the By-Laws of the Corporation. If at any meeting of the
stockholders there shall be less than a quorum present, the stockholders present
at such meeting may, without further notice, adjourn the same from time to time
(but not more than 120 days after the original record date for such meeting)
until a quorum shall attend, but no business shall be transacted at any such
adjourned meeting except such as might have been lawfully transacted had the
meeting not been adjourned.
Section 7. VOTING AND INSPECTORS. At all meetings of stockholders every
stockholder of record entitled to vote thereat shall be entitled to vote at such
meeting either in person or by proxy appointed by instrument in writing
subscribed by such stockholder or his duly authorized attorney. Unless a proxy
provides otherwise, such proxy is not valid more than eleven months after its
date.
At any election of Directors, the Board of Directors prior thereto may,
or, if they have not so acted, the Chairman of the meeting may appoint two
inspectors of election who shall first subscribe an oath or affirmation to
execute faithfully the duties of inspectors at such election with strict
impartiality and according to the best of their ability, and shall after the
election make a certificate of the result of the vote taken. No candidate for
the office of Director shall be appointed to act as such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon
any election or matter.
Section 8. CONDUCT OF STOCKHOLDERS MEETINGS. The meetings of the
stockholders shall be presided over by the Chairman of the Board, or if he shall
not be present or if there is no Chairman, by the President, or if he shall not
be present, by a Vice-President, or if neither the President nor any
Vice-President is present, by a chairman to be elected at the meeting. The
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Secretary of the Corporation, if present, shall act as Secretary of such
meetings, or if he is not present, an Assistant Secretary shall so act, and if
neither the Secretary nor an Assistant Secretary is present, then the meeting
shall elect a secretary.
Section 9. CONCERNING VALIDITY OF PROXIES, BALLOTS, ETC. At every
meeting of the stockholders, all proxies shall be received and taken in charge
of and all ballots shall be received and canvassed by the secretary of the
meeting, who shall decide all questions touching the qualification of voters,
the validity of the proxies, and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed as provided in Section 7
hereof, in which event such inspectors of election shall decide all such
questions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. NUMBER AND TERM OF OFFICE. The business and property of the
Corporation shall be conducted and managed under the direction of a Board of
Directors consisting of two Directors, which number may be increased and
decreased as provided in Section 2 of this Article. Each Director shall hold
office until his successor is duly elected and qualified. Directors need not be
stockholders.
Section 2. INCREASE OR DECREASE IN NUMBER OF DIRECTORS. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of Directors to a number not exceeding fifteen, and may elect Directors
to fill the vacancies created by any such increase in the number of Directors
until their successors are duly elected and qualify. The Board of Directors, by
the vote of a majority of the entire Board, may decrease the number of Directors
to a number not less than three or the number of stockholders, whichever is
less, but any such decrease shall not affect the term of office of any Director.
Vacancies occurring other than by reason of any such increase shall be filled as
provided by the Maryland General Corporation Law.
Section 3. PLACE OF MEETING. The Directors may hold their meetings,
have one or more offices, and keep the books of the Corporation outside the
State of Maryland, at any office or
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offices of the Corporation or at any other place as they may from time to time
determine, and in the case of meetings, as they may from time to time determine
or as shall be specified in the respective notices of such meetings or waivers
of notice thereof.
Section 4. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such time and on such notice, if any, as the Directors may from
time to time determine.
Section 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be held from time to time upon call of the Chairman of the Board of
Directors, if any, the President or two or more of the Directors, by oral or
telegraphic or written notice duly served on each Director not less than one
business day before such meeting or if sent or mailed to each Director not less
than three business days before such meeting. Each Director who is entitled to
notice waives such notice if he either before or after the meeting signs a
waiver of the notice which is filed with the minutes of the meeting or is
present at the meeting. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
Section 6. QUORUM. One third of the Directors then in office (but in no
event less than two Directors), shall constitute a quorum for the transaction of
business. If at any meeting of the Board there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
until a quorum shall have been obtained. The act of the majority of the
Directors present at any meeting at which there is a quorum shall be the act of
the Directors, except as may be otherwise specifically provided by applicable
law, by the Articles of Incorporation or by these By-Laws.
Section 7. TELEPHONIC MEETINGS, ETC. The members of the Board of
Directors or any committee of the Board of Directors may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in such meeting can hear each other at the same
time, and participation in a meeting by these means constitutes presence in
person at such meeting.
Section 8. EXECUTIVE COMMITTEE. The Board of Directors may elect from
the Directors an Executive Committee to consist of such number of Directors (but
not less than two) as the
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Board may from time to time determine. The Board of Directors shall have power
at any time to change the members of such Committee and may fill vacancies in
the Committee by election from the Directors. When the Board of Directors is not
in session, the Executive Committee shall have and may exercise any or all of
the powers of the Board of Directors in the management of the business and
affairs of the Corporation (including the power to authorize the seal of the
Corporation to be affixed to all papers which may require it) except as provided
by law and except the power to increase or decrease the size of, or fill
vacancies on the Board. The Executive Committee may fix its own rules of
procedure, and may meet, when and as provided by such rules or by resolution of
the Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
Section 9. OTHER COMMITTEES. The Board of Directors may appoint other
committees which shall in each case consist of such number of members (not less
than two) and shall have and may exercise such powers as the Board may determine
in the resolution appointing them. A majority of all members of any such
committee may determine its action, and fix the time and place of its meetings,
unless the Board of Directors shall otherwise provide. The Board of Directors
shall have power at any time to change the members and powers of any such
committee, to fill vacancies, and to discharge any such committee. In the
absence of any member of such committee, the members thereof present at any
meeting, whether or not they constitute a quorum, may appoint a member of the
Board of Directors to act in the place of such absent member.
Section 10. INFORMAL ACTION BY DIRECTORS. Except to the extent
otherwise specifically provided by applicable law, any action required or
permitted to be taken at any meeting of the Board of Directors or any Committee
thereof may be taken without a meeting, if a written consent to such action is
signed by all members of the Board or Committee and is filed with the
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minutes of proceedings of the Board or Committee.
Section 11. COMPENSATION OF DIRECTORS. Directors shall be entitled to
receive such compensation from the Corporation for their services as Directors
as may from time to time be voted by the Board of Directors.
Section 12. QUALIFICATIONS OF DIRECTORS. No person shall be qualified
to stand for election or appointment as a Director if such person has already
reached the age of 70. Each Director shall retire from service on the Board of
Directors no later than the end of the calendar year in which such Director
reaches age 70, provided that any Director who is a Director as of January 25,
1995 and who had reached the age of 70 prior to such date may continue to serve
as a Director of the Company until the end of the calendar year in which such
Director reaches age 75 and may continue to serve for successive annual periods
thereafter upon the vote of a majority of the other Directors.
ARTICLE III
OFFICERS
Section 1. EXECUTIVE OFFICERS. The executive officers of the
Corporation shall be chosen by the Board of Directors as soon as may be
practicable after the incorporation of the Corporation. These may include a
Chairman of the Board, and shall include a President, one or more Vice
Presidents (the number thereof to be determined by the Board of Directors), a
Secretary and a Treasurer. The Chairman of the Board, if any, shall be selected
from among the Directors. The Board of Directors may also in its discretion
appoint Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers,
and other officers, agents and employees, who shall have such authority and
perform such duties as the Board may determine. The Board of Directors may fill
any vacancy which may occur in any office. Any two offices, except those of
President and Vice President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity,
if such instrument is required by law or by these By-Laws to be executed,
acknowledged or verified by two or more officers.
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Section 2. TERM OF OFFICE. Unless otherwise specifically determined by
the Board of Directors, the officers shall serve at the pleasure of the Board of
Directors. If the Board of Directors in its judgment finds that the best
interests of the Corporation will be served, the Board of Directors may remove
any officer of the Corporation at any time with or without cause.
Section 3. PRESIDENT. The President shall be the chief executive
officer and head of the Corporation and, subject to the Board of Directors,
shall have the general control and management of the business and affairs of the
Corporation. If no Chairman of the Board be appointed, or if appointed, said
Chairman is absent, the President shall, if present, preside at all meetings of
the stockholders and the Board of Directors.
Section 4. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the stockholders and the Board of Directors at which
he shall be present. Subject to the provisions of Section 2, he shall have such
other powers and duties as shall be prescribed by the Board of Directors, and
shall undertake such other assignments as may be requested by the President.
Section 5. OTHER OFFICERS. The Chairman or one or more Vice Presidents
shall have and exercise such powers and duties of the President in the absence
or inability of the President as may be assigned to them, respectively, by
resolution of the Board of Directors or, to the extent not so assigned, as the
President may assign to them, respectively. In the absence or inability to act
of the President, the powers and duties of the President not assigned by the
Board of Directors or the President shall devolve upon the Chairman or in his
absence the Vice Chairman or in his absence upon the Senior Vice President.
Section 6. SECRETARY. The Secretary shall have custody of the seal of
the Corporation. He shall keep the minutes of the meetings of the stockholders,
Board of Directors and any committees thereof, and he shall attend to the giving
and serving of all notices of the Corporation. He shall have charge of the stock
certificate book and such other books and papers as the Board may direct; and he
shall perform such other duties as may be incidental to his office or as may be
assigned to him by the Board of Directors. He shall also keep or cause to be
kept a
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stock book, which may be maintained by means of computer systems, containing the
names, alphabetically arranged, of all persons who are stockholders of the
Corporation showing their places of residence, the number and class or series of
any class of shares of stock held by them respectively, and the dates when they
respectively became the owners of record thereof, and such book shall be open
for inspection as prescribed by the laws of the State of Maryland.
Section 7. TREASURER. The Treasurer shall have the care and custody of
the funds and securities of the Corporation and shall deposit the same in the
name of the Corporation in such bank or banks or other depositories and subject
to withdrawal in such manner as these By-laws or the Board of Directors may
determine; he shall, if required by the Board of Directors give such bond for
the faithful discharge of his duties in such form as the Board of Directors may
require.
ARTICLE IV
CAPITAL STOCK
Section 1. CERTIFICATES OF SHARES. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full number of shares
of each class of stock of the Corporation owned by him in such form as the Board
of Directors may from time to time prescribe.
Section 2. TRANSFER OF SHARES. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require. In the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. STOCK LEDGERS. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation, or if the Corporation employs a transfer agent, at
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the offices of the transfer agent of the Corporation.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors may determine the conditions upon which a new certificate of stock of
the Corporation of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their discretion,
require the owner of such certificate or his legal representative to give bond,
with sufficient surety to the Corporation and the transfer agent, if any, to
indemnify it and such transfer agent against any and all loss or claims which
may arise by reason of the issue of a new certificate in the place of the one so
lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors may provide a suitable corporate seal, in such
form and bearing such inscriptions as it may determine. In lieu of fixing the
Corporation's seal to a document, it is sufficient to meet the requirements of
any law, rule or regulation relating to a corporate seal to place the word
"(seal)" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII
INDEMNIFICATION
Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation
shall indemnify its directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify its officers to the same extent as its directors and to such
further extent as is consistent with law. The Corporation shall indemnify its
directors and officers who while serving as directors or officers also serve at
the request of the
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Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan to the fullest extent consistent with law.
The indemnification and other rights provided by this Article shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person. This
Article shall not protect any such person against any liability to the
Corporation or any stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office
("disabling conduct").
Section 2. ADVANCES. Any current or former director or officer of the
Corporation seeking indemnification within the scope of this Article shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent permissible under the
Maryland General Corporation Law. The person seeking indemnification shall
provide to the Corporation a written affirmation of his good faith belief that
the standard of conduct necessary for indemnification by the Corporation has
been met and a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall be met: (a)
the person seeking indemnification shall provide a security in form and amount
acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance; or (c) a majority of a
quorum of directors of the Corporation who are neither "interested persons" as
defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended,
nor parties to the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall have determined, based on
a review of facts readily available to the Corporation at the time the advance
is proposed to be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
Section 3. PROCEDURE. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine, or
cause to be determined, in a manner consistent
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with the Maryland General Corporation Law, whether the standards required by
this Article have been met. Indemnification shall be made only following: (a) a
final decision on the merits by a court or other body before whom the proceeding
was brought that the person to be indemnified was not liable by reason of
disabling conduct or (b) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the person to be
indemnified was not liable by reason of disabling conduct by (i) the vote of a
majority of a quorum of disinterested non-party directors or (ii) an independent
legal counsel in a written opinion.
Section 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees and
agents who are not officers or directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940.
Section 5. OTHER RIGHTS. The Board or Directors may make further
provision consistent with law for indemnification and advance of expenses to
directors, officers, employees and agents by resolution, agreement or otherwise.
The indemnification provided by this Article shall not be deemed exclusive of
any other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of stockholders or disinterested directors or otherwise.
Section 6. AMENDMENTS. References in this Article are to the Maryland
General Corporation Law and to the Investment Company Act of 1940 as from time
to time amended. No amendment of these By-laws shall affect any right of any
person under this Article based on any event, omission or proceeding prior to
the amendment.
ARTICLE VIII
AMENDMENT OF BY-LAWS
The By-Laws of the Corporation may be altered, amended, added to or
repealed by the Board of Directors.
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Last Amended: January 26, 1995
13
EX-99.B5(d)
SUB-ADVISORY AGREEMENT
NATIONS FUND, INC.
THIS AGREEMENT is made as of this 31st day of July, 1997, by and
among NATIONSBANC ADVISORS, INC., a North Carolina corporation (the "Adviser"),
BOATMEN'S CAPITAL MANAGEMENT, INC., a Maryland corporation (the "Sub-Adviser"),
and NATIONS FUND, INC., a Maryland corporation (the "Company"), on behalf of
those portfolios of the Company now or hereafter identified on Schedule I hereto
(each a "Fund" and collectively, the "Funds").
RECITALS
WHEREAS, the Company is registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "1940 Act") as an open-end, series management investment
company; and
WHEREAS, the Adviser is registered with the Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act") and engages in
the business of acting as an investment adviser; and
WHEREAS, the Sub-Adviser also is a trust company that serves as
investment adviser to other investment companies and various accounts; and
WHEREAS, the Adviser and the Company have entered into an
Investment Advisory Agreement dated January 1, 1996 (the "Investment Advisory
Agreement"), pursuant to which the Adviser shall act as investment adviser with
respect to the Funds; and
WHEREAS, pursuant to such Investment Advisory Agreement, the
Adviser, with the approval of the Company, wishes to retain the Sub-Adviser for
purposes of rendering advisory services to the Adviser and the Company in
connection with the Funds upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. APPOINTMENT OF SUB-ADVISER. The Adviser hereby appoints, and
the Company hereby approves, the Sub-Adviser to render investment research and
advisory services to the Adviser and the Company with respect to the Funds,
under the supervision of the Adviser and subject to the policies and control of
the Company's Board of Directors, and the Sub-Adviser hereby accepts such
appointment, all subject to the terms and conditions contained herein.
