Prospectus
Investor A Shares and
Investor B Shares
August 1, 1998
as supplemented on
November 16, 1998
This Prospectus describes the investment portfolios listed in the column to the
right (each a "Fund") of Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the Nations Funds Family ("Nations
Funds" or "Nations Funds Family"). This Prospectus describes two classes of
shares of the Funds -- Investor A Shares and Investor B Shares. Although this
Prospectus describes the Investor B Shares of Nations Short-Term Income Fund,
as of the date of this Prospectus, those shares are not offered for sale to the
public.
This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Investor A Shares and Investor B Shares should
consider before investing. Investors should read this Prospectus and retain it
for future reference. Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in 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 Funds, 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
each of the Funds. TradeStreet Investment Associates, Inc. ("TradeStreet") is
the investment sub-adviser to all of the Funds, except Nations U.S. Government
Bond Fund, for which Boatmen's Capital Management, Inc. ("Boatmen's") is the
investment sub-adviser. As used herein the term "Adviser" shall mean NBAI,
TradeStreet and/or Boatmen's as the context may require, see "How The Funds Are
Managed."
SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK, N.A. ("NATIONSBANK") OR BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION OR ANY OF THEIR AFFILIATES. SUCH SHARES
ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO NATIONS FUNDS,
FOR WHICH THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Nations Short-
Term Income
Fund
Nations Short-
Intermediate
Government Fund
Nations
Government
Securities Fund
Nations
Strategic Fixed
Income Fund
Nations
Diversified
Income Fund
Nations U.S.
Government
Bond Fund
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
[NATIONS FUND LOGO APPEARS HERE]
NF-98661-11/98.
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds -----------------------------------------------------
Expenses Summary 4
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Objectives 7
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How Objectives Are Pursued 8
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How Performance Is Shown 13
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How The Funds Are Managed 14
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Organization And History 17
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About Your How To Buy Shares 18
Investment -----------------------------------------------------
Investor A Shares -- Charges and Features 21
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Investor B Shares -- Charges and Features 25
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How To Redeem Shares 28
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How To Exchange Shares 29
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Shareholder Servicing And Distribution Plans 31
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How The Funds Value Their Shares 33
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How Dividends And Distributions Are Made;
Tax Information 34
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Financial Highlights 35
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Appendix A -- Portfolio Securities 50
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Appendix B -- Description Of Ratings 60
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE FUNDS' SAI INCORPORATED HEREIN
BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUNDS OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING BY NATIONS FUNDS OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
o TYPE OF COMPANIES: Open-end management investment companies.
o INVESTMENT OBJECTIVES AND POLICIES:
o Nations Short-Term Income Fund's investment objective is to seek high
current income consistent with minimal fluctuation of principal. The Fund
invests in investment grade debt securities.
o Nations Short-Intermediate Government Fund's investment objective is to seek
high current income consistent with modest fluctuation of principal. The
Fund invests primarily in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
o Nations Government Securities Fund's investment objective is to seek high
current income consistent with moderate fluctuation of principal. The Fund
invests primarily in intermediate-term securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
o Nations Strategic Fixed Income Fund's investment objective is to seek total
return by investing in investment grade fixed income securities.
o Nations Diversified Income Fund's investment objective is to seek total
return with an emphasis on current income by investing in a diversified
portfolio of fixed income securities.
o Nations U.S. Government Bond Fund's investment objective is to seek total
return and preservation of capital by investing in U.S. Government
securities and repurchase agreements collateralized by such securities.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment management services to more
than 60 investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc., an affiliate of NBAI, provides investment
sub-advisory services to certain of the Funds, and Boatmen's Capital
Management, Inc. provides investment sub-advisory services to Nations U.S.
Government Bond Fund. For more information about the investment adviser and
investment sub-advisers to the Nations Funds, see "How The Funds Are Managed."
o DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay them
monthly. Each Fund's net realized capital gains, including net short-term
capital gains are distributed at least annually.
o RISK FACTORS: Although NBAI, together with the sub-advisers, seek to achieve
the investment objective of each Fund, there is no assurance that they will be
able to do so. Investments in a Fund are not insured against loss of
principal. Investments by a Fund in debt securities are subject to interest
rate risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of a
Fund's investments in debt securities, including U.S. Government Obligations
(as defined below), will tend to decrease when interest rates rise and
increase when interest rates fall. In general, longer-term debt instruments
tend to fluctuate in value more than shorter-term debt instruments in response
to interest rate movements. In addition, debt securities which are not issued
or guaranteed by the U.S. Government are subject to credit risk, which is the
risk that the issuer may not be able to pay principal and/or interest when
due. Certain of the Funds'
3
<PAGE>
investments may constitute derivative securities. Certain types of
derivative securities can, under particular circumstances, significantly
increase an investor's exposure to market and other risks. For a discussion
of these and other factors, see "How Objectives Are Pursued -- Risk
Considerations" and "Appendix A."
o MINIMUM PURCHASE: $1,000 minimum initial investment per record holder except
that the minimum initial investment is: $500 for Individual Retirement Account
("IRA") Investors; $250 for non-working spousal IRAs; and $100 for investors
participating on a monthly basis in the Systematic Investment Plan. There is
no minimum investment amount for investments by certain 401(k) and employee
pension plans or salary reduction. See "How To Buy Shares."