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2. INVESTMENT SERVICES. The specific duties of the Adviser
delegated to the Sub-Adviser shall be the following:
(a) obtaining and evaluating pertinent information
about significant developments and economic, statistical and
financial data, domestic, foreign or otherwise, whether affecting
the economy generally or the Funds specifically, and whether
concerning the individual issuers whose securities are included in
the Funds or the activities in which such issuers engage, or with
respect to securities which the Adviser or Sub-Adviser considers
desirable for inclusion in the Funds;
(b) investing and reinvesting, on an ongoing basis,
assets held in the Funds in strict accordance with the investment
policies of the Funds as set forth in the registration statement
of the Company with respect to the Funds, as the same may be
amended from time to time;
(c) in accordance with policies and procedures
established by the Board of Directors of the Company and the
Adviser, selecting brokers and dealers to execute portfolio
transactions for the Funds and selecting the markets on or in
which the transactions will be executed;
(d) voting, either in person or by general or
limited proxy, or refraining from voting, any securities held in
the Funds for any purposes; exercising or selling any subscription
or conversion rights; consenting to and joining in or opposing any
voting trusts, reorganizations, consolidations, mergers,
foreclosures and liquidations and in connection therewith,
depositing securities, and accepting other property received
therefor; and
(e) performing other acts necessary or appropriate
in connection with the proper management of the Funds, consistent
with its obligations hereunder, and as may be directed by the
Adviser and/or the Company's Board of Directors.
3. CONTROL BY BOARD OF DIRECTORS. As is the case with respect to
the Adviser under the Investment Advisory Agreement, any investment activities
undertaken by the Sub-Adviser pursuant to this Agreement, as well as any other
activities undertaken by the Sub-Adviser with respect to the Funds, shall at all
times be subject to any directives of the Board of Directors of the Company.
4. COMPLIANCE WITH APPLICABLE REQUIREMENTS. In carrying out its
obligations under this Agreement, the Sub-Adviser shall at all times conform to:
(a) all applicable provisions of the 1940 Act, the
Advisers Act and any rules and regulations adopted thereunder;
-2-
<PAGE>
(b) the provisions of the registration statement of
the Company applicable to the Funds, as the same may be amended
from time to time, under the Securities Act of 1933 and the 1940
Act;
(c) the provisions of the Articles of Incorporation
of the Company, as the same may be amended from time to time;
(d) the provisions of the By-Laws of the Company, as
the same may be amended from time to time;
(e) any other applicable provisions of state or
federal law.
In addition, any code of ethics adopted by the Sub-Adviser
pursuant to Rule 17j-1 under the 1940 Act shall include policies, prohibitions
and procedures which substantially conform to the recommendations regarding
personal investing approved by the Board of Governors of the Investment Company
Institute on June 30, 1994, as such recommendations may be amended from time to
time.
5. BROKER-DEALER RELATIONSHIPS. The Sub-Adviser is responsible for
the purchase and sale of securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates. The Sub-Adviser's primary
consideration in effecting a security transaction will be to obtain the best
price and execution. In selecting a broker-dealer to execute each particular
transaction for a Fund, the Sub-Adviser will take the following into
consideration: the best net price available, the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the Fund on a continuing basis. Accordingly, the price to the
Fund in any transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered. Subject to such policies as the Adviser or
the Company's Board of Directors may from time to time determine, the
Sub-Adviser shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of having caused a
Fund to pay a broker or dealer that provides brokerage and research services to
the Sub-Adviser an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Sub-Adviser determines in
good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer,
viewed in terms of either that particular transaction or the overall
responsibilities of the Sub-Adviser with respect to the Fund and to other
clients of the Sub-Adviser. The Sub-Adviser is further authorized to allocate
the orders placed by it on behalf of the Funds to brokers and dealers who also
provide research or statistical material, or other services to the Funds or to
the Sub-Adviser. Such allocation shall be in such amounts and proportions as the
Sub-Adviser shall determine, and the Sub-Adviser will report on said allocations
regularly to the
-3-
<PAGE>
Adviser and to the Board of Directors of the Company indicating the brokers to
whom such allocations have been made and the basis therefor.
6. COMPENSATION. The Adviser shall pay the Sub-Adviser, as
compensation for services rendered hereunder, fees, payable monthly, at the
annual rates indicated on Schedule I hereto, as such Schedule may be amended or
supplemented from time to time. It is understood that the Adviser shall be
responsible for the Sub-Adviser's fee for its services hereunder, and the
Sub-Adviser agrees that it shall have no claim against the Company or the Funds
with respect to compensation under this Agreement.
The average daily net asset value of the Funds shall be determined
in the manner set forth in the Articles of Incorporation and registration
statement of the Company, as amended from time to time.
7. EXPENSES OF THE FUNDS. All of the ordinary business expenses
incurred by the Company in the operations of the Funds and the offering of their
shares shall be borne by the Funds unless specifically provided otherwise in
this Agreement. These expenses borne by the Funds include but are not limited to
brokerage commissions, taxes, legal, auditing, or governmental fees, the cost of
preparing share certificates, custodian, transfer agent and shareholder service
agent costs, expenses of issue, sale, redemption and repurchase of shares,
directors and shareholder meetings, the cost of preparing and distributing
reports and notices to shareholders, the fees and other expenses incurred by the
Funds in connection with membership in investment company organizations and the
cost of printing copies of prospectuses and statements of additional information
distributed to the Funds' shareholders.
8. EXPENSE LIMITATION. If, for any fiscal year of a Fund, the
amount of the aggregate advisory fee which the Company would otherwise be
obligated to pay with respect to the Fund is reduced pursuant to expense
limitation provisions of the Investment Advisory Agreement, the fee which the
Sub-Adviser would otherwise receive pursuant to this Agreement shall be reduced
proportionately.
9. NON-EXCLUSIVITY. The services of the Sub-Adviser to the Adviser
and the Company with respect to the Funds are not to be deemed to be exclusive,
and the Sub-Adviser shall be free to render investment advisory and
administrative or other services to others (including other investment
companies) and to engage in other activities. It is understood and agreed that
the officers and directors of the Sub-Adviser are not prohibited from engaging
in any other business activity or from rendering services to any other person,
or from serving as partners, officers, directors or trustees of any other firm
or trust, including other investment advisory companies.
10. RECORDS. The Sub-Adviser shall, with respect to the orders the
Sub-Adviser places for the purchases and sales of portfolio securities of the
Funds, maintain or arrange for the maintenance of the documents and records
required pursuant to Rule 31a-1 under the 1940 Act as well as such records as
the Funds' administrator
-4-
<PAGE>
reasonably requests to be maintained, including, but not limited to, trade
tickets and confirmations for portfolio trades. All such records shall be
maintained in a form acceptable to the Funds and in compliance with the
provisions of Rules 31a-1 and 31a-2. All such records will be the property of
the Funds and will be available for inspection and use by the Adviser or the
Funds upon request. The Sub-Adviser will promptly notify the Adviser and the
Fund's administrator if it experiences any difficulty in maintaining the records
in an accurate and complete manner.
11. TERM AND APPROVAL. This Agreement shall become effective with
respect to each Fund when approved in accordance with the requirements of the
1940 Act, and shall thereafter continue in force and effect for one year, and
may be continued from year to year with respect to each Fund thereafter,
provided that the continuation of the Agreement is specifically approved at
least annually:
(a) (i) by the Company's Board of Directors or (ii) by the
vote of "a majority of the outstanding voting securities" of a
Fund (as defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the Directors
of the Company who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of a party to
this Agreement (other than as Directors of the Company), by votes
cast in person at a meeting specifically called for such purpose.
12. TERMINATION. This Agreement may be terminated at any time with
respect to:
(a) a Fund, without the payment of any penalty, by vote of
the Company's Board of Directors or by vote of a majority of a
Fund's outstanding voting securities, or by the Adviser, upon
written notice to the other parties to this Agreement.
(b) by the Sub-Adviser on sixty (60) days' written notice
to the other parties to this Agreement.
Any party entitled to notice may waive the notice provided for
herein. This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for purposes of this paragraph having the
meaning defined in Section 2(a)(4) of the 1940 Act.
13. LIABILITY OF SUB-ADVISER. In the absence of willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties hereunder on the part of the Sub-Adviser or any of its officers,
directors, employees or agents, the Sub-Adviser shall not be subject to
liability to the Adviser or to the Company for any act or omission in the
-5-
<PAGE>
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
14. INDEMNIFICATION. In the absence of willful misfeasance, bad
faith, negligence or reckless disregard of duties hereunder on the part of the
Sub-Adviser, or any officers, directors, employees or agents thereof, the
Company hereby agrees to indemnify and hold harmless the Sub-Adviser against all
claims, actions, suits or proceedings at law or in equity whether brought by a
private party or a governmental department, commission, board, bureau, agency or
instrumentality of any kind, arising from the advertising, solicitation, sale,
purchase or pledge of securities, whether of the Funds or other securities,
undertaken by the Funds, their officers, directors, employees, agents or
affiliates, resulting from any violations of the securities laws, rules,
regulations, statutes and codes, whether federal or of any state, by the Funds,
their officers, directors, employees or affiliates. Federal and state securities
laws impose liabilities under certain circumstances on persons who act in good
faith, and nothing herein shall constitute a waiver or limitation of any rights
which a Fund may have and which may not be waived under any applicable federal
and state securities laws.
15. NOTICES. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to such address as may be
designated for the receipt of such notice, with a copy to the Company. Until
further notice, it is agreed that the address of the Company shall be 111 Center
Street, Little Rock, Arkansas 72201; that of the Sub-Adviser shall be 100 North
Broadway, St. Louis, Missouri 63178; and that of the Adviser shall be One
NationsBank Plaza, Charlotte, North Carolina 28255.
16. QUESTIONS OF INTERPRETATION. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act or the Advisers Act shall be
resolved by reference to such term or provision of the 1940 Act or the Advisers
Act and to interpretations thereof, if any, by the United States courts or in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the Commission issued pursuant to the 1940 Act or the Advisers Act.
In addition, where the effect of a requirement of the 1940 Act or the Advisers
Act reflected in any provision of this Agreement is revised by rule, regulation
or order of the Commission, such provision shall be deemed to incorporate the
effect of such rule, regulation or order.
17. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. No amendment of this
Agreement affecting a Fund shall be effective until approved by vote of a
majority of the outstanding voting securities of such Fund. However, this shall
not prevent the Sub-Adviser from reducing, limiting or waiving its fee.
-6-
<PAGE>
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers on the day and year first written
above.
NATIONS FUND, INC.,
on behalf of the Funds
By:/s/ A. Max Walker
------------------------
A. Max Walker
President and Chairman of the
Board of Directors
NATIONSBANC ADVISORS, INC.
By:/s/ Mark H. Williamson
---------------------------
Mark H. Williamson
President and Director
BOATMEN'S CAPITAL MANAGEMENT, INC.
By:/s/ J.J. Landers Carnal
---------------------------
J.J. Landers Carnal
President
-7-
<PAGE>
SCHEDULE I
The Adviser shall pay the Sub-Adviser as full compensation for services
provided and expenses assumed hereunder a sub-advisory fee for each Fund,
computed daily and payable monthly at the annual rates listed below as a
percentage of the average daily net assets of the Fund:
FUND RATE OF COMPENSATION
---- ---------------------
Nations U.S. Government Bond Fund 0.15%
-8-
EX-99.B5(e)
SUB-ADVISORY AGREEMENT
NATIONS FUND, INC.
AGREEMENT made as of April 8, 1998 between NATIONSBANC ADVISORS, INC.,
a North Carolina corporation (herein called the "Adviser"), BRANDES INVESTMENT
PARTNERS, L.P., a California limited partnership (herein called the
"Sub-Adviser") and NATIONS FUND, INC. (the "Company"), on behalf of the
portfolios of the Company as now or hereafter may be identified on Schedule I
hereto (each a "Fund" and collectively, the "Funds").
RECITALS
WHEREAS, the Company is registered with the Securities and Exchange
Commission (the "Commission") under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end series management investment company;
and
WHEREAS, the Adviser is registered with the Commission under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and engages in
the business of acting as an investment adviser; and
WHEREAS, the Sub-Adviser is also registered under the Advisers Act, as
an investment adviser and engages in the business of acting as an investment
adviser; and
WHEREAS, the Adviser and the Company have entered into an Investment
Advisory Agreement dated January 1, 1996, as amended (the "Investment Advisory
Agreement"), pursuant to which the Adviser shall act as investment adviser with
respect to the Funds; and
WHEREAS, pursuant to such Investment Advisory Agreement, the Adviser,
with the approval of the Company, wishes to retain the Sub-Adviser for purposes
of rendering advisory services to the Adviser and the Company in connection with
the Funds upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment.
The Adviser hereby appoints the Sub-Adviser to act as
investment sub-adviser to the Funds for the period and on the terms set forth in
this Agreement. The Sub-Adviser accepts such appointment and agrees to furnish
the services herein set forth for the compensation herein provided.
<PAGE>
2. Services of Sub-Adviser.
Subject to the oversight and supervision of the Adviser and
the Company's Board of Directors, the Sub-Adviser will provide a continuous
investment program for the Funds, including investment research and management
with respect to all securities and investments, except for such cash balances of
the Funds as may, from time to time, be managed by the Adviser. Pursuant to the
foregoing, the Sub-Adviser will determine from time to time what securities and
other investments will be purchased, retained or sold by the Funds. The
Sub-Adviser will provide the services rendered by it under this Agreement in
accordance with the investment criteria and policies established from time to
time for the Funds by the Adviser, the Funds' investment objectives, policies
and restrictions as stated in the Funds' Prospectuses and Statement of
Additional Information for the Funds, and resolutions of the Funds' Board of
Directors.
The Sub-Adviser further agrees that it will:
(a) Provide information to the Funds' accountant for the
purpose of updating the Funds' cash availability throughout
the day as required;
(b) Maintain historical tax lots for each portfolio security
held by the Funds;
(c) Transmit trades to the Company's custodian for proper
settlement;
(d) Maintain all books and records with respect to the Funds
that are required to be maintained under Rule 31a-l(f) under
the 1940 Act;
(e) Supply the Adviser, the Company and the Company's Board
of Directors with reports, statistical data and economic
information as requested; and
(f) Prepare a quarterly broker security transaction summary
and, if requested in advance, monthly security transaction
listing for the Funds.
3. Other Covenants.
The Sub-Adviser agrees that it will:
(a) Comply with all applicable Rules and Regulations of the
Commission and will in addition conduct its activities under
this Agreement in accordance with other applicable law;
(b) Use the same skill and care in providing such services as
it uses in providing services to fiduciary accounts for which
it has investment responsibilities;
2
<PAGE>
(c) Place orders pursuant to its investment determinations
for the Funds either directly with the issuer or with any
broker or dealer. In executing portfolio transactions and
selecting brokers or dealers, the Sub-Adviser will use its
best efforts to seek on behalf of the Funds the best overall
terms available. In assessing the best overall terms available
for any transaction, the Sub-Adviser shall consider all
factors that it deems relevant, including the breadth of the
market in the security, the price of the security, the
financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both
for the specific transaction and on a continuing basis. In
evaluating the best overall terms available, and in selecting
the broker-dealer to execute a particular transaction, the
Sub-Adviser may also consider the brokerage and research
services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Funds or
other accounts over which the Sub-Adviser or an affiliate of
the Sub-Adviser exercises investment discretion. The
Sub-Adviser is authorized, subject to the prior approval of
the Adviser and the Company's Board of Directors, to pay to a
broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction
for the Funds which is in excess of the amount of commission
another broker or dealer would have charged for effecting that
transaction if, but only if, the Sub-Adviser determines in
good faith that such commission was reasonable in relation to
the value of the brokerage and research services provided by
such broker or dealer -- viewed in terms of that particular
transaction or in terms of the overall responsibilities of the
Sub-Adviser to the Funds. In addition, the Sub-Adviser is
authorized to take into account the sale of shares of the
Company in allocating purchase and sale orders for portfolio
securities to brokers or dealers (including brokers and
dealers that are affiliated with the Adviser, Sub-Adviser or
the Company's principal underwriter), provided that the
Sub-Adviser believes that the quality of the transaction and
the commission are comparable to what they would be with other
qualified firms. In no instance, however, will portfolio
securities be purchased from or sold to the Adviser,
Sub-Adviser, the Company's principal underwriter or any
affiliated person of either the Company, the Adviser,
Sub-Adviser, or the Company's principal underwriter, acting as
principal in the transaction, except to the extent permitted
by the Comission;
(d) Treat confidentially and as proprietary information of
the Company, all records and other information relative to the
Company maintained by the Sub-Adviser, and will not use such
records and information for any purpose other than performance
of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Company,
which approval shall not be unreasonably withheld and may not
be withheld where the Sub-Adviser may be exposed to civil or
criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted
authorities, or when so requested by the Company; and
(e) Maintain a policy and practice of conducting its
sub-investment advisory services hereunder independently of
its, and any of its
3
<PAGE>
affiliates', commercial banking operations. When the
Sub-Adviser makes investment recommendations for the Funds,
its investment advisory personnel will not inquire or take
into consideration whether the issuers of securities proposed
for purchase or sale for the Funds' accounts are customers of
its, or any of its affiliates', commercial department. In
dealing with commercial customers, the commercial department
of the Sub-Adviser, or any of its affiliates, will not
inquire or take into consideration whether securities of
those customers are held by the Funds.
4. Services Not Exclusive.
The services furnished by the Sub-Adviser hereunder are deemed
not to be exclusive, and the Sub-Adviser shall be free to furnish similar
services to others so long as its services under this Agreement are not impaired
thereby. To the extent that the purchase or sale of securities or other
investments of the same issuer may be deemed by the Sub-Adviser to be suitable
for two or more accounts managed by the Sub-Adviser, the available securities or
investments may be allocated in a manner believed by the Sub-Adviser to be
equitable to each account. It is recognized that in some cases this procedure
may adversely affect the price paid or received by the Funds or the size of the
position obtainable for or disposed of by the Funds.
5. Books and Records.
In compliance with the requirements of Rule 31a-3 under the
1940 Act, the Sub-Adviser hereby agrees that all records which it maintains for
the Funds are the property of the Company and further agrees to surrender
promptly to the Company any of such records upon the Company's request. The
Sub-Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act, the records required to be maintained by it under this
Agreement.
6. Expenses.
During the term of this Agreement, the Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions, custodial charges and other transaction costs,
if any) purchased or sold for the Funds.
7. Compensation.
The Adviser shall pay the Sub-Adviser, as compensation for
services rendered hereunder, fees, payable monthly, at the annual rates
indicated on Schedule I hereto, as such Schedule may be supplemented and amended
from time to time. It is understood that the Adviser shall be responsible for
the Sub-Adviser's fee for its services hereunder, and the Sub-Adviser agrees
that it shall have no claim against the Company or the Funds with respect to
compensation under this Agreement.
4
<PAGE>
The average daily net asset value of the Funds shall be
determined in the manner set forth in the Articles of Incorporation and
registration statement of the Company, as amended from time to time.
8. Limitation of Liability.
The Sub-Adviser shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Company in connection with the
performance of this Agreement, except that the Sub-Adviser shall be liable to
the Company for any loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or any loss resulting from willful
misfeasance, bad faith or negligence on the part of the Sub-Adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
9. Duration and Termination.
This Agreement will become effective as of the date first
written above. Unless sooner terminated as provided herein, this Agreement shall
continue in effect until April _, 2000 and, if approved by the shareholders of
the Funds on or before such date, shall continue in effect for an additional
period ending on January 1, 2001. Thereafter, if not terminated, this Agreement
shall automatically continue in effect for successive annual periods ending on
January 1, provided such continuance is specifically approved at least annually
(a) by the vote of a majority of those members of the Company's Board of
Directors who are not interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting such approval, and (b) by
the Company's Board of Directors or by vote of a majority of the outstanding
voting securities of the Funds. Notwithstanding the foregoing, this Agreement
may be terminated as to the Funds at any time, without the payment of any
penalty, by the Adviser or by the Company (by vote of the Company's Board of
Directors or by vote of a majority of the outstanding voting securities of the
Funds), on sixty days' written notice to the Sub-Adviser, or by the Sub-Adviser,
on sixty days' written notice to the Company, provided that in each such case,
notice shall be given simultaneously to the Adviser. In addition,
notwithstanding anything herein to the contrary, in the event of the termination
of the Investment Advisory Agreement with respect to the Funds for any reason
(whether by the Company, by the Adviser or by operation of law) this Agreement
shall terminate upon the effective date of such termination of the Investment
Advisory Agreement. This Agreement will also immediately terminate in the event
of its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meaning as such terms have in the 1940 Act.)
10. Amendment of This Agreement.
No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought. To the extent required by the 1940 Act, no amendment of
this Agreement shall be effective until approved by vote of a majority of the
outstanding voting securities of the Funds.
5
<PAGE>
11. Miscellaneous.
The captions in this Agreement are included for convenience of
reference only, and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by Maryland law.
12. Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers of the day and year first
written above.
NATIONS FUND, INC.,
on behalf of the Funds
By: /s/ A. Max Walker
-----------------------
A. Max Walker
President and Chairman of the
Board of Directors
NATIONSBANC ADVISORS, INC.
By: /s/ Edward D. Bedard
-------------------------
Edward D. Bedard
Senior Vice President
BRANDES INVESTMENT
PARTNERS, L.P.
By: /s/ Jeffrey A. Busby
-------------------------
Jeffrey A. Busby
Managing Partner
7
<PAGE>
SCHEDULE I
The Adviser shall pay the Sub-Adviser as full compensation for services
provided and expenses assumed hereunder, a sub-advisory fee for each Fund,
computed daily and payable monthly at the annual rates listed below as a
percentage of the average daily net assets of the Fund:
FUND RATE OF COMPENSATION
---- ---------------------
Nations International Value Fund .50% of average daily net assets
8
EX-99.B8(a)
MUTUAL FUND CUSTODY AND SUB-CUSTODY AGREEMENT
THIS AGREEMENT is made as of the 18th day of October, 1996 by
and among NationsBank of Texas, N.A., a national banking association
("Custodian"), The Bank of New York, a New York corporation authorized to do a
banking business ("Sub-Custodian"), and Nations Fund, Inc., a Maryland
corporation (the "Company").
W I T N E S S E T H
WHEREAS, the Company is a registered open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Company desires to retain Custodian to serve as
custodian for the Company, on behalf of its portfolios listed on Schedule I
(individually a "Fund" and collectively the "Funds") and to provide the services
described herein, and Custodian is willing to serve and to provide such
services; and
WHEREAS, Custodian and Company each desires to retain
Sub-Custodian to serve as the Company's sub-custodian and provide the services
described herein, and Sub-Custodian is willing to so serve and to provide such
services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the Company, Custodian and Sub-Custodian hereby
agree as follows:
1. Appointment. The Company hereby appoints the Custodian to act as
custodian of its portfolio securities, cash and other property on the terms set
forth in this Agreement. The Custodian accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation as provided
in Paragraph 23 hereof. The Custodian agrees to comply with all relevant
provisions of the 1940 Act and applicable rules and regulations thereunder.
Custodian and Company each hereby appoints Sub-Custodian to act as a
sub-custodian of the portfolio securities, cash and other property of the
Company on the terms set forth in this Agreement. Sub-Custodian accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Paragraph 23 hereof, Sub-Custodian agrees to
comply with all relevant provisions of the 1940 Act and applicable rules and
regulations thereunder applicable to Sub-Custodian's performance of its services
hereunder.
The Company may from time to time issue separate series or classes, and
classify and reclassify shares of any such series or class. Custodian or the
Company shall promptly specify to Sub-Custodian in writing such series or
classes, or any reclassification, and thereafter Sub-Custodian shall identify to
each such series or class Property, as hereinafter defined, belonging to such
series or class, and such reports, confirmations and notices to the Company
called for under this Agreement shall identify the series or class to which such
report, confirmation or notice pertains.
1
<PAGE>
2. Delivery of Documents. The Company has furnished to the Custodian
and Sub-Custodian copies properly certified or authenticated of each of the
following:
(a) Resolutions of the Company's Board of Directors
authorizing the appointment of Custodian and Sub-Custodian as a custodian and
sub-custodian of portfolio securities, cash and other property of the Company,
respectively, and approving and consenting to this Agreement;
(b) Schedule A identifying and containing the signatures of
the Company's officers and/or other persons authorized to issue Oral
Instructions and to sign Written Instructions, as hereinafter defined, on behalf
of the Company;
(c) Schedule B setting forth the names and signatures of the
present officers of the Company;
(d) The Company's current Registration Statement on Form N-1A
under the 1940 Act and the Securities Act of 1933, as amended (the "1933 Act"),
as filed with the Securities and Exchange Commission (the "SEC"), relating to
shares of beneficial interest of the Company, without par value (the "Shares");
(e) The current prospectuses and statements of additional
information of each of the Funds, including all amendments and supplements
thereto (the "Prospectuses"); and
(f) A copy of the opinion of counsel for the Company, with
respect to the validity of the Shares and the status of such Shares under the
1933 Act filed with the SEC, and any other applicable federal law or regulation.
The Company shall furnish to Custodian and Sub-Custodian from
time to time copies, properly certified or authenticated, of all amendments of
or supplements to any of the foregoing.
3. Definitions.
(a) "Authorized Person". As used in this Agreement, the term
"Authorized Person" means any of the Company's officers, and any other person,
whether or not any such person is an officer or employee of the Company, duly
authorized by the Board of Directors of the Company to give Oral and Written
Instructions to Custodian and Sub-Custodian on behalf of the Company and listed
on Schedule A, which may be amended from time to time. Authorized Persons duly
authorized by the Board of Directors of the Company to buy and sell foreign
currency on a spot and forward basis and options to buy and sell foreign
currency are denoted by an asterisk thereon.
(b) "Book-Entry System". As used in this Agreement, the term
"Book-Entry System" means the Federal Reserve/Treasury book-entry system for
United States and federal agency securities, its successor or successors and its
nominee or nominees and any book-entry system maintained by a clearing agency
registered with the SEC under Section 17A of the Securities Exchange Act of 1934
(the "1934 Act").
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(c) "Composite Currency Unit". Shall mean the European
Currency Unit or any other composite unit consisting of the aggregate of
specified amounts of specified Currencies as such unit may be constituted from
time to time.
(d) "Currency". Shall mean money denominated in a lawful
currency of any country or the European Currency Unit.
(e) "FX Transaction". Shall mean any transaction for the
purchase by one party of an agreed amount in one Currency against the sale by it
to the other party of an agreed amount in another Currency.
(f) "Instructions". Shall mean instruction communications
transmitted by electronic or telecommunications media including S.W.I.F.T.,
computer-to-computer interface, dedicated transmission line, facsimile
transmission (which may be signed or unsigned) and tested telex.
(g) "Oral Instructions". As used in this Agreement, the term
"Oral Instructions" means oral instructions actually received by Custodian or
Sub-Custodian from an Authorized Person or from a person reasonably believed by
Custodian or Sub-Custodian to be an Authorized Person.
(h) "Officer's Certificate". The term "Officer's Certificate"
as used in this Agreement means instructions delivered by hand, mail, tested
telegram, cable, telex, or facsimile sending device, and actually received by
Custodian or Sub-Custodian signed or reasonably believed by Custodian or
Sub-Custodian to be signed by two officers of the Company listed on Schedule B.
(i) "Property". The term "Property", as used in this
Agreement, means:
(i) any and all securities and other property of the
Company which the Company or Custodian may from time to time deliver to
Custodian or Sub-Custodian, as applicable, or which Custodian or Sub-Custodian
may from time to time hold for the Company;
(ii) all income in respect of any securities or other
property described in immediately preceding clause (i);
(iii) all proceeds of sales of any of such securities
or other property described in preceding clause (i) actually received by
Custodian or Sub-Custodian; and
(iv) proceeds of the sale of Shares received by
Custodian or Sub-Custodian from time to time from or on behalf of the Company.
(j) "Securities Depository". As used in this Agreement, the
term "Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC or its successor or successors and its nominee or
nominees; and shall also mean any other registered clearing agency, its
successor or successors specifically identified in a certified copy of
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a resolution of the Company's Board of Directors approving deposits by the
Custodian or Sub-Custodian therein.
(k) "Written Instructions". As used in this Agreement,
"Written Instructions" means instructions delivered by hand, mail, tested
telegram, cable, telex, or facsimile sending device, and actually received by
the Custodian or Sub-Custodian, signed or reasonably believed by the Custodian
or Sub-Custodian to be signed by two Authorized Persons, and the term Written
Instructions shall also include Instructions.
4A. Services of Custodian. The Custodian shall be responsible for
oversight and monitoring of the performance by the Sub-Custodian of the duties
assumed by it hereunder. Such oversight and monitoring shall include, but not be
limited to, coordinating communication between the Funds' investment adviser(s)
and the Sub-Custodian with respect to Fund trading activity, assisting with
failed trade resolution, reviewing Fund cash management activity with the
Sub-Custodian, reviewing posting of income to Fund accounts, monitoring
Sub-Custodian's reporting of corporate actions to the Funds' investment
adviser(s) and communications related thereto, facilitating the establishment of
Fund accounts on the Sub-Custodian's custody system, and assisting in the
resolution of any issues between the Sub-Custodian and the Funds.
In no case, however, shall the Custodian have physical custody of any
of the Funds' securities, cash or other monies.
4B. Delivery and Registration of the Property. Custodian or the Company
shall deliver or cause to be delivered to Sub-Custodian all securities and all
monies owned by the Funds, including cash received for the issuance of Shares,
at any time during the period of this Agreement, except for securities and
monies to be delivered to any other sub-custodian appointed, with approval of
Company, by Custodian or Sub-Custodian pursuant to Paragraphs 7, 27, or 28(g)
hereof. Sub-Custodian will not be responsible for such securities and such
monies until actually received by it. All securities delivered to Sub-Custodian
(other than in bearer form) shall be registered in the name of the Fund or in
the name of a nominee of a Fund or in the name of Sub-Custodian or any nominee
of Sub-Custodian (with or without indication of fiduciary status) or in the name
of any sub-custodian or any nominee of such sub-custodian appointed, with
approval of Company, pursuant to Paragraphs 7, 27, or 28(g) hereof or shall be
properly endorsed and in form for transfer satisfactory to Sub-Custodian.