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds.
The following tables summarize shareholder transaction and operating expenses
for Investor A Shares and Investor B Shares of the Funds. The Examples show the
cumulative expenses attributable to a hypothetical $1,000 investment in the
Funds over specified periods.
NATIONS FUNDS INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations
Nations Short- Nations
Short-Term Intermediate Government
Income Government Securities
Shareholder Transaction Expenses Fund Fund Fund
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 1.00% 3.25% 4.75%
Maximum Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)(1) 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .30% .40% .50%
Rule 12b-1 Fees (Including Shareholder Servicing Fees) (After Fee Waivers) .20%(3) .20% .25%
Other Expenses (After Expense Reimbursements) .26% .21% .35%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) .76% .81% 1.10%
</TABLE>
(1) Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges".
(2) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investors investing $ 1 million or more
("Substantial Investors") in Investor A Shares held less than 18 months and
purchased between July 31, 1997 and November 15, 1998. See "How To Redeem
Shares -- Redemption Fee."
(3) Shareholder servicing fees for Nations Short-Term Income Fund are paid
pursuant to a separate Shareholder Servicing Plan. See "Shareholder
Servicing and Distribution Plans."
4
<PAGE>
NATIONS FUNDS INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations
Strategic Nations Nations U.S.
Fixed Diversified Government
Shareholder Transaction Expenses Income Fund Income Fund Bond Fund
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 3.25% 4.75% 4.75%
Maximum Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)(1) 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .50% .50% .40%
Rule 12b-1 Fees (Including Shareholder Servicing Fees) (After Fee Waivers) .20% .25% .25%
Other Expenses (After Expense Reimbursements) .20% .23% .20%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) .90% .98% .85%
</TABLE>
(1) Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges".
(2) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investors investing $1 million or more
("Substantial Investors") in Investor A Shares held less than 18 months and
purchased between July 31, 1997 and November 15, 1998. See "How To Redeem
Shares -- Redemption Fee."
NATIONS FUNDS INVESTOR B SHARES
<TABLE>
<CAPTION>
Nations Short- Nations Nations
Shareholder Nations Intermediate Government Strategic Nations Nations U.S.
Transaction Short-Term Government Securities Fixed Income Diversified Government
Expenses Income Fund Fund Fund Fund Income Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None None
Maximum Deferred Sales Charge (as
a percentage of the lower of the
original purchase price or
redemption proceeds)(1) None 3.00% 5.00% 3.00% 5.00% 5.00%
Annual Fund
Operating Expenses
(as a percentage
of average net assets)
Management Fees (After Fee
Waivers) .30% .40% .50% .50% .50% .40%
Rule 12b-1 Fees (After Fee Waivers) .10% .55% .60% .55% .60% .60%
Shareholder Servicing Fees .25% .25% .25% .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .26% .21% .35% .20% .23% .20%
Total Operating Expenses (After Fee
Waivers and Expense
Reimbursements) .91% 1.41% 1.70% 1.50% 1.58% 1.45%
</TABLE>
(1) Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge for certain of the Funds is
5.00% in the first year after purchase, declining to 1.00% in the sixth year
after purchase and eliminated thereafter. For certain other of the Funds,
the Maximum Deferred Sales Charge is 3.00% in the first year after purchase,
declining to 1.00% in the fourth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule see "How to
Redeem Shares -- Contingent Deferred Sales Charge."
5
<PAGE>
Examples: You would pay the following expenses on a $1,000 investment in
Investor A Shares of the indicated Fund, assuming (1) a 5% annual return and
(2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations
Short- Nations Nations
Nations Intermediate Government Strategic Nations Nations U.S.
Short-Term Government Securities Fixed Income Diversified Government
Income Fund Fund Fund Fund Income Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 40 $ 41 $ 58 $ 41 $ 57 $ 56
3 Years $ 56 $ 58 $ 81 $ 60 $ 77 $ 73
5 Years $ 73 $ 76 $105 $ 81 $ 99 $ 92
10 Years $124 $129 $175 $140 $162 $147
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor B
Shares of the indicated Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Short- Nations Nations
Nations Intermediate Government Strategic Nations Nations U.S.
Short-Term Government Securities Fixed Income Diversified Government
Income Fund Fund Fund Fund Income Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 39 $ 44 $ 67 $ 45 $ 66 $ 65
3 Years $ 49 $ 65 $ 84 $ 67 $ 80 $ 76
5 Years $ 50 $ 77 $112 $ 82 $106 $ 99
10 Years $108 $153 $185 $163 $172 $157
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor B
Shares of the indicated Fund, assuming a 5% annual return and no redemption.
<TABLE>
<CAPTION>
Nations Short- Nations Nations
Nations Intermediate Government Strategic Nations Nations U.S.