5. Voting Rights. With respect to all securities, however registered,
it is understood that the voting and other rights and powers shall be exercised
by the Company. Sub-Custodian's only duty shall be to mail to the Company within
two (2) business days following receipt by the Sub-Custodian any documents
received by Sub-Custodian as sub-custodian, including proxy statements and
offering circulars, with any proxies for securities registered in a nominee name
executed by such nominee. Where warrants, options, tenders or other securities
have fixed expiration dates, the Company understands that in order for
Sub-Custodian to act, Sub-Custodian must receive the Company's instructions at
its offices in New York, addressed as Sub-Custodian may from time to time
request, by no later than noon (New York City time) at least one (1) business
day prior to the last scheduled date to act with respect thereto (or such
earlier date or time as Sub-Custodian may reasonably notify the Company and
Custodian). Absent Sub-
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Custodian's timely receipt of such instructions, such instructions will expire
without liability to Sub-Custodian. Corporate reports need not be forwarded to
the Company.
6. Receipt and Disbursement of Money.
(a) Sub-Custodian shall open and maintain a custody account
for each Fund of the Company, subject only to draft or order by Sub-Custodian
acting pursuant to the terms of this Agreement, and, subject to Paragraphs 7,
27, or 28(g) hereof, shall hold in such account, subject to the provisions
hereof, all cash received by it from or for the Funds. Sub-Custodian shall make
payments of cash to, or for the account of, each Fund from such cash only (i)
for the purchase of securities for the Funds as provided in Paragraph 14 hereof;
(ii) upon receipt of an Officer's Certificate for the payment of dividends or
other distributions on or with respect to Shares, or for the payment of
interest, taxes, administration, distribution or advisory fees or expenses which
are to be borne by the Funds under the terms of this Agreement and, with respect
to each Fund, and under the terms of any investment advisory agreements,
administration agreement or distribution agreement; (iii) upon receipt of
Written Instructions for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Funds and held by or to be
delivered to Sub-Custodian; (iv) to a sub-custodian or co-custodian pursuant to
Paragraphs 7, 27, or 28(g) hereof; or (v) for the redemption of Shares; or (vi)
upon receipt of an Officer's Certificate for other corporate purposes.
(b) Sub-Custodian is hereby authorized to endorse and collect
all checks, drafts or other orders for the payment of money received as
custodian for the Funds.
7. Receipt of Securities.
(a) Except as provided by Paragraphs 7(c), 8, 27, or 28(g)
hereof, and except as otherwise directed by Oral or Written Instructions
described in Paragraph 11 hereof, Sub-Custodian shall hold and physically
segregate in a separate account with respect to each Fund, identifiable from
those of any other person, all securities and non-cash property received by it
for the Funds. All such securities and non-cash property are to be held or
disposed of by Sub-Custodian for each Fund pursuant to the terms of this
Agreement. In the absence of Written Instructions accompanied by a certified
resolution authorizing the specific transaction by the Company's Board of
Directors, and subject to Paragraph 25 hereof, Sub-Custodian shall have no power
or authority to withdraw, deliver, assign, hypothecate, pledge or otherwise
dispose of any such securities and investments, except in accordance with the
express terms provided for in this Agreement. In no case may any director,
officer, employee or agent of the Company or of Custodian withdraw any
securities. In connection with its duties under this Paragraph 7(a),
Sub-Custodian may, with the prior written approval of Company and Custodian,
enter into sub-custodian agreements with other banks or trust companies for the
receipt of certain securities and cash to be held by Sub-Custodian for the
account of a Fund pursuant to this Agreement; provided that each such bank or
trust company has an aggregate capital, surplus and undivided profits, as shown
by its last published report, of not less than one million dollars ($1,000,000)
for a Sub-Custodian subsidiary or affiliate, or of not less than twenty million
dollars ($20,000,000) for a sub-custodian that is not a subsidiary or affiliate
of Sub-Custodian and that in either case such bank or trust company agrees with
Sub-Custodian to comply with the provisions of the 1940 Act
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<PAGE>
and applicable rules and regulations thereunder applicable to its performance of
its services. Sub-Custodian will provide the Company and Custodian with a copy
of each sub-custodian agreement it executes pursuant to this Paragraph 7(a).
Sub-Custodian shall be liable for acts or omissions of any such sub-custodian
selected by it pursuant to this Paragraph 7(a), under the standards of care
provided for herein, except for any such sub-custodian engaged at the specific
direction of the Funds. Notwithstanding anything herein to the contrary, this
Paragraph 7(a) shall not apply to Sub-Custodian's engagement of foreign
sub-custodians, which shall instead be governed by Paragraph 27 hereof.
(b) Promptly after the close of business on each day,
Sub-Custodian shall furnish the Company and/or Custodian with confirmations and
a summary of all transfers to or from the account of each Fund during said day.
Where securities are transferred to the account of any Fund established at a
Securities Depository or the Book Entry System pursuant to Paragraph 8 hereof,
Sub-Custodian shall also, by book-entry or otherwise, identify as belonging to
such Fund the quantity of securities in a fungible bulk of securities registered
in the name of Sub-Custodian (or its nominee) or shown in Sub-Custodian's
account on the books of a Securities Depository or the Book-Entry System. At
least monthly and from time to time, Sub-Custodian shall furnish the Company
and/or Custodian with a detailed statement of the Property held for each Fund
under this Agreement.
(c) Notwithstanding any provision elsewhere contained herein,
Sub-Custodian shall not be required to obtain possession of any instrument or
certificate representing any futures contract, any option, or any futures
contract option until after it shall have determined, or shall have received an
Officer's Certificate from the Company stating that any such instruments or
certificates are available. The Company shall deliver to Sub-Custodian such an
Officer's Certificate no later than the business day preceding the availability
of any such instrument or certificate. Prior to such availability, Sub-Custodian
shall comply with the 1940 Act in connection with the purchase, sale,
settlement, closing out or writing of futures contracts, options, or futures
contract options by making payments or deliveries specified in such Officer's
Certificates or Written Instructions received by Sub-Custodian in connection
with any such purchase, sale, writing, settlement or closing out upon its
receipt from a broker, dealer, or futures commission merchant of a statement or
confirmation reasonably believed by Sub-Custodian to be in the form customarily
used by brokers, dealers, or future commission merchants with respect to such
futures contracts, options, or futures contract options, as the case may be,
confirming that the same is held by such broker, dealer or futures commission
merchant, in book-entry form or otherwise, in the name of Sub-Custodian (or any
nominee of Sub-Custodian) as Sub-Custodian for the Fund, provided, however, that
notwithstanding the foregoing, and subject to Paragraph 13(b) hereof, payments
to or deliveries from any margin account, and payments with respect to future
contracts, options, or future contract options to which a margin account
relates, shall be made in accordance with the terms and conditions of the
Company's relevant margin account agreement. Whenever any such instruments or
certificates are available, Sub-Custodian shall, notwithstanding any provision
in this Agreement to the contrary, make payment for any futures contract,
option, or futures contract option for which such instruments or such
certificates are available against the delivery to Sub-Custodian of such
instrument or such certificate, and deliver any futures contract, option or
futures contract option for which such instruments or such certificates are
available only against receipt by Sub-Custodian of payment therefor. Any such
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<PAGE>
instrument or certificate delivered to Sub-Custodian shall be held by
Sub-Custodian hereunder in accordance with, and subject to, the provisions of
this Agreement.
8. Use of Securities Depository or the Book-Entry System. Custodian or
the Company shall deliver to Sub-Custodian a certified resolution of the Board
of Directors of the Company approving, authorizing and instructing Sub-Custodian
on a continuous and ongoing basis until instructed to the contrary by Written
Instructions (i) to deposit in a Securities Depository or the Book-Entry System
all securities of the Funds held hereunder eligible for deposit therein and (ii)
to utilize a Securities Depository or the Book-Entry System to the extent
possible in connection with the performance of its duties hereunder, including
without limitation settlements of purchases and sales of securities by the
Funds, and deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings. Without limiting
the generality of such use, the following provisions shall apply thereto:
(a) Securities and any cash of the Funds deposited by
Sub-Custodian in a Securities Depository or the Book-Entry System will at all
times be segregated from any assets and cash controlled by Sub-Custodian in
other than a fiduciary or custodian capacity. Subject to Paragraph 28(m) hereof,
Sub-Custodian and its sub-custodians, if any, will pay out money only upon
receipt of securities and will deliver securities only upon receipt of money,
absent Written Instructions to the contrary.
(b) All books and records maintained by Sub-Custodian that
relate to the Funds' participation in a Securities Depository or the Book-Entry
System will at all times during Sub-Custodian's regular business hours be open
to inspection by the Company's and/or Custodian's duly authorized employees or
agents and the Company's independent auditors in accordance with applicable
regulations, it being understood, however, that such records may be kept in an
off site Sub-Custodian storage location and the Company and Custodian will be
furnished with all information in respect of the services rendered to it as it
may require.
(c) Sub-Custodian will provide the Company with copies of any
report obtained by Sub-Custodian on the system of internal accounting control of
the Securities Depository or Book-Entry System promptly after receipt of such a
report by Sub-Custodian. Sub-Custodian will also provide the Company and/or
Custodian with such reports on its own system of internal control as the Company
and/or Custodian may reasonably request from time to time.
9. Instructions Consistent With the Charter, Etc. Unless otherwise
provided in this Agreement, Custodian and Sub-Custodian shall act only upon
Officer's Certificates, Oral Instructions and/or Written Instructions. Custodian
and Sub-Custodian may assume that any Officer's Certificate, Oral Instructions
or Written Instructions received hereunder are not in any way inconsistent with
any provision of the Charter or Code of Regulations or any vote or resolution of
the Company's Board of Directors, or any committee thereof. Custodian and
Sub-Custodian shall be entitled to rely upon any Oral Instructions or Written
Instructions actually received by Custodian and Sub-Custodian pursuant to this
Agreement, and upon any certificate, oral instructions, or written instructions
reasonably believed by Custodian and Sub-Custodian to
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<PAGE>
be, respectively, an Officer's Certificate, Oral Instructions or Written
Instructions. The Company and Custodian agree to forward to Custodian and
Sub-Custodian, as the case may be, Written Instructions confirming Oral
Instructions in such manner that the Written Instructions are received by
Custodian and Sub-Custodian at the close of business of the same day that such
Oral Instructions are given to Custodian and Sub-Custodian. The Company and
Custodian agree that the fact that such confirming Written Instructions are not
received by Sub-Custodian shall in no way affect the validity of any of the
transactions authorized by the Company by giving Oral Instructions, and that
Sub-Custodian's records with respect to the content of Oral Instructions shall
be controlling.
10. Transactions-Not Requiring Instructions. Sub-Custodian is
authorized to take the following action without Oral Instructions, Written
Instructions, or an Officer's Certificate:
(a) Collection of Income and Other Payments. Sub-Custodian
shall subject to Paragraph 28(f) hereof:
(i) collect and receive for the account of any Fund,
all income and other payments and distributions, including (without limitation)
stock dividends, rights, warrants and similar items, included or to be included
in the Property of any Fund, and promptly advise the Company and Custodian of
such receipt and shall credit such income, as collected, to such Fund of the
Company. From time to time, Sub-Custodian may elect, but shall not be so
obligated, to credit the account with interest, dividends or principal payments
on payable or contractual settlement date, in anticipation of receiving same
from a payor, central depository, Securities Depository, broker or other agent
employed by the Company or Sub-Custodian. Any such crediting and posting shall
be at the Company's sole risk, and Sub-Custodian shall be authorized to reverse
(A) any such advance posting in the event it does not receive good funds from
any such payor, central depository, Securities Depository, broker or agent, and
(B) any other payment or crediting, including, without limitation, payments made
by check or draft, in the event it does not receive good funds or final payment.
(ii) with respect to securities of foreign issue, and
subject to Paragraph 27 hereof, effect collection of dividends, interest and
other income, and to promptly transmit to the Company and Custodian all reports,
written information or notices actually received by Sub-Custodian as
sub-custodian, including notices of any call for redemption, offer of exchange,
right of subscription, reorganization, or other proceedings affecting such
securities, or any default in payments due thereon. It is understood, however,
that Sub-Custodian shall be under no responsibility for any failure or delay in
effecting such collections or giving such notice with respect to securities of
foreign issue, regardless of whether or not the relevant information is
published in any financial service available to it unless such failure or delay
is due to Sub-Custodian's own negligence. Collections of income in foreign
currency are, to the extent possible, to be converted into United States dollars
unless otherwise instructed in writing, and in effecting such conversion
Sub-Custodian may use such methods or agencies as it may see fit, including the
facilities of its own foreign division at customary rates. All risk and expenses
incident to such collection and conversion are for the account of the Funds and
Sub-Custodian shall have no responsibility for fluctuations in exchange rates
affecting any such conversions.
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(iii) endorse and deposit for collection in the name
of the Company and each of its Funds, checks, drafts, or other orders for the
payment of money on the same day as received;
(iv) receive and hold for the account of each of the
Fund's securities received by the Funds as a result of a stock dividend, share
split-up or reorganization, recapitalization, readjustment or other
rearrangement or distribution of rights or similar securities issued with
respect to any portfolio securities of the Funds held by Sub-Custodian
hereunder;
(v) present for payment and collect the amount
payable upon all securities which may mature or be called, redeemed or retired,
or otherwise become payable on the date such securities become payable, but,
with respect to calls, early redemptions, or early retirements, only if
Sub-Custodian either (i) receives a written notice of the same or (ii) notice of
the same appears in one or more of the publications then listed in Appendix A
hereto, which Appendix may be amended to add other publications at any time by
Sub-Custodian without prior notice to or consent from the Company or Custodian
and which may be amended to delete a publication with the prior notice and
consent from the Company and Custodian;
(vi) subject to Paragraphs 28(e) and (f) hereof, take
any action which may be necessary and proper in connection with the collection
and receipt of such income and other payments and the endorsement for collection
of checks, drafts and other negotiable instructions;
(vii) with respect to domestic securities, to
exchange securities in temporary form for securities in definitive form, to
effect an exchange of the shares where the par value of stock is changed, and to
surrender securities at maturity or when advised by the Company or the
investment adviser to the Company of earlier call for redemption, against
payment therefor in accordance with accepted industry practice. When fractional
shares of stock of a declaring corporation are received as a stock distribution,
Sub-Custodian is authorized to sell the fraction received and credit the
Company's account. Unless specifically instructed to the contrary in writing,
Sub-Custodian is authorized to exchange securities in bearer form for securities
in registered form. If any Property registered in the name of a nominee of
Sub-Custodian is called for partial redemption by the issuer of such Property,
Sub-Custodian is authorized to allot the called portion to the respective
beneficial holders of the Property in such manner deemed to be fair and
equitable by Sub-Custodian in its reasonable discretion.
(b) Miscellaneous Transactions. Sub-Custodian is authorized to
deliver or cause to be delivered Property against payment or other consideration
or written receipt therefor in the following cases:
(i) for examination by a broker selling for the
account of the Company in accordance with street delivery custom;
(ii) for the exchange for interim receipts or
temporary securities for definitive securities;
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(iii) for transfer of securities into the name of the
Funds or Sub-Custodian or a nominee of either, or for exchange or securities for
a different number of bonds, certificates, or other evidence, representing the
same aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions, if any; provided that, in any such case, the
new securities are to be delivered to Sub-Custodian.