Short-Term Government Securities Fixed Income Diversified Government
Income Fund Fund Fund Fund Income Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 9 $ 14 $ 17 $ 15 $ 16 $ 15
3 Years $ 29 $ 45 $ 54 $ 47 $ 50 $ 46
5 Years $ 50 $ 77 $ 92 $ 82 $ 86 $ 79
10 Years $108 $153 $185 $163 $172 $157
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares and Investor B Shares will bear either directly or
indirectly. The figures contained in the above tables are based on amounts
incurred during each Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. There is no assurance that
any fee waivers and/or reimbursements will continue. In particular, to the
extent Other Expenses are less than those shown, 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 expense reimbursements are decreased or discontinued, the amounts
contained in the "Examples" above may increase. Long-term shareholders of the
Funds could pay more in sales charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Man-
6
<PAGE>
aged." For a more complete description of the Rule 12b-1 and shareholder
servicing fees payable by the Funds, see "Shareholder Servicing And
Distribution Plan."
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for
Investor A Shares of the indicated Fund would have been as follows: Nations
Government Securities Fund -- .64% and 1.24%, respectively; and Nations
Diversified Income Fund -- .60% and 1.08%, respectively.
Absent fee waivers, "Management Fees," "12b-1 Fees" and "Total Operating
Expenses" for Investor A Shares of the indicated Fund would have been as
follows: Nations Short-Intermediate Government Fund -- .60%, .25% and 1.06%,
respectively; and Nations Short-Term Income Fund -- .60%, .25% and 1.11%,
respectively.
Absent fee waivers and expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" for Investor A Shares of the indicated
Fund would have been as follows: Nations U.S. Government Bond Fund -- .60%,
.26% and 1.11%, respectively.
Absent fee waivers and expense reimbursements, "Management Fees," "12b-1 Fees,"
"Other Expenses" and "Total Operating Expenses" for Investor A Shares of the
indicated Fund would have been as follows: Nations Strategic Fixed Income Fund
- -- .60%, .25%, .23% and 1.08%, respectively.
Absent fee waivers, "Management Fees," "12b-1 Fees" and "Total Operating
Expenses" for Investor B Shares of the indicated Fund would have been as
follows: Nations Short-Term Income Fund -- .60%, .75% and 1.86%, respectively;
Nations Short-Intermediate Government Fund -- .60%, .75% and 1.81%,
respectively; Nations Government Securities Fund -- .64%, .75% and 1.99%,
respectively; and Nations Diversified Income Fund -- .60%, .75% and 1.83%,
respectively.
Absent fee waivers and expense reimbursements, "Management Fees," "12b-1 Fees,"
"Other Expenses" and "Total Operating Expenses" for Investor B Shares of the
indicated Fund would have been as follows: Nations Strategic Fixed Income Fund
- -- .60%, .75%, .23% and 1.83%, respectively; and Nations U.S. Government Bond
Fund -- .60%, .75%, .26% and 1.86%, respectively.
Effective May 1999, it is anticipated that certain voluntary Total Operating
Expenses limits put in place in connection with the reorganization of The Pilot
Funds into the Nations Funds will terminate with respect to the following
Funds: Nations Strategic Fixed Income Fund, Nations U.S. Government Bond Fund
and Nations Short Intermediate Government Bond Fund. For more information, see
the SAI.
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.
Objectives
Nations Short-Term Income Fund: Nations Short-Term Income Fund's investment
objective is to seek high current income consistent with minimal fluctuation of
principal. The Fund invests in investment grade debt securities.
Nations Short-Intermediate Government Fund: Nations Short-Intermediate
Government Fund's investment objective is to seek high current income
consistent with modest fluctuation of principal. The Fund invests primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Nations Government Securities Fund: Nations Government Securities Fund's
investment objective is to seek high current income consistent with moderate
fluctuation of principal. The Fund invests primarily in intermediate-term
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
7
<PAGE>
Nations Strategic Fixed Income Fund: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing in investment grade
fixed income securities.
Nations Diversified Income Fund: Nations Diversified Income Fund's investment
objective is to seek total return with an emphasis on current income by
investing in a diversified portfolio of fixed income securities.
Nations U.S. Government Bond Fund: Nations U.S. Government Bond Fund's
investment objective is to seek total return and preservation of capital by
investing in U.S. Government securities and repurchase agreements
collateralized by such securities.
Although the Adviser will seek to achieve the Funds' investment objectives,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in the Funds are not insured against loss of principal.
How Objectives Are Pursued
Nations Short-Term Income Fund: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the
average dollar-weighted maturity of the Fund will not exceed five years and the
duration of the Fund's portfolio will not exceed three years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by
one of the following six nationally recognized statistical rating
organizations, Duff & Phelps Credit Rating Co. ("D&P"), Fitch IBCA ("Fitch"),
Standard & Poor's Corporation ("S&P"), Moody's Investors Service, Inc.
("Moody's"), or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs"),
or, if not so rated, determined by the Adviser to be of comparable quality to
instruments so rated; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments and mortgage-related
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, collateralized mortgage obligations or "CMOs", real
estate investment trust securities or mortgage-backed bonds; other asset-backed
and municipal securities rated by one of the NRSROs, or, if not so rated,
determined by the Adviser to be of comparable quality to instruments so rated.
The Fund also may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. The Adviser will consider such an event in determining whether the Fund
should continue to hold the obligation. See "Appendix B" below for a
description of these rating designations.
The Fund also may invest in "high quality" money market instruments, (i.e.,
those within the two highest rating categories or unrated instruments
determined by the Adviser to be of comparable quality), repurchase agreements
and cash. Such obligations may include those issued by foreign banks and
foreign branches of U.S. banks. These invest-
8
<PAGE>
ments may be in such proportions as, in the Adviser's opinion, prevailing
market or economic circumstances warrant.
Nations Short-Intermediate Government Fund: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between three
and five years and the duration will not exceed five years. U.S. Government
Obligations have historically involved little risk of loss of principal if held
to maturity. However, due to fluctuations in interest rates, the market value
of such securities may vary during the period a shareholder owns shares of the
Fund. The value of the Fund's portfolio generally will vary inversely with
changes in prevailing interest rates.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at
the time of purchase by one of the NRSROs, or if not so rated, determined by
the Adviser to be of comparable quality to instruments so rated;
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments; mortgage-related securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the NRSROs,
or if not so rated, determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments, repurchase
agreements and cash. Such obligations may include those issued by foreign banks
and foreign branches of U.S. banks. These investments may be in such proportion
as, in the Adviser's opinion, prevailing market or economic circumstances
warrant.
Nations Government Securities Fund: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average dollar-weighted maturity of the Fund's portfolio will be between five
and 30 years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at
the time of purchase by one of the NRSROs, or if not so rated, determined by
the Adviser to be of comparable quality to instruments so rated;
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments; mortgage-related securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the NRSROs,
or if not so rated, determined by the Adviser to be of comparable quality.
The Fund also may invest in "high quality" money market instruments, repurchase
agreements and cash. Such obligations may include those issued by foreign banks
and foreign branches of U.S. banks. These investments may be in such proportion
as, in the Adviser's opinion, prevailing market or economic circumstances
warrant.
Nations Strategic Fixed Income Fund: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade fixed income securities. It is expected
that the average dollar-weighted maturity of the Fund's portfolio will be ten
years or less and under no circumstances will it exceed 15 years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at
the time of purchase by one of the NRSROs, or if not so rated, determined by
the Adviser to be of comparable quality to instruments so rated; U.S.
Government Obligations; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments; mortgage-related
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by
9
<PAGE>
the Adviser to be of comparable quality. The Fund also may invest in
dividend-paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
The Fund will invest in investment grade debt obligations. Obligations rated in
the lowest of the top four investment grade rating categories (E.G. rated "BBB"
by S&P or "Baa" by Moody's) have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade debt obligations. Subsequent to its purchase by the Fund, an issue
of securities may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Fund. The Adviser will consider
such an event in determining whether the Fund should continue to hold the
obligation. See "Appendix B" below for a description of these rating
designations.
The Fund also may invest in "high quality" money market instruments, repurchase
agreements and cash. Such obligations may include those issued by foreign banks
and foreign branches of U.S. banks. These investments may be in such
proportions as, in the Adviser's opinion, prevailing market or economic
circumstances warrant.
Nations Diversified Income Fund: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the
average dollar-weighted maturity of the Fund's portfolio will be greater than
five years.
The Fund may invest in corporate convertible and non-convertible debt
obligations; U.S. Government Obligations; dollar-denominated and non-
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments; mortgage-related securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the NRSROs,
or if not so rated, determined by the Adviser to be of comparable quality.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long
period of time may be limited. Non-investment grade debt securities are
sometimes referred to as "high yield bonds" or "junk bonds." They tend to have
speculative characteristics, generally involve more risk of principal and
income than higher rated securities, and have yields and market values that
tend to fluctuate more than higher quality securities.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in "high quality" money market instruments,
repurchase aggreements and cash. Such obligations may include those issued by
foreign banks and foreign branches of U.S. banks. These investments may be in
such proportions as, in the Adviser's opinion, prevailing market or economic
circumstances warrant.
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Nations U.S. Government Bond Fund: Under normal market conditions, the Fund
will invest at least 65% of its total assets in U.S. Government securities and
repurchase agreements collateralized by such securities. While the maturity of
individual securities will not be restricted, except during temporary defensive
periods or unusual market conditions, the average dollar-weighted maturity of
the Fund will be between five and 30 years. The Fund may invest in a variety of
U.S. Government Obligations. The Fund may also invest in interests in the
foregoing securities, including collateralized mortgage obligations issued or
guaranteed by a U.S. Government agency or instrumentality. U.S. Government
Obligations have historically had a very low risk of loss of principal if held
to maturity. The Fund, however, can give no assurance that the U.S. Government
would provide financial support to its agencies or instrumentalities if it were
not legally required to do so.