11. Transactions Requiring Instructions. Upon receipt of Oral or
Written Instructions, and not otherwise, Sub-Custodian, directly or through the
use of a Securities Depository or the Book-Entry System, shall:
(a) Execute and deliver to such persons as may be designated
in such Oral or Written Instructions, proxies, consents, authorizations, and any
other instruments whereby the authority of the Funds as owners of any securities
may be exercised;
(b) Deliver any securities held for any Fund against receipt
of other securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any securities held for any Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, against receipt of such certificates or deposit,
interim receipts or other instruments or documents as may be issued to it to
evidence such delivery;
(d) Make such transfers or exchanges of the assets of any Fund
and take such other steps as shall be stated in said instructions to be for the
purposes of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Funds;
(e) Subject to Paragraph 25(b) hereof, release securities
belonging to any Fund to any bank or trust company for the purpose of pledge or
hypothecation to secure any loan incurred by such Fund; provided, however, that
securities shall be released only upon payment to Sub-Custodian of the monies
borrowed, except that in cases where additional collateral is required to secure
a borrowing already made, subject to proper prior authorization, further
securities may be released for that purpose; and pay such loan upon redelivery
to it of the securities pledged or hypothecated therefor and upon surrender of
the note or notes evidencing the loan;
(f) Deliver any securities held for any Fund upon the exercise
of a covered call option written by such Fund on such securities;
(g) Release and deliver securities owned by a Fund in
connection with any repurchase agreement entered into on behalf of such Fund,
but subject to Paragraph 28(m) hereof, only on receipt of payment therefor; and
pay out monies of such Fund in connection with such repurchase agreements, but
only upon the delivery of the securities;
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(h) otherwise transfer, exchange or deliver securities in
accordance with Oral or Written Instructions specifying the purpose of such
transfer, including without limitation, loans of securities, short sales, or
reverse repurchase agreements, and subject to Paragraph 7(a) hereof.
12. Segregated Accounts. Sub-Custodian shall upon receipt of Written or
Oral Instructions establish and maintain a segregated account or accounts on its
records for and on behalf of any Fund, into which account or accounts shall be
credited, but only pursuant to an Officer's Certificate or Written Instructions
specifying the particular securities and/or amount of cash, cash and/or
securities, including securities in the Book-Entry System (i) for the purposes
of compliance by the Funds and the Company with the procedures required by a
securities or option exchange, (ii) for the purpose of compliance by the Funds
and the Company with the 1940 Act and Release No. 10666 or any subsequent
release or releases of the SEC relating to the maintenance of segregated
accounts by registered investment companies, and (iii) for other proper
corporate purposes.
13. Dividends and Distributions.
(a) The Company and/or Custodian shall furnish Sub-Custodian
with appropriate evidence of action by the Company's Board of Directors
declaring and authorizing the payment of any dividends and distributions. Upon
receipt by Sub-Custodian of an Officer's Certificate with respect to dividends
and distributions declared by the Company's Board of Directors and payable to
shareholders of any Fund who are entitled to receive cash for fractional shares
and those who have elected in the proper manner to receive their distributions
on dividends in cash, and in conformance with procedures mutually agreed upon by
Custodian and Sub-Custodian, the Company, and the Company's administrator or
transfer agent, Sub-Custodian shall pay to the Fund's transfer agent, as agent
for the shareholders, an amount equal to the amount indicated in said Officer's
Certificate as payable by the Fund to such shareholders for distribution in cash
by the transfer agent to such shareholders.
(b) Sub-Custodian may enter into separate custodial agreements
with various futures commission merchants ("FCMs") that the Company or Custodian
uses (each an "FCM Agreement"), pursuant to which the Funds' margin deposits in
any transactions involving futures contracts and options on futures contracts
will be held by Sub-Custodian in accounts (each an "FCM Account") subject to the
disposition by the FCM involved in such contracts in accordance with the
customer contract between FCM and the Company ("FCM Contract"), SEC rules
governing such segregated accounts, Commodities and Futures Trading Commission
("CFTC") rules and the rules of the applicable commodities exchange. Such FCM
Agreements shall only be entered into by Sub-Custodian upon receipt by
Sub-Custodian of Written Instructions from the Company which state that (i) an
FCM Contract has been entered into; (ii) the Company is in compliance with all
the rules and regulations of the CFTC; and (iii) the FCM Agreement is acceptable
to the Company. Transfers of initial margin shall be made into an FCM Account
only upon Written Instructions; transfers of premium and variation margin may be
made into an FCM Account pursuant to Oral Instructions. Transfers of funds from
an FCM Account to the FCM for which Custodian holds such an account may only
occur in accordance with the terms of the FCM Agreement.
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14. Purchase of Securities. Promptly after each purchase of securities
by the Company on behalf of any Fund, the Company or Custodian shall deliver to
Sub-Custodian Oral or Written Instructions specifying with respect to each such
purchase: (a) the name of the issuer and the title of the securities, (b) the
number of shares of the principal amount purchased and accrued interest, if any,
(c) the dates of purchase and settlement, (d) the purchase price per unit, (e)
the total amount payable upon such purchase, (f) the name of the person from
whom or the broker through whom the purchase was made and (g) the Fund for which
the purchase was made. Sub-Custodian shall upon receipt of securities purchased
by or for the Company pay out of the monies held for the account of the Company
the total amount payable to the person from whom or the broker through whom the
purchase was made, provided that the same conforms to the total amount payable
as set forth in such Oral or Written Instructions.
15. Sales of Securities. Promptly after each sale of securities by the
Funds, the Company or Custodian shall deliver to Sub-Custodian Oral or Written
Instructions, specifying with respect to each such sale: (a) the name of the
issuer and the title of the security, (b) the number of shares or principal
amount sold, and accrued interest, if any, (c) the dates of sale, (d) the sale
price per unit, (e) the total amount payable to the Company upon such sale, (f)
the name of the broker through whom or the person to whom the sale was made and
(g) the Fund for which the sale was made. Sub-Custodian shall, subject to
Paragraph 28(m) hereof, deliver the securities against payment of the total
amount payable to the Company upon such sale, provided that the same conforms to
the total amount payable as set forth in such Oral and Written Instructions.
16. Records. The books and records pertaining to the Funds and the
Company which are in the possession of Sub-Custodian shall be the property of
the Company. Such books and records shall be prepared and maintained as required
by the 1940 Act and other applicable securities laws and rules and regulations.
The SEC, the Company, or the Company's authorized representatives, shall have
access to such books and records at all times during Sub-Custodian's normal
business hours. Upon the reasonable request of the Company or Custodian, copies
of any such books and records shall be provided by Sub-Custodian to the
Custodian, the Company or the Company's authorized representative, and the
Company shall reimburse Sub-Custodian reasonable expenses for providing such
copies. Upon reasonable request of the Company or the Custodian, Sub-Custodian
shall provide in hard copy, tape or on micro-film, or such other medium as
agreed to among the Company, Custodian and Sub-Custodian, and any books and
records maintained by Sub-Custodian.
17. Reports.
(a) Sub-Custodian shall furnish the Company and Custodian the
following reports:
(i) such periodic and special reports as the Company
and Custodian may reasonably request from time to time;
(ii) a monthly statement summarizing all transactions
and entries for the account of each Fund;
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(iii) a monthly report of portfolio securities
belonging to each Fund showing the adjusted average cost of each issue and
market value at the end of such month;
(iv) a monthly report of the cash account of each
Fund showing disbursements;
(v) the reports to be furnished to the Company
pursuant to Rule 17f-4 under the 1940 Act; and
(vi) such other information as may be agreed upon
from time to time between the Company and/or Custodian and Sub-Custodian.
(b) Subject to Paragraphs 5 and 27(g) hereof, Sub-Custodian
shall transmit promptly to the Company any proxy statement, proxy materials,
notice of a call or conversion or similar communications actually received by
Sub-Custodian as custodian of the Property.
(c) Sub-Custodian shall report as the market value at the end
of each month the last closing bid, offer or sale price to the extent, and as
the same, is furnished to Sub-Custodian by a pricing or similar service utilized
or subscribed to by Sub-Custodian. Sub-Custodian shall not be responsible for,
have any liability with respect to, or be under any duty to inquire into, nor
deemed to make any assurances with respect to, the accuracy or completeness of
such information, even if The Bank of New York in performing services for
others, including services similar to those performed hereunder, receives
different valuations of the same or different securities of the same issuer.
18. Cooperation with Accountants. Each of the Custodian and
Sub-Custodian shall cooperate with the Company's independent certified public
accountants and shall take all reasonable action in the performance of its
obligations under this Agreement, and obligations under Rule 17f-2 under the
1940 Act to the extent such rule is applicable, to assure that the necessary
information is made available to such accountants.
19. Confidentiality. Each of Custodian and Sub-Custodian agrees on
behalf of itself and its employees to treat all record and other information
relative to the Company, its prior, present or potential shareholders, its
managers and its prior, present or potential customers, as confidential
information, and to protect and safeguard the same to the extent required by
applicable law, provided, however, that Custodian and Sub-Custodian may make
such disclosure as required by applicable law, regulation, court order, decrees
or legal process and upon receipt of any of the foregoing requiring such
disclosure, Custodian and Sub-Custodian's only obligation shall be to notify the
Company thereof. Each of Custodian and Sub-Custodian further agrees not to
otherwise use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Company.
20. Equipment Failures. In the event of equipment failures beyond
Sub-Custodian's control, Sub-Custodian shall take reasonable steps to minimize
service interruptions but neither it nor Custodian shall have any further
liability with respect thereto. Notwithstanding the
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foregoing, Sub-Custodian shall maintain sufficient back up electronic data
processing equipment to enable Sub-Custodian to fulfill its obligations under
this Agreement consistent with standard industry practices.
21. Right to Receive Advice.
(a) Advice of Fund. If Custodian or Sub-Custodian shall be in
doubt as to any action to be taken or omitted by it, either may request, and
shall receive, from the Company clarification or advice, including Oral or
Written Instructions.
(b) Advice of Counsel. If Custodian or Sub-Custodian shall be
in doubt as to any question of law involved in any action to be taken or omitted
by Custodian or Sub-Custodian, either may request at its option advice from its
own counsel, at its own expense, or advice from the Company's counsel.
(c) Conflicting Advice. In case of conflict between
directions, advice or Oral or Written Instructions received by Custodian or
Sub-Custodian pursuant to subparagraph (a) of this paragraph and advice received
by Custodian or Sub-Custodian pursuant to subparagraph (b) of this paragraph,
Custodian and Sub-Custodian shall be entitled to rely on and follow the advice
received pursuant to subparagraph (b) alone.
(d) Protection of Sub-Custodian. Each of Custodian and
Sub-Custodian shall be protected in any action or inaction which it takes or
omits to take in reliance on any directions, advice or Oral or Written
Instructions received pursuant to subparagraphs (a) or (b) of this section which
it, after receipt of any such directions, advice or Oral or Written
Instructions, in good faith reasonably believes to be consistent with such
directions, advice or Oral or Written Instructions, as the case may be. Nothing
in this Paragraph 21 shall be construed as imposing upon Custodian or
Sub-Custodian any obligation (i) to seek such directions, advice or Oral or
Written Instructions, or (ii) to act in accordance with such directions, advice
or Oral or Written Instructions when received, unless, under the terms or
another provision of this Agreement, the same is a condition to Custodian or
Sub-Custodian's properly taking or omitting to take such action. Nothing in this
Paragraph 21(d) shall excuse Custodian or Sub-Custodian when an action or
omission on the part of Custodian or Sub-Custodian constitutes willful
misfeasance or bad faith, or negligence or reckless disregard by Custodian or
Sub-Custodian of its duties under this Agreement.
22. Compliance with Governmental Rules and Regulations. Each of
Custodian and Sub-Custodian undertakes to comply with the laws, rules and
regulations of governmental authorities having jurisdiction over Custodian and
Sub-Custodian and its express duties hereunder.
23. Compensation. As compensation for the services rendered by
Custodian and Sub-Custodian during the term of this Agreement, the Company shall
pay to Custodian and Sub-Custodian, in addition to reimbursement of its
out-of-pocket expenses, such compensation as may be agreed upon from time to
time in writing by the Company and Custodian and/or Sub-
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Custodian, as applicable as set forth in Appendix E with respect to Custodian
and Appendix F with respect to Sub-Custodian.
24. Indemnification. The Company agrees to indemnify each of Custodian
and Sub-Custodian against, and hold harmless from all taxes, charges, expenses
(including reasonable fees and expenses of counsel), assessments, claims,
losses, demands and liabilities whatsoever (including, without limitation,
liabilities arising under the 1933 Act, the 1934 Act and the 1940 Act, and any
state and foreign securities laws, all as currently in effect or as may be
amended from time to time) and expenses, including without limitation,
reasonable attorney's fees and disbursements, howsoever arising or incurred
because of or in connection with this Agreement, except for such liability,
claim, loss, demand, charge, expense, tax or assessment arising out of either
Custodian's or Sub-Custodian's, or their nominees', willful misconduct or
negligence or reckless disregard of their duties under this Agreement. For the
purposes of this Agreement, including, without limitation, for purposes of
Paragraphs 24 and 28, neither Sub-Custodian's acceptance of Instructions in
accordance with Paragraph 26A nor Sub-Custodian's use of Foreign Sub-Custodians
pursuant to agreements that do not permit actual examination by independent
public accountants, nor the denial of examination by any Foreign Sub-Custodian,
shall, in and of itself, constitute, or be deemed to constitute, a breach by
Sub-Custodian of this Agreement or negligence, willful misconduct, or reckless
disregard of its duties by Sub-Custodian, provided the relevant agreement
between Sub-Custodian and a Foreign Sub-Custodian satisfies the requirements of
Rule 17f-5, exclusive of any requirements of such Rule imposed by Rule 17f-2.
25. Overdrafts or Indebtedness.
(a) Sub-Custodian shall advance funds under this Agreement
with respect to any Fund which results in an overdraft because the moneys held
by Sub-Custodian in the separate account for such Fund shall be insufficient to
pay the total amount payable upon a purchase of securities by such Fund, as set
forth in an Officer's Certificate or Oral or Written Instructions, or which
results in an overdraft in the separate account of such Fund for some other
reason, or if the Company is for any other reason indebted to Sub-Custodian,
including any indebtedness to The Bank of New York under the Company's Cash
Management and Related Services Agreement, (except a borrowing for investment or
for temporary or emergency purposes using securities as collateral pursuant to a
separate agreement and subject to the provisions of Paragraph 25(b) hereof),
such overdraft or indebtedness shall be deemed to be a loan made by
Sub-Custodian to the Company for such Fund payable on demand and shall bear
interest from the date incurred at a rate per annum (based on a 360-day year for
the actual number of days involved) equal to the overdraft rate specified in
Appendix F to this Agreement. In addition, the Company hereby agrees that
Sub-Custodian shall have a continuing lien and security interest in and to any
property at any time held by it for the benefit of such Fund or in which the
Fund may have an interest which is then in Sub-Custodian's possession or control
or in possession or control of any third party acting on Sub-Custodian's behalf.