The Fund may also invest up to 35% of its total assets in debt securities of
U.S. and foreign corporate and foreign government issuers, American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"), zero coupon bonds
and cash equivalents. The Fund will purchase only those non-government
investments which are rated investment grade or better by at least one NRSRO
or, if unrated, are determined by the Adviser to be of comparable quality. If a
portfolio security held by the Fund ceases to be rated investment grade by at
least one NRSRO or if the Adviser determines that an unrated portfolio security
held by the Fund is no longer of comparable quality to an investment grade
security, the security will be sold in an orderly manner as quickly as
possible. Additionally, the Fund may also invest in futures contracts, interest
rate swaps and options.
The value of the Fund's portfolio (and consequently its shares) is expected to
fluctuate inversely in relation to changes in the direction of interest rates.
For more information concerning these and other investments in which the Fund
may invest, see "Appendix A".
General: Each of the Funds may invest in certain specified derivative
securities, including: interest rate swaps, caps and floors for hedging
purposes; exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures and options
thereon approved by the Commodity Futures Trading Commission (the "CFTC") for
market exposure risk-management. Each of the Funds also may lend its portfolio
securities to qualified institutional investors and may invest in repurchase
agreements, restricted, private placement and other illiquid securities. Each
of the Funds may engage in reverse repurchase agreements and in dollar roll
transactions. Additionally, each Fund may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies.
The Funds also may invest in instruments issued by trusts or certain
partnerships including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by
such trusts and partnerships.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity of the Funds.
Duration, as used in this Prospectus, means modified duration, which is a
measure of the expected life of fixed income securities on a present value
basis. Duration is used to estimate how much a Fund's share price will
fluctuate in response to a change in interest rates. To see how a Fund's share
price could shift, multiply the Fund's duration by the change in rates. If
interest rates rise by one percentage point, for example, the share price of a
Fund with a duration of five years would decline by about 5%. If rates decrease
by one percentage point, the Fund's share price would rise by about 5%.
Average dollar-weighted maturity is the average length of time until fixed
income securities held by a Fund reach maturity and are repaid. In general, the
longer the average dollar-weighted maturity, the more a Fund's share price will
fluctuate in response to changes in interest rates.
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes
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will not affect the income received by the Funds from such securities. However,
since available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
For more information concerning these and other instruments in which the Funds
may invest their investment practices, see "Appendix A".
Portfolio Turnover: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it
may result in higher brokerage costs and possible tax consequences for the Fund
and its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
Risk Considerations: The value of a Fund's investments in debt securities,
including U.S. Government Obligations, will tend to decrease when interest
rates rise and increase when interest rates fall. In general, longer-term debt
instruments tend to fluctuate in value more than shorter-term debt instruments
in response to interest rate movements. In addition, debt securities that are
not backed by the United States Government are subject to credit risk, which is
the risk that the issuer may not be able to pay principal and/or interest when
due.
Investments by a Fund in common stocks and other equity securities are subject
to stock market risk. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index
or reference rate. There are certain types of derivative securities that can,
under particular circumstances, significantly increase a purchaser's exposure
to market or other risks. The Adviser, however, only purchases derivative
securities in circumstances where it believes such purchases are consistent
with such Fund's investment objective and do not unduly increase the Fund's
exposure to market or other risks. For additional risk information regarding
the Funds' investments in particular instruments, see "Appendix A."
Year 2000 Issue: Many computer programs employed throughout the world use two
digits to identify the year. Unless modified, these programs may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. Any failure to adapt these programs in time could
hamper the Funds' operations. The Funds' principal service providers have
advised the Funds that they have been actively working on implementing
necessary changes to their systems, and that they expect that their systems
will be adapted in time, although there can be no assurance of success. Because
the Year 2000 issue affects virtually all organizations, the companies or
governmental entities in which the Funds invest could be adversely impacted by
the Year 2000 issue, although the extent of such impact cannot be predicted. To
the extent the impact on a portfolio holding is negative, a Fund's return could
be adversely affected.
Investment Limitations: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if, imme-
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diately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to
25% of the value of the Fund's total assets may be invested without regard to
these limitations and with respect to 75% of such Fund's assets, such Fund will
not hold more than 10% of the voting securities of any issuer.
Nations U.S. Government Bond Fund may not borrow money except as a temporary
measure for extraordinary or emergency purposes or except in connection with
reverse repurchase agreements and mortgage rolls; provided that the Fund will
maintain asset coverage of 300% for all borrowings.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without shareholder approval. Shareholders of Nations U.S.
Government Bond Fund, however, must receive at least 30 days' prior written
notice in the event an investment objective is changed. If the investment
objective or policies of a Fund change, shareholders should consider whether
the Fund remains an appropriate investment in light of their current position
and needs.
How Performance Is Shown
From time to time, the Funds may advertise the "total return" and "yield" on a
class of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a
class of shares of the Funds may be calculated on an average annual total
return basis or an aggregate total return basis. Average annual total return
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or the life of a Fund (as stated in a Fund's advertisement)
that would equate an initial amount invested at the beginning of a stated
period to the ending redeemable value of the investment (reflecting the
deduction of any applicable contingent deferred sales charge ("CDSC")),
assuming the reinvestment of all dividend and capital gain distributions.
Aggregate total return reflects the total percentage change in the value of the
investment over the measuring period again assuming the reinvestment of all
dividends and capital gain distributions. Total return may also be presented
for other periods or may not reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per
share during a recent 30-day (or one month) period of a class of shares by the
maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect the deduction of any applicable
CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A and Investor B Shares, the Funds offer Primary A,
Primary B and Investor C Shares. Each class of shares may bear different sales
charges, shareholder servicing fees and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any fees charged by a selling agent and/or servicing agent
directly to its customers' accounts in connection with investments in the Funds
will not be included in calculations of total return or yield. The Funds'
annual report contains additional performance information and is available upon
request without charge from the Funds' distributor or an investor's agent or by
calling Nations Funds at the toll-free number indicated on the cover of this
Prospectus.
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How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of
Directors, respectively. The SAI contains the names of and general background
information concerning each Trustee of Nations Fund Trust and each Director of
Nations Fund, Inc.
As described below, each Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of each Fund.
Each Fund also is sub-advised by a separate investment sub-adviser, which as a
general matter is responsible for the day-to-day investment decisions for the
respective Fund.
Nations Funds and the Adviser have adopted codes of ethics which contain
policies on personal securities transactions by "access persons," including
portfolio managers and investment analysts. These policies substantially comply
in all material respects with the recommendations set forth in the May 9, 1994
Report of the Advisory Group on Personal Investing of the Investment Company
Institute.
Investment Adviser: NationsBanc Advisors, Inc., serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of BankAmerica Corporation, a bank holding
company organized as a Delaware corporation. NBAI has its principal offices at
One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to all of the Funds, except Nations U.S. Government Bond Fund.
TradeStreet is a wholly owned subsidiary of NationsBank. TradeStreet provides
investment management services to individuals, corporations and institutions.
Boatmen's Capital Management, Inc. serves as investment sub-adviser to Nations
U.S. Government Bond Fund. Its principal offices are located at 100 North
Broadway, St. Louis, Missouri 63102. Boatmen's is a wholly owned subsidiary of
NationsBank.
Subject to the general supervision of Nations Fund Trust's Board of Trustees
and Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders
for each Fund's purchases and sales of portfolio securities and maintains
records relating to such purchases and sales. The Adviser is authorized to
allocate purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various investment
advisory agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rate of: .60% of the average daily net assets
of each of Nations Short-Term Income Fund, Nations Diversified Income Fund,
Nations U.S. Government Bond Fund, Nations Strategic Fixed Income Fund and
Nations Short-Intermediate Government Fund; .65% of the first $100 million of
Nations Government Securities Fund's average daily net assets, plus .55% of the
Fund's average daily net assets in excess of $100 million and up to $250
million, plus .50% of the Fund's average daily net assets in excess of $250
million.
For the services provided pursuant to investment sub-advisory agreements, NBAI
will pay TradeStreet sub-advisory fees, computed daily and paid monthly, at the
annual rate of .15% of Nations Short-Intermediate Government Fund's, Nations
Government Securities Fund's, Nations Short-Term
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Income Fund's, Nations Strategic Fixed Income Fund's and Nations Diversified
Income Fund's average daily net assets.
NBAI will pay Boatmen's sub-advisory fees at the rate of .15% of the average
daily net assets of Nations U.S. Government Bond Fund.
From time to time, NBAI (and/or TradeStreet and/or Boatmen's) may waive or
reimburse (either voluntarily or pursuant to applicable state limitations)
advisory fees and/or expenses payable by a Fund.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid NBAI under the investment advisory agreement, advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Short-Intermediate Government Fund -- .40%, Nations Short-Term Income
Fund -- .30%, Nations Diversified Income Fund -- .50% and Nations Strategic
Fixed Income Fund -- .48%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund, Inc. paid NBAI under the investment advisory agreement, advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Government Securities Fund -- .50% and Nations U.S. Government Bond
Fund -- .33%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers, NBAI
paid TradeStreet under the investment sub-advisory agreements, sub-advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Short-Intermediate Government Fund -- .15%, Nations Short-Term Income
Fund -- .15%, Nations Diversified Income Fund -- .15%, Nations Strategic Fixed
Income Fund -- .15% and Nations Government Securities Fund -- .15%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers, NBAI
paid Boatmen's under the investment sub-advisory agreement, sub-advisory fees
at the rate of .15% of Nations U.S. Government Bond Fund.
The Fixed Income Management Team of TradeStreet is responsible for the
day-to-day management of Nations Short-Intermediate Government Fund, Nations
Government Securities Fund, Nations Short-Term Income Fund, Nations Diversified
Income Fund and Nations Strategic Fixed Income Fund.