The Company authorizes Sub-Custodian, in its sole discretion, at any time to
charge any such overdraft or indebtedness together with interest due thereon
against any balance of account standing to such Fund's credit on Sub-Custodian's
books. In addition, the Company hereby covenants that on each Business Day on
which either it intends to enter a Reverse Repurchase Agreement and/or otherwise
borrow from a third party, or which next succeeds a Business Day on which at the
close of business the Company had outstanding a
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Reverse Repurchase Agreement or such a borrowing, it shall prior to 1:00 p.m.,
New York City time, advise Sub-Custodian, in writing, of each such borrowing,
shall specify the Fund to which the same relates, and shall not incur any
indebtedness not so specified other than from Sub-Custodian.
(b) The Company will cause to be delivered to Sub-Custodian by
any bank (including, if the borrowing is pursuant to a separate agreement,
Sub-Custodian) from which it borrows money for investment or for temporary or
emergency purposes using securities held by Sub-Custodian hereunder as
collateral for such borrowings, a notice or undertaking in the form currently
employed by such bank setting forth the amount which such bank will loan to the
Company against delivery of a stated amount of collateral. The Company shall
promptly deliver to Sub-Custodian Written Instruction specifying with respect to
each such borrowing: (a) the Fund to which such borrowing relates; (b) the name
of the bank, (c) the amount and terms of the borrowing, which may be set forth
by incorporating by reference an attached promissory note, duly endorsed by the
Fund, or other loan agreement, (d) the time and date, if known, on which the
loan is to be entered into, (e) the date on which the loan becomes due and
payable, (f) the total amount payable to the Fund on the borrowing date, (g) the
market value of securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular securities, and (h) a statement specifying
whether such loan is for investment purposes or for temporary or emergency
purposes and that such loan is in conformance with the 1940 Act and the Fund's
prospectus. Sub-Custodian shall deliver on the borrowing date specified in
Written Instructions the specified collateral and the executed promissory note,
if any, against delivery by the lending bank of the total amount of the loan
payable, provided that the same conforms to the total amount payable as set
forth in such Written Instructions. Sub-Custodian may, at the option of the
lending bank, keep such collateral in its possession, but such collateral shall
be subject to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. Sub-Custodian shall deliver such securities
as additional collateral as may be specified in Written Instructions to
collateralize further any transaction described in this Paragraph 25(b). The
Company shall cause all securities released from collateral status to be
returned directly to Sub-Custodian, and Sub-Custodian shall receive from time to
time such return of collateral as may be tendered to it. In the event that the
Company fails to specify in Written Instructions the Fund, the name of the
issuer, the title and number of shares or the principal amount of any particular
securities to be delivered as collateral by Sub-Custodian, Sub-Custodian shall
not be under any obligation to deliver any securities.
26A. Instructions
(a) With respect to any software provided by the Sub-Custodian
to a Fund in order for the Fund to transmit Instructions to the Sub-Custodian
(the "Software"), the Sub-Custodian grants to the Company a personal,
nontransferable and nonexclusive license to use the Software solely for the
purpose of transmitting Instructions to, and receiving communications from, the
Sub-Custodian in connection with its account(s). The Company agrees not to sell,
reproduce, lease or otherwise provide, directly or indirectly, the Software or
any portion thereof to any third party without the prior written consent of the
Sub-Custodian. At no time shall Company be obligated to use the Software to
transmit Instructions to the Sub-Custodian.
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(b) The Company shall obtain and maintain at its own cost and
expense all equipment and services, including but not limited to communications
services, necessary for it to utilize the Software and transmit Instructions to
the Sub-Custodian. The Sub-Custodian shall not be responsible for the
reliability, compatibility with the Software or availability of any such
equipment or services.
(c) The Company acknowledges that the Software, all data bases
made available to the Company by utilizing the Software (other than data bases
relating solely to the assets of the Funds and transactions with respect
thereto), and any proprietary data, processes, information and documentation
(other than those which are or become part of the public domain or are legally
required to be made available to the public) (collectively, the "Information"),
are the exclusive and confidential property of the Sub-Custodian. The Company
shall keep the Information confidential by using the same care and discretion
that the Company uses with respect to its own confidential property and trade
secrets and shall neither make nor permit any disclosure without the prior
written consent of the Sub-Custodian. Upon termination of this Agreement or the
Software license granted hereunder for any reason, the Company shall return to
the Sub-Custodian all copies of the Information which are in its possession or
under its control or which the Company distributed to third parties.
(d) The Sub-Custodian reserves the right to modify the
Software from time to time upon reasonable prior notice and the Company shall,
if it desires in its sole discretion to continue to use the software, install
new releases of the Software as the Sub-Custodian may direct. The Company agrees
not to modify or attempt to modify the Software without the Sub-Custodian's
prior written consent. The Company acknowledges that any modifications to the
Software, whether by the Company or the Sub-Custodian and whether with or
without the Sub-Custodian's consent, shall become the property of the
Sub-Custodian.
(e) The Sub-Custodian makes no warranties or representations
of any kind with regard to the Software or the method(s) by which the Company
may transmit Instructions to the Sub-Custodian, express or implied, including
but not limited to any implied warranties or merchantability or fitness for a
particular purpose.
(f) Where the method for transmitting Instructions by the
Company involves an automatic systems acknowledgment by the Sub-Custodian of its
receipt of such Instructions, then in the absence of such acknowledgment, the
Sub-Custodian shall not be liable for any failure to act pursuant to such
Instructions and the Company may not claim that such Instructions were received
by the Sub-Custodian, and the Company shall deliver a Certificate by some other
means.
(g) (i) The Company agrees that where it delivers to the
Sub-Custodian Instructions hereunder, it shall be the Company's sole
responsibility to ensure that only persons duly authorized by the Company and
the correct number of such persons transmit such Instructions to the
Sub-Custodian. The Company will cause all persons transmitting Instructions to
the Sub-Custodian to treat applicable use and authorization codes, passwords and
authentication keys with extreme care, and authorizes the Sub-Custodian to act
in accordance with and rely upon Instructions received by it pursuant hereto.
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(ii) The Company hereby represents, acknowledges and
agrees that it is fully informed of the protections and risks associated with
the various methods of transmitting Instructions to the Sub-Custodian and that
there may be more secure methods of transmitting instructions to the
Sub-Custodian than the method(s) selected by the Company. The Company hereby
agrees that the security procedures (if any) to be followed in connection with
the Company's transmission of Instructions provide to it a commercially
reasonable degree of protection in light of its particular needs and
circumstances.
(h) The Company shall notify the Sub-Custodian of any errors,
omissions or interruptions in, or delay or unavailability of, its ability to
send Instructions as promptly as practicable, and in any event within 24 hours
after the earliest of (i) discovery thereof, (ii) the business day on which
discovery should have occurred through the exercise of reasonable care and (iii)
in the case of any error, the date of actual receipt of the earliest notice
which reflects such error, it being agreed that discovery and receipt of notice
may only occur on a business day. The Sub-Custodian shall, as promptly as
practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the business day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day, advise the Company whenever the Sub-Custodian learns of any errors,
omissions or interruption in, or delay or unavailability of, the Company's
ability to send Instructions.
26B. FX Transactions
(a) Whenever a Fund shall enter into an FX Transaction, the
Fund shall promptly deliver to the Sub-Custodian a Certificate or Oral
Instructions specifying with respect to such FX Transaction: (a) the Series to
which such FX Transaction is specifically allocated; (b) the type and amount of
Currency to be purchased by the Fund; (c) the type and amount of Currency to be
sold by the Fund; (d) the date on which the Currency to be purchased is to be
delivered; (e) the date on which the Currency to be sold is to be delivered; and
(f) the name of the person from whom or through whom such currencies are to be
purchased and sold. Unless otherwise instructed by a Certificate or Oral
Instructions, the Custodian shall deliver, or shall instruct a Foreign
Sub-Custodian to deliver, the Currency to be sold on the date on which such
delivery is to be made, as set forth in the Certificate, and shall receive, or
instruct a Foreign Sub-Custodian to receive, the Currency to be purchased on the
date as set forth in the Certificate.
(b) Where the Currency to be sold is to be delivered on the
same day as the Currency to be purchased, as specified in the Certificate or
Oral Instructions, the Sub-Custodian or a Foreign Sub-Custodian may arrange for
such deliveries and receipts to be made in accordance with the customs
prevailing from time to time among brokers or dealers in Currencies, and such
receipt and delivery may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in connection with
such receipts and deliveries, which responsibility and liability shall continue
until the Currency to be received by the Fund has been received in full.
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(c) Any foreign exchange transaction effected by the
Sub-Custodian in connection with this Agreement may be entered with the
Sub-Custodian, any office, branch or subsidiary of The Bank of New York Company,
Inc., or any Foreign Sub-Custodian acting as principal or otherwise through
customary banking channels. The Fund may issue a standing Certificate with
respect to foreign exchange transactions but the Sub-Custodian may establish
rules or limitations concerning any foreign exchange facility made available to
the Fund. The Fund shall bear all risks of investing in Securities or holding
Currency. Without limiting the foregoing, the Fund shall bear the risks that
rules or procedures imposed by a Foreign Sub-Custodian or foreign depositories,
exchange controls, asset freezes or other laws, rules, regulations or orders
shall prohibit or impose burdens or costs on the transfer to, by or for the
account of the Fund of Securities or any cash held outside the Fund's
jurisdiction or denominated in Currency other than its home jurisdiction or the
conversion of cash from one Currency into another currency. The Sub-Custodian
shall not be obligated to substitute another Currency for a Currency (including
a Currency that is a component of a Composite Currency Unit) whose
transferability, convertibility or availability has been affected by such law,
regulation, rule or procedure. Neither the Sub-Custodian nor any Foreign
Sub-Custodian shall be liable to the Fund for any loss resulting from any of the
foregoing events.
27. Duties of Sub-Custodian with respect to Property of any Fund held
outside of the United States.
(a) Sub-Custodian is authorized and instructed to employ, as
sub-custodian for each Fund's Foreign Securities (as such term is defined in
paragraph (c)(1) of Rule 17f-5 under the 1940 Act) and other assets, the foreign
banking institutions and foreign securities depositories and clearing agencies
designated on Appendix C hereto ("Foreign Sub-Custodians") to carry out their
respective responsibilities in accordance with the terms of the sub-custodian
agreement between each such Foreign Sub-Custodian and Sub-Custodian (each such
agreement, a "Foreign Sub-Custodian Agreement"). Upon receipt of an Officer's
Certificate, together with a certified resolution substantially in the form
attached as Appendix D of the Company's Board of Directors, the Company may
designate any additional foreign sub-custodian with which Sub-Custodian has an
agreement for such entity to act as Sub-Custodian's agent, as its sub-custodian
and any such additional foreign sub-custodian shall be deemed added to Appendix
C hereto. Upon receipt of an Officer's Certificate, Sub-Custodian shall cease
the employment of any one or more Foreign Sub-Custodians for maintaining custody
of the Company's assets and such Foreign Sub-Custodian shall be deemed deleted
from Appendix C hereto.
(b) Each Foreign Sub-Custodian Agreement shall be
substantially in the form delivered to the Company herewith and will not be
amended in a way that materially adversely affects the Company without the
Company's prior written consent.
(c) Sub-Custodian shall identify on its books as belonging to
each Fund the Foreign Securities of such Fund held by each Foreign
Sub-Custodian. At the election of the Company, it shall be entitled to be
subrogated to the rights of Sub-Custodian with respect to any claims by the
Company or any Fund against a Foreign Sub-Custodian as a consequence of any
loss, damage, cost, expense, liability or claim sustained or incurred by the
Company or any Fund
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if and to the extent that the Company or such Fund has not been made whole for
any such loss, damage, cost, expense, liability or claim.
(d) Upon request of the Company, Sub-Custodian will,
consistent with the terms of the applicable Foreign Sub-Custodian Agreement, use
reasonable efforts to arrange for the independent accountants of the Company to
be afforded access to the books and records of any Foreign Sub-Custodian insofar
as such books and records relate to the performance of such Foreign
Sub-Custodian under its agreement with Sub-Custodian on behalf of the Company.
(e) Sub-Custodian will supply to the Company and to the
Custodian from time to time, as mutually agreed upon, statements in respect of
the securities and other assets of each Fund held by Foreign Sub-Custodians,
including but not limited to, an identification of entities having possession of
each Fund's Foreign Securities and other assets, and advices or notifications of
any transfers of Foreign Securities to or from each custodial account maintained
by a Foreign Sub-Custodian for Sub-Custodian on behalf of the Fund.
(f) Sub-Custodian shall furnish annually to the Company and to
the Custodian, as mutually agreed upon, information concerning the Foreign
Sub-Custodians employed by Sub-Custodian. Such information shall be similar in
kind and scope to that furnished to the Company in connection with the Company's
initial approval of such Foreign Sub-Custodians and, in any event, shall include
information pertaining to (i) the Foreign Sub-Custodian's financial strength,
general reputation and standing in the countries in which they are located and
their ability to provide the custodial services required, and (ii) whether the
Foreign Sub-Custodians would provide a level of safeguards for safekeeping and
custody of securities not materially different from those prevailing in the
United States. Sub-Custodian shall monitor the general operating performance of
each Foreign Sub-Custodian. Sub-Custodian agrees that it will use reasonable
care in monitoring compliance by each Foreign Sub-Custodian with the terms of
the relevant Foreign Sub-Custodian Agreement and that if it learns of any breach
of such Foreign Sub-Custodian Agreement believed by Sub-Custodian to have a
material adverse effect on the Company or any Fund it will promptly notify the
Company and Custodian in writing of such breach. Sub-Custodian also agrees to
use reasonable and diligent efforts to enforce its rights under the relevant
Foreign Sub-Custodian Agreement.
(g) Sub-Custodian shall transmit promptly to the Company all
notices, reports or other written information received pertaining to the
Company's Foreign Securities, including without limitation, notices of corporate
action, proxies and proxy solicitation materials.
(h) Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for securities received for the account of the
Company or any Fund and delivery of securities maintained for the account of the
Company or any Fund may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivery of securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such securities from such
purchaser or dealer.
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(i) With respect to any losses or damages arising out of or
relating to any actions or omissions of any Foreign Sub-Custodian, the sole
responsibility and liability of Sub-Custodian shall be to take all appropriate
and reasonable action at the Company's expense to recover such loss or damage
from the Foreign Sub-Custodian. It is expressly understood and agreed that
Sub-Custodian's sole responsibility and liability shall be limited to amounts so
recovered from the Foreign Sub-Custodian. Custodians' liability to the Company
under this paragraph (i) shall under no circumstances exceed the liability of
Sub-Custodian assumed hereunder.