The Fixed Income Committee of Boatmen's is responsible for the day-to-day
management of Nations U.S. Government Bond Fund.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank has advised NationsBank and Nations Funds that NationsBank and its
affiliates may perform the services contemplated by the various investment
advisory agreements and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future
judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in federal or state
statutes, including the Glass-Steagall Act, and regulations and judicial or
administrative decisions or interpretations thereof, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any of such services, it is
expected that new agreements would be proposed or entered into with another
entity or entities qualified to perform such services.
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Funds pursuant to administration agreements. Pursuant to the terms of the
administration agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data") a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a co-administration agreement. Under the co-administration
agreement, First Data provides various administrative and accounting ser-
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vices to the Funds including performing the calculations necessary to determine
the net asset value per share and dividends of each class of shares of the
Funds, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the administration and co-administration
agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Short-Intermediate
Government Fund -- .10%, Nations Short-Term Income Fund -- .10%, Nations
Diversified Income Fund -- .10% and Nations Strategic Fixed Income Fund --
.10%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Government Securities
Fund -- .10% and Nations U.S. Government Bond Fund -- .10%.
NBAI serves as sub-administrator for the 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 Funds' 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 Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. Nations Funds
has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Funds. Stephens
may pay service fees or commissions to selling agents that assist customers in
purchasing Investor B Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
The Bank of New York ("BONY" or the "Custodian"), located at 90 Washington
Street, New York, New York 10286, provides custodial services for the assets of
all the Funds, except the international portfolios. In return for providing
custodial services to the Nations Funds Family, BONY is entitled to receive, in
addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations Funds' non-money
market funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations Funds' money market funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor B Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
PricewaterhouseCoopers LLP serves as independent accountants to Nations Funds.
Their address is 160 Federal Street, Boston, Massachusetts 02110.
Expenses: The accrued expenses of each Fund are deducted from the Funds'
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and First Data; interest;
fees (including fees paid to Nations Funds' Directors, Trustees 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 and Investor B Shares may bear certain class
specific expenses and also bear certain additional shareholder service and
sales support costs. Any general expenses of Nations Fund Trust and/or Nations
Fund, Inc. that are not readily identifiable as belonging to a particular
investment portfolio are allocated among all portfolios in the proportion that
the assets of a portfolio bear to the assets of Nations Fund Trust or Nations
Fund, Inc. or in such other manner as the Board of Trustees or the Boards of
Directors deems appropriate.
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Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves, 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 $40 billion.
Nations Fund Trust: Nations Fund Trust was organized as a Massachusetts
business trust on May 6, 1985. Nations Fund Trust's fiscal year end is March
31; prior to 1996, Nations Fund Trust's fiscal year end was November 30. The
Funds currently offer five classes of shares -- Primary A Shares, Primary B
Shares, Investor A Shares, Investor B Shares and Investor C Shares. This
Prospectus relates only to the Investor A and Investor B Shares of the
following Funds of Nations Fund Trust: Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund and Nations
Short-Intermediate Government Fund. To obtain additional information regarding
the Funds' other classes of shares which may be available to you, contact your
Agent (as defined below) or Nations Funds at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the SAI for examples of when the Investment
Company Act of 1940, as amended (the "1940 Act") requires voting by fund.
As of August 1, 1998, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders
entitled to vote at least 10% of the outstanding shares of Nations Fund Trust
entitled to be voted at such meeting.
Nations Fund, Inc.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund,
Inc.'s fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal
year end was May 31. As of the date of this Prospectus, the authorized capital
stock of Nations Fund, Inc. consists of 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 and Investor B Shares of the following Funds of Nations Fund,
Inc.: Nations Government Securities Fund and Nations U.S. Government Bond 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 fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the
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exclusive right to vote on matters affecting only the rights of the holders of
such fund or class. In the event of dissolution or liquidation, holders of each
class will receive pro rata, subject to the rights of creditors, (a) the
proceeds of the sale of that portion of the assets allocated to that class held
in the respective fund of Nations Fund, Inc., less (b) the liabilities of
Nations Fund, Inc. attributable to the respective fund or class or allocated
among the funds or classes based on the respective liquidation value of each
fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s
shares. Nations Fund, Inc.'s shares, when issued, will be fully paid and non-
As of August 1, 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. It is anticipated that Nations Fund, Inc. will
not hold annual shareholder meetings on a regular basis unless required by the
1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning another investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates
a right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
This Prospectus offers two classes of shares to the general public. Investor A
Shares are sold with an initial sales charge and are subject to a contingent
deferred sales charge ("CDSC") upon certain redemptions; Investor B Shares are
sold without an initial sales charge and are subject to a CDSC upon certain
redemptions. Investments greater than $250,000 are not eligible to purchase
Investor B Shares but may be directed to Investor A Shares. See "Factors to
Consider When Selecting Investor A Shares or Investor B Shares" for a
discussion of issues to consider in selecting which class of shares to
purchase. Contact your Agent or Nations Funds at 1-800-321-7854 for further
information.