28. Concerning Custodians.
(a) (i) The Custodian shall exercise care and diligence and
act in good faith and use all commercially reasonable efforts in the performance
of its duties hereunder. The Sub-Custodian shall exercise care and diligence and
act in good faith and use all commercially reasonable efforts in the performance
of its duties hereunder. The Custodian shall be responsible to the Company for
its own failure, or the failure of Sub-Custodian, or the failure of any
sub-custodian that either shall appoint (other than a foreign sub-custodian
referred to in Paragraph 27) or that of their respective employees or agents, to
perform their duties, obligations or responsibilities in accordance with this
Agreement, but only to the extent that such failure results from acts or
omissions that constitute willful misfeasance, bad faith or negligence on the
part of the Custodian or Sub-Custodian, or on the part of their respective
employees or agents, or reckless disregard of such duties, obligations and
responsibilities. The Sub-Custodian shall be responsible to the Company and to
the Custodian for its own failure, or the failure of any sub-custodian that it
shall appoint (other than a sub-custodian appointed by the Sub-Custodian at the
specific direction of the Custodian or the Company), or that of their respective
employees or agents, to perform their duties, obligations or responsibilities in
accordance with this Agreement, but only to the extent that such failure results
from acts or omissions that constitute willful misfeasance, bad faith or
negligence on the part of the Sub-Custodian or such sub-custodian, or on the
part of their respective employees or agents, or reckless disregard of such
duties, obligations and responsibilities.
(ii) Without limiting the generality of the foregoing
or any other provision of this Agreement, in no event shall Custodian or
Sub-Custodian be liable to the Fund or any third party nor, except as otherwise
provided in this sub-paragraph (a), shall Sub-Custodian be liable to Custodian,
for special, indirect or consequential damages or lost profits or loss of
business, arising under or in connection with this Agreement, even if previously
informed of the possibility of such damages and regardless of the form of
action. Custodian and/or Sub-Custodian may, with respect to questions of law
arising under any FCM Agreement, apply for and obtain the advice and opinion of
counsel to the Company at the expense of the Company, or of its own counsel at
its own expense, and shall be fully protected with respect to anything done or
omitted by it in good faith in conformity with such advice or opinion.
Sub-Custodian shall be liable to the Company for any loss or damage resulting
from the use of the Book-Entry System or any Securities Depository arising by
reason of any negligence or willful misconduct on the part of Sub-Custodian or
any of its employees or agents.
21
<PAGE>
(iii) Sub-Custodian's liability pursuant to the last
sentence of subparagraph (a)(i) shall include, but not be limited to,
reimbursing Custodian for court-ordered damage awards, fines, penalties, and
judicially-approved settlements (and attorney's fees and disbursements relating
thereto) arising out of or in connection with the conduct giving rise to such
liability.
(iv) If Custodian receives notice of the commencement
of any action, suit, or proceeding (an "Action"), or notice that any Action may
be commenced, for which Sub-Custodian may be liable to Custodian pursuant to
this Paragraph 28, Custodian shall give notice to Sub-Custodian of the
commencement of the Action or of the possibility that an Action will be
commenced. Any omission to notify Sub-Custodian will not relieve Sub-Custodian
from any liability which it may have under this Paragraph, except to the extent
the failure to notify Sub-Custodian prejudices the rights of Sub-Custodian.
Sub-Custodian will be entitled at its sole expense and liability, to exercise
full control of the defense, compromise or settlement of any such Action,
provided that Sub-Custodian (1) notifies Custodian in writing of Sub-Custodian's
intention to assume such defense; and (2) retains legal counsel reasonably
satisfactory to Custodian to conduct the defense of such Action. If
Sub-Custodian advises Custodian that it does not wish to exercise full control
of any defense, compromise or settlement of any Action, Sub-Custodian shall be
responsible for the fees and expenses of counsel selected by Custodian, in
addition to any other amounts for which Sub-Custodian may be liable pursuant to
this Paragraph 28. The other person will cooperate with the person assuming the
defense, compromise or settlement of any Action in accordance with this
Paragraph in any manner that such person reasonably may request. If
Sub-Custodian so assumes the defense of any such Action, Custodian will have the
right to employ a separate counsel and to participate in (but not control) the
defense, compromise or settlement of the Action, but the fees and expenses of
such counsel will be at the expense of Custodian unless (a) Sub-Custodian has
agreed to pay such fees and expenses, (b) any relief other than the payment of
money damages is sought against Custodian, or (c) Custodian has been advised by
its counsel that there may be one or more defenses available to it which are
different from or additional to those available to Sub-Custodian and that a
conflict of interest therefore exists, and in any such case that portion of the
fees and expenses of such separate counsel that are reasonably related to
matters for which Sub-Custodian is liable pursuant to this Paragraph will be
paid by Sub-Custodian. Custodian will not settle or compromise any such Action
for which Sub-Custodian is liable pursuant to this Paragraph without the prior
written consent of Sub-Custodian, unless Sub-Custodian has failed, after
reasonable notice, to undertake control of such Action in the manner provided in
this Paragraph. Sub-Custodian will not settle or compromise any such Action in
which any relief other than the payment of money damages is sought against
Custodian without the consent of Custodian, such consent not to be unreasonably
withheld. In the event that Sub-Custodian intends to settle or compromise any
Action in which solely money damages are sought, Sub-Custodian shall give
Custodian fifteen (15) business days prior written notice.
(b) Without limiting the generality of the foregoing, neither
Custodian nor Sub-Custodian shall be under any obligation to inquire into, and
neither party shall be liable for:
22
<PAGE>
(i) The validity of the issue of any securities
purchased, sold, or written by or for the Company or any Fund, the legality of
the purchase, sale or writing thereof, or the propriety of the amount paid or
received therefor;
(ii) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid therefor;
(iii) The legality of the declaration or payment of
any dividend by the Company;
(iv) The legality of any borrowing by the Company
using securities as collateral;
(v) The legality of any loan of portfolio securities,
nor shall Custodian or Sub-Custodian be under any duty or obligation to see to
it that any cash collateral delivered to it by a broker, dealer, or financial
institution or held by it at any time as a result of such loan of portfolio
securities is adequate collateral for or against any loss Custodian,
Sub-Custodian, the Company or any Fund might sustain as a result of such loan.
The Custodian and Sub-Custodian specifically, but not by way of limitation,
shall not be under any duty or obligation periodically to check or notify the
Company or any Fund that the amount of such cash collateral held by
Sub-Custodian for the Company is sufficient collateral for the Company, but such
duty or obligation shall be the sole responsibility of the Company. In addition,
Custodian and Sub-Custodian shall be under no duty or obligation to see that any
broker, dealer or financial institution to which portfolio securities are lent
makes payment to it of any dividends or interest which are payable to or for the
account of the Company during the period of such loan or at the termination of
such loan, provided, however, that Sub-Custodian shall promptly notify the
Company in the event that such dividends or interest are not paid and received
when due; or
(vi) The sufficiency or value of any amounts of money
and/or securities held in any segregated account described in Paragraph 12(a)
hereof in connection with transactions by the Funds, or whether such segregated
account provides the compliance intended to be achieved. In addition, neither
Custodian nor Sub-Custodian shall be under any duty or obligation to see that
any broker, dealer, FCM or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, FCM or Clearing Member, to see that any
payment received by Sub-Custodian from any broker, dealer, FCM or Clearing
Member is the amount the Company is entitled to receive, or to notify the
Company or a Fund of Sub-Custodian's receipt or non-receipt of any such payment.
(c) Neither Custodian nor Sub-Custodian shall be liable for,
or considered to be sub-custodian or custodian of, any money, whether or not
represented by any check, draft, or other instrument for the payment of money,
received by Sub-Custodian on behalf of the Company until Sub-Custodian actually
receives and collects such money directly or by the final crediting of the
account representing the Fund's interest at the Book-Entry System or a
Securities Depository.
23
<PAGE>
(d) Neither Custodian nor Sub-Custodian shall have any
responsibility or be liable for ascertaining or acting upon any calls,
conversions, exchange offers, tenders, interest rate changes or similar matters
relating to securities held in a Securities Depository, unless Custodian or
Sub-Custodian shall have actually received timely notice from such Securities
Depository. In no event shall Custodian or Sub-Custodian have any responsibility
or liability for the failure of any Securities Depository to collect, or for the
late collection or late crediting by a Securities Depository of any amount
payable upon securities deposited in a Securities Depository which may mature or
be redeemed, retired, called or otherwise become payable. Upon receipt of
Written Instructions from the Company of an overdue amount on securities held in
a Securities Depository Sub-Custodian shall make a claim against a Securities
Depository on behalf of the Company, except that neither Custodian nor
Sub-Custodian shall be under any obligation to appear in, prosecute or defend
any action suit or proceeding in respect to any securities held by a Securities
Depository which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
(e) Neither Custodian nor Sub-Custodian shall be under any
duty or obligation to take action to effect collection of any amount due to the
Company from a transfer agent of the Company nor to take any action to effect
payment or distribution by the transfer agent of the Company of any amount paid
by Sub-Custodian to the transfer agent of the Company in accordance with this
Agreement.
(f) Neither Custodian nor Sub-Custodian shall be under any
duty or obligation to take action to effect collection of any amount, if the
securities upon which such amount is payable are in default, or if payment is
refused after due demand or presentation, unless and until (i) it shall be
directed to take such action by Written Instructions and (ii) it shall be
assured to its reasonable satisfaction of reimbursement of its costs and
expenses in connection with any such action.
(g) Custodian and Sub-Custodian may in addition to the
employment of Foreign Sub-Custodians pursuant to Paragraphs 7 and 27, hereof
appoint one or more banking institutions as Depository or Depositories, as a
sub-custodian or as sub-custodians, or as a co-custodian or as co-custodians,
including, but not limited to, banking institutions located in foreign
countries, of securities and moneys at any time owned by the Fund, upon such
terms and conditions as may be approved in an Officer's Certificate or contained
in an agreement executed by Sub-Custodian, Custodian and the Company and the
appointed institution.
(h) Neither Custodian nor Sub-Custodian shall be under any
duty or obligation (i) to ascertain whether any securities at any time delivered
to, or held by it or by any Foreign Sub-Custodian, for the account of the
Company and specifically allocated to a Fund are such as properly may be held by
the Company or such Fund under the provisions of its Prospectus, or (ii) to
ascertain whether any transactions by the Fund, whether or not involving
Sub-Custodian, are such transactions as may properly be engaged in by the Fund.
(i) Sub-Custodian shall charge its compensation and any
expenses with respect to the Funds of the Company incurred by Sub-Custodian in
the performance of its duties
24
<PAGE>
under this Agreement only against the money of the Fund or Funds of the Company
from which such compensation or expenses is actually due and payable, and under
no circumstances shall any compensation or expenses due to the Sub-Custodian be
considered to be a joint, or joint and several, obligation of the Funds of the
Company. To the extent that Sub-Custodian is entitled to recover from the
Company any loss, damage, liability or expense (including counsel fees) under
this Agreement, Sub-Custodian shall charge the amount due in respect of such
loss, damage, liability or expense (including counsel fees) only against the
money held by it for the Fund or Funds of the Company that is/are identified by
the Company in an Officer's Certificate, unless and until the Company instructs
Sub-Custodian by an Officer's Certificate to charge against money held by it for
the account of a Fund such Fund's pro rata share (based on such Fund's net asset
value at the time of the charge in proportion to the aggregate net asset value
of all Funds at that time) of the amount of such loss, damage, liability or
expense (including counsel fees).
(j) Custodian and Sub-Custodian shall be entitled to rely upon
any Officer's Certificate, Written Instructions, notice or other instrument in
writing received by Custodian or Sub-Custodian and reasonably believed by
Custodian or Sub-Custodian, as the case may be, to be an Officer's Certificate
or Written Instructions. Custodian and Sub-Custodian shall be entitled to rely
upon any Oral Instructions actually received by Custodian or Sub-Custodian. The
Company agrees to forward to Custodian or Sub-Custodian Written Instructions
confirming such Oral Instructions in such manner so that such Written
Instructions are received by Sub-Custodian, whether by hand delivery, telecopier
or other similar device, or otherwise, by the close of business of the same day
that such Oral Instructions are received by Sub-Custodian. The Company agrees
that the fact that such confirming instructions are not received, or that
contrary instructions are received, by Custodian or Sub-Custodian shall in no
way affect the validity of the transactions or enforceability of the
transactions hereby authorized by the Company. The Company agrees that neither
Custodian nor Sub-Custodian shall incur any liability to the Company in acting
upon Oral Instructions given to Custodian or Sub-Custodian hereunder concerning
such transactions provided such instructions reasonably appear to have been
received from an Authorized Person.
(k) Each of Custodian and Sub-Custodian shall be entitled to
rely upon any instrument, instruction or notice received by it and reasonably
believed by it to be given in accordance with the terms and conditions of any
FCM Agreement. Without limiting the generality of the foregoing, neither
Custodian nor Sub-Custodian shall be under any duty to inquire into, and neither
Custodian nor Sub-Custodian shall be liable for, the accuracy of any statements
or representations contained in any such instrument or other notice including,
without limitation, any specification of any amount to be paid to a broker,
dealer, futures commission merchant or clearing member.
(l) Sub-Custodian shall provide the Company with any report
obtained by Sub-Custodian on the system of internal accounting control of the
Book-Entry System, any Securities Depository utilized hereunder the Depository
or the Options Clearing Corporation, and with such reports on its own systems of
internal accounting control as the Company may reasonably request from time to
time.
25
<PAGE>
(m) Subject to the foregoing provisions of this Agreement,
including, without limitation, those contained in Paragraph 27 hereof,
Sub-Custodian may deliver and receive securities, and receipts with respect to
such securities, and arrange for payments to be made and received by
Sub-Custodian in accordance with the customs prevailing from time to time among
brokers or dealers in such securities. When Sub-Custodian is instructed to
deliver securities against payment, delivery of such securities and receipt of
payment therefor may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in connection with
Sub-Custodian's delivery of securities pursuant to proper instructions of the
Fund, which responsibility and liability shall continue until final payment in
full has been received by Sub-Custodian.
(n) Neither Custodian nor Sub-Custodian shall have any duties
or responsibilities whatsoever except such duties and responsibilities as are
specifically set forth in this Agreement, and no covenant or obligation shall be
implied in this Agreement against Custodian or Sub-Custodian.
(o) To the extent Custodian shall have discharged its
obligations to the Company under subparagraph (a)(i) of this paragraph 28 on
account of conduct of Sub-Custodian, its agents or employees, Custodian shall be
subrogated to all rights of the Company with respect to such conduct.
29. Termination. Any of the parties hereto may terminate this Agreement
by giving to the other parties a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of
giving of such notice. Upon the date set forth in such notice this Agreement
shall terminate, and Sub-Custodian shall on that date deliver directly to the
Custodian or a successor sub-custodian designated by the Company or Custodian
all securities and moneys then owned by the Company and held by Sub-Custodian,
after deducting all fees, expenses and other amounts for the payment or
reimbursement of which it shall then be entitled; provided, however, that
transaction fees and expenses payable by the Company in connection with a
deconversion to a successor sub-custodian shall be limited to Sub-Custodian's
actual direct cost.
30. Notices. All notices and other communications (collectively
referred to as "Notice" or "Notices" in this paragraph) hereunder shall be in
writing or by confirm in telegram, cable, telex, or facsimile sending device.
Notices shall be addressed (a) if to Sub-Custodian, at Sub-Custodian's address,
90 Washington Street, (22nd Floor), New York, New York 10286, Attention: Frank
Ajosa; (b) if to Custodian, at Custodian's address, NationsBank, 101 South Tryon
Street, NC1-002-33-31, Charlotte, NC 28255, Attention: James Jones; (c) if to
the Company, at the address of the Company, 111 Center Street, Little Rock,
Arkansas 72201, Attention: Richard H. Blank, Jr., Secretary; or (d) if to none
of the foregoing, at such other address as shall have been notified to the
sender of any such Notice or other communication. Notice shall be deemed to have
been given when actually received by the other party. All postage, cable,
telegram, telex and facsimile sending device charges arising from the sending of
a Notice hereunder shall be paid by the sender.
26
<PAGE>
31. Further Actions. Each party agrees to perform such further acts and
execute such further documents as it deems necessary to effectuate the purposes
hereof.
32. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
33. Miscellaneous.
(a) The Company agrees that Sub-Custodian may be a
counterparty in any purchase or sale of foreign currency by or for the Company
on a spot or forward basis, and on any option to buy or sell foreign currency.
(b) This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
34. The names "Nations Fund" and "Directors of Nations Fund" refer
respectively to the Company created and the Directors, as Directors but not
individually or personally, acting from time to time under the Articles of
Incorporation of the Company dated December 13, 1983, which is hereby referred
to and a copy of which is on file at the office of the State Secretary of The
State of Maryland and at the principal office of the Company. The obligations of
"Nations Fund" entered into in the name or on behalf thereof by any of the
Directors, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Directors, Shareholders, or
representatives of the Company personally, but bind only the Company Property,
and all persons dealing with any class of Shares of the Company Property, and
all persons dealing with any class of Shares of the Company must look solely to
the Company Property belonging to such class for the enforcement of any claims
against the Company.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below as of the day and
year first above written.
THE BANK OF NEW YORK NATIONSBANK OF TEXAS, N.A.
By: /s/ Stephen E. Grunston By: /s/ John R. Glover
------------------------- --------------------
Stephen E. Grunston John R. Glover
Vice-President Senior Vice-President
NATIONS FUND, INC.
By: /s/ Richard H. Blank, Jr.
--------------------------------
Richard H. Blank, Jr.
Secretary
28
<PAGE>
SCHEDULE A
AUTHORIZED PERSONS FOR
ORAL AND WRITTEN INSTRUCTIONS
In addition to the Company's Officers, any one of the
following persons is authorized as an "Authorized Person" to give
"Oral Instructions" on behalf of the Company to the Custodian or
Sub-Custodian pursuant to the Mutual Fund Custody and Sub-Custody
Agreement among the Company, NationsBank of Texas, N.A. and The Bank
of New York, provided that no person shall be authorized or permitted
to withdraw Company investments or assets upon his/her mere receipt
(unless otherwise authorized with respect to a specific Fund or Funds
pursuant to a separate vote approved by the Board of Directors):
Mark Ahnrud
Edward D. Bedard
Melinda Allen Crosby
Sandra Duck
Christopher Gunster
John Kohl
James Jones
Mary Primm
Martha Sherman
Kelly Simeonides
Richard Szafran; and
In addition to the Company's Officers, any two of the
individuals named above is authorized as an "Authorized Person" to
give "Written Instructions" on behalf of the Company to the Custodian,
provided, however, that "Written Instructions" given in connection
with the issuance of checks and other drafts in payment of the
Company's operating expenses as provided therein must not be given
except upon prior written authorization of the Company's President,
Treasurer or Assistant Treasurer; and provided further that no one or
more persons shall be authorized or permitted to withdraw Company
investments or assets upon his/her or their mere receipt (unless
otherwise authorized with respect to a specific Fund or Funds pursuant
to a separate vote approved by the Board of Directors).
29
<PAGE>
SCHEDULE B
-----------
OFFICERS OF NATIONS FUND, INC.
OFFICER POSITION
-------- -----------
A. Max Walker President and
Chairman of the Board
Richard H. Blank, Jr. Secretary
Michael W. Nolte Assistant Secretary
Louise P. Newcomb Assistant Secretary
James E. Banks Assistant Secretary
Richard H. Rose Treasurer
Joseph C. Viselli Assistant Treasurer
Steven Levy Assistant Treasurer
Amended: November 17, 1997
30
<PAGE>
SCHEDULE I
The Mutual Fund Custody and Sub-Custody Agreement among Nations Fund,
Inc., Custodian and Sub-Custodian, applies to the following funds of the
Company:
Nations Prime Fund
Nations Treasury Fund
Nations Equity Income Fund
Nations Small Company Growth Fund
Nations Government Securities Fund
Nations U.S. Government Bond Fund
Nations International Equity Fund
Nations International Growth Fund
Nations International Stock Fund
Amended : December 9, 1997
31
<PAGE>
APPENDIX A
I, , a Vice President with THE BANK OF NEW YORK do
hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
32
<PAGE>
APPENDIX B
The undersigned, Richard H. Blank, Jr., hereby certifies that he is the
duly elected and acting Secretary of Nations Fund, Inc., a Maryland corporation
(the "Company"), further certifies that the following resolutions were adopted
by the Board of Directors of the Company at a meeting duly held on October
11-12, 1996, at which a quorum was at all times present and that such
resolutions have not been modified or rescinded and are in full force and effect
as of the date hereof.
COMPANY RESOLUTION
RESOLVED, that the Mutual Fund Custody and Sub-Custody
Agreement for each Fund as presented to this meeting be, and it hereby
is, approved, and that the appropriate Officers of the Company be, and
each hereby is, authorized and directed to execute and deliver the
Mutual Fund Custody and Sub-Custody Agreement on behalf of the Company,
in that form or with such changes as that Officer, with the advice of
counsel, deems necessary or desirable.
IN WITNESS WHEREOF, I have hereunto set my hand as of the day of
October 1996.
By:_______________________________
Richard H. Blank, Jr.
Secretary
33
<PAGE>
APPENDIX C
SCHEDULE OF FOREIGN SUB-CUSTODIANS
- ------------------------------ ------------------------------------------------
COUNTRY ELIGIBLE FOREIGN CUSTODIAN
- ------------------------------ ------------------------------------------------
Argentina The Bank of Boston, Buenos Aires
- ------------------------------ ------------------------------------------------
Australia ANZ, Melbourne
- ------------------------------ ------------------------------------------------
Austria Creditanstalt, Vienna
- ------------------------------ ------------------------------------------------
Bangladesh Standard Chartered Bank, Dhaka
- ------------------------------ ------------------------------------------------
Belgium BBL, Brussels
- ------------------------------ ------------------------------------------------
Botswana Stanbic Bank, Botswana
- ------------------------------ ------------------------------------------------
Brazil The Bank of Boston, Sao Paolo
- ------------------------------ ------------------------------------------------
Canada Royal Bank of Canada
- ------------------------------ ------------------------------------------------
Chile The Bank of Boston, Santiago
- ------------------------------ ------------------------------------------------
China (Shanghai) Standard Chartered, Shanghai
- ------------------------------ ------------------------------------------------
China (Shenzhen) Standard Chartered, Shenzhen
- ------------------------------ ------------------------------------------------
Colombia Cititrust, Bogota
- ------------------------------ ------------------------------------------------
Czech Republic CSOB, Prague
- ------------------------------ ------------------------------------------------
Denmark Den Danske Bank, Copenhagen
- ------------------------------ ------------------------------------------------
Ecuador Citibank, Quito
- ------------------------------ ------------------------------------------------
Egypt Citibank, Cairo
- ------------------------------ ------------------------------------------------
Euromarket CEDEL, Luxembourg
- ------------------------------ ------------------------------------------------
Finland Merita Bank, Helsinki
- ------------------------------ ------------------------------------------------
France Banque Paribas, Paris
- ------------------------------ ------------------------------------------------
Germany Dresdner Bank AG, Frankfurt
- ------------------------------ ------------------------------------------------
Ghana Merchant Bank Ghana, Accra
- ------------------------------ ------------------------------------------------
Greece National Bank of Greece, Athens
- ------------------------------ ------------------------------------------------
Hong Kong HSBC, Hong Kong
- ------------------------------ ------------------------------------------------
Hungary Citibank, Budapest
- ------------------------------ ------------------------------------------------
India HSBC, Bombay
- ------------------------------ ------------------------------------------------
Indonesia HSBC, Jakarta
- ------------------------------ ------------------------------------------------
Ireland Allied Irish Banks, plc.
- ------------------------------ ------------------------------------------------
Israel Bank Leumi, Tel Aviv
- ------------------------------ ------------------------------------------------
Italy Banca Commerciale Italiana, Milan
- ------------------------------ ------------------------------------------------
Japan Fuji Bank, Kabutochu, Tokyo
- ------------------------------ ------------------------------------------------
Jordon British Bank of Middle East, Amman
- ------------------------------ ------------------------------------------------
Kenya Stanbic Bank Kenya
- ------------------------------ ------------------------------------------------
Korea Seoulbank, Seoul
- ------------------------------ ------------------------------------------------
Luxembourg Banque Int'l a Luxembourg
- ------------------------------ ------------------------------------------------
Malaysia Hong Kong Bank Malaysia Berhad, Kuala Lumpur
- ------------------------------ ------------------------------------------------
34
<PAGE>
- ------------------------------ ------------------------------------------------
COUNTRY ELIGIBLE FOREIGN CUSTODIAN
- ------------------------------ ------------------------------------------------
Mexico Banamex, Mexico City
- ------------------------------ ------------------------------------------------
Morocco Banque Commerciale du Maroc, Casablanca
- ------------------------------ ------------------------------------------------
Namibia Stanbic Bank Namibia
- ------------------------------ ------------------------------------------------
Netherlands Mees Pierson, Amsterdam
- ------------------------------ ------------------------------------------------
New Zealand ANZ, Wellington
- ------------------------------ ------------------------------------------------
Nigeria Stanbic Bank Nigeria
- ------------------------------ ------------------------------------------------
Norway Den norske Bank, Oslo
- ------------------------------ ------------------------------------------------
Pakistan Standard Chartered, Karachi
- ------------------------------ ------------------------------------------------
Peru Citibank, Lima
- ------------------------------ ------------------------------------------------
Philippines HSBC, Manila
- ------------------------------ ------------------------------------------------
Poland Bank Handlowy, Warsaw
- ------------------------------ ------------------------------------------------
Portugal Banco Comercial Portugues, Lisbon
- ------------------------------ ------------------------------------------------
Singapore United Overseas Singapore
- ------------------------------ ------------------------------------------------
Slovak Republic CSOB, Bratislava
- ------------------------------ ------------------------------------------------
South Africa Standard Bank of South Africa, Johannesburg
- ------------------------------ ------------------------------------------------
Spain Banco Bilbao Vizcaya, Madrid
- ------------------------------ ------------------------------------------------
Sri Lanka Standard Chartered, Colombo
- ------------------------------ ------------------------------------------------
Swaziland Stanbic Bank Swaziland
- ------------------------------ ------------------------------------------------
Sweden Skandinaviska Enskilda Banken, Stockholm
- ------------------------------ ------------------------------------------------
Switzerland Bank Leu, Zurich
- ------------------------------ ------------------------------------------------
Taiwan HSBC, Taipei
- ------------------------------ ------------------------------------------------
Thailand Bangkok Bank, Bangkok
- ------------------------------ ------------------------------------------------
Turkey CITIBANK, Istanbul
- ------------------------------ ------------------------------------------------
United Kingdom The Bank of New York, London
- ------------------------------ ------------------------------------------------
United States The Bank of New York, New York
- ------------------------------ ------------------------------------------------
Uruguay The Bank of Boston, Montevideo
- ------------------------------ ------------------------------------------------
Venezuela Citibank, Caracas
- ------------------------------ ------------------------------------------------
Zambia Stanbic Bank Zambia
- ------------------------------ ------------------------------------------------
Zimbabwe Stanbic Bank Zimbabwe, Harare
- ------------------------------ ------------------------------------------------
35
<PAGE>
APPENDIX D
The undersigned, Richard H. Blank, Jr., hereby certifies that he is the
duly elected and acting Secretary of Nations Fund, Inc., a Maryland corporation
(the "Company"), further certifies that the following resolutions were adopted
by the Board of Directors of the Company at a meeting duly held on October
11-12, 1996, at which a quorum was at all times present and that such
resolutions have not been modified or rescinded and are in full force and effect
as of the date hereof.
COMPANY VOTES
RESOLVED, that the sub-custody and maintenance of securities
and other assets owned by the Funds of the Company in countries other
than the United States is necessary, appropriate and desirable for the
efficient operation of the Funds; and
FURTHER RESOLVED, that pursuant to Rule 17f-5 under the 1940
Act, BONY, as custodian for the Funds of the Company, be, and it
hereby is, authorized and directed to use the foreign sub-custodians
and depositories in the indicated countries listed on the attached
Schedule, each such foreign sub-custodian and depository being an
eligible foreign custodian under Rule 17f-5 or being authorized to act
in such capacity pursuant to exemptive relief granted by the SEC.
FURTHER RESOLVED, that the Sub-Custodian Agreements between
BONY and its network banks, providing for, among other things, the
manner in which BONY will maintain the Company's Funds' foreign
securities and other assets with eligible foreign sub-custodians be,
and they hereby are, approved;
FURTHER RESOLVED, that the appropriate Officers of the Company
be, and each hereby is, authorized to execute such documents and to
take such actions as may be necessary or appropriate to carry out the
purposes and intent of the preceding resolutions, the execution and
delivery of such documents or taking of such action to be conclusive
evidence of the Board of Directors' approval;
FURTHER RESOLVED, that the attached Schedule of approved
foreign custodians may be amended from time to time with the approval
of a majority of the Board of Directors; and
36
<PAGE>
FURTHER RESOLVED, that BONY is permitted to use the CREST
system for book-entry settlement of United Kingdom and Irish securities
transactions on behalf of the Funds of the Company, including with
respect to eligible Fund assets, if any, currently held in the vaults
of The Bank of New York, London and Allied Irish Banks, plc.
IN WITNESS WHEREOF, I hereunto set my hand as of the day of
October, 1996.
By:________________________________
Richard H. Blank, Jr.
Secretary
37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Little Rock, State of Arkansas on the
29th, day of May, 1998.
NATIONS FUND, INC.
By: *
----------------------------
A. Max Walker
President and Chairman
of the Board of Directors
By: /s/ Richard H. Blank, Jr.
------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE>
<S> <C>
SIGNATURES TITLE DATE
* President and Chairman May 29, 1998
- -------------------------------------- of the Board of Directors
(A. Max Walker) (Principal Executive Officer)
* Treasurer May 29, 1998
- -------------------------------------- Vice President
(Richard H. Rose) (Principal Financial and
Accounting Officer)
* Director May 29, 1998
- --------------------------------------
(Edmund L. Benson, III)
* Director May 29, 1998
- --------------------------------------
(James Ermer)
* Director May 29, 1998
- --------------------------------------
(William H. Grigg)
* Director May 29, 1998
- --------------------------------------
(Thomas F. Keller)
* Director May 29, 1998
- -------------------------------------
(Carl E. Mundy, Jr.)
* Director May 29, 1998
- --------------------------------------
(Charles B. Walker)
* Director May 29, 1998
- --------------------------------------
(Thomas S. Word)
* Director May 29, 1998
- ----------------------------------------
(James B. Sommers)
/s/ Richard H. Blank, Jr.
- -----------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
</TABLE>
38