The Funds have established various procedures for purchasing Investor A Shares
and Investor B Shares in order to accommodate different investors. Purchase
orders may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a shareholder servicing agreement ("Servicing Agreement") with Nations
Funds ("Servicing Agents") and/or a sales support agreement ("Sales Support
Agreement") with Stephens ("Selling Agents"). In addition, under certain
circumstances, Investor A Shares may be purchased directly from the Funds. If
you invest through a third party (rather than directly with the Funds), the
policies and fees that apply to you may differ from those set forth below.
Banks, broker/dealers or other institutions may charge other fees and may set
limitations on buying or selling shares or the privileges that apply to them.
18
<PAGE>
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
o $500 for IRA investors;
o $250 for non-working spousal IRAs;
o $250 for accounts established with certain fee-based investment advisers or
financial planners, including wrap fee accounts and other managed
agency/asset allocation accounts; and
o $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified
employee pension plans ("SAR-SEPs"), Savings Incentives Method Plans for
Employees ("SIMPLE IRAs"), salary reduction-Individual Retirement Accounts
("SAR-IRAs") or similar types of accounts. However, the assets of such plans
must reach an asset value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs, and
SAR-IRAs) within one year of the account open date. If the assets of such plans
do not reach the minimum asset size within one year, Nations Funds reserves the
right to redeem the shares held by such plans on 60 days' written notice. The
minimum subsequent investment is $100, except for investments pursuant to the
Systematic Investment Plan described below.
Investor A Shares are purchased at net asset value plus any applicable sales
charge. Investor B Shares are purchased at net asset value per share without
the imposition of a sales charge, but are subject to a CDSC if redeemed within
a specified period after purchase. 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 A and 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 A and Investor B Shares is recorded on the books of the
Funds, and share certificates are not issued unless expressly requested in
writing. Certificates are not issued for fractional shares.
Effective Time of Purchases: Purchase orders for Investor A Shares and Investor
B Shares in the Funds which are received by Stephens, the Transfer Agent or
their respective agents before the close of regular trading 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. In the event that the Exchange
closes early, purchase orders received prior to closing will be priced as of
the time the Exchange closes and purchase orders received after the Exchange
closes will be deemed received on the next Business Day and priced according to
the net asset value determined on the next Business Day. Purchase orders are
not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by
the Funds' Custodian. Such payment must be received no later than 4:00 p.m.,
Eastern time, by the third Business Day following the receipt of the order, as
determined above. 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
and Investor B Shares by their Customers, and delivering required funds, on a
timely basis. Stephens is responsible for transmitting orders it receives to
Nations Funds.
Systematic Investment Plan: Under the Funds' Systematic Investment Plan
("SIP"), shareholders may automatically purchase Investor A or Investor B
Shares. On a bi-monthly or quarterly basis, shareholders may direct cash to be
transferred automatically from their checking or savings account at any bank
which is a member of the Automated Clearing House to their Fund account.
Transfers will occur on or about the 15th and/or the last day of the applicable
month. Subject to certain exceptions for employees of NationsBank and its
affiliates and pre-existing SIP accounts, the system-
19
<PAGE>
atic investment amount may be in any amount from $50 to $100,000. For more
information concerning the SIP, contact your Agent.
Telephone Transactions: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear
the risk of any resulting losses from a telephone transaction. Nations Funds
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds requires a form of personal
identification prior to acting upon instructions received by telephone and
provides written confirmation to shareholders of each telephone share
transaction. In addition, Nations Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
Conversion Feature: Investor B Shares purchased after November 15, 1998, will
automatically convert to Investor A Shares at the end of the month in which the
eighth anniversary of such share purchase occurs.
Investor B Shares purchased between August 1, 1997 and November 15, 1998, that
have been outstanding for the number of years set forth in the applicable
schedule below will, at the end of the month in which the anniversary of such
share purchase occurs, automatically convert to Investor A Shares.
CONVERSION SCHEDULES:
For Shares Purchased Between August 1, 1997 And November 15, 1998
This conversion feature applies to Nations Short-Intermediate Government Fund
and Nations Strategic Fixed Income Fund in the manner described by the schedule
below:
<TABLE>
<CAPTION>
AMOUNT OF PURCHASE YEAR OF CONVERSION
<S> <C>
$ 0--$249,999 6th
$250,000--$499,999 6th
$500,000--$999,999 5th
</TABLE>
This conversion feature also applies to the following Funds in the manner
described by the schedule below: Nations Government Securities Fund, Nations
Diversified Income Fund and Nations U.S. Government Bond Fund:
<TABLE>
<CAPTION>
AMOUNT OF PURCHASE YEAR OF CONVERSION
<S> <C>
$ 0--$249,999 9th
$250,000--$499,999 6th
$500,000--$999,999 5th
</TABLE>
Investor B Shares of Nations Short-Intermediate Government Fund and Nations
Strategic Fixed Income Fund purchased prior to August 1, 1997, will
automatically convert to Investor A Shares at the end of the month in which the
sixth anniversary of such share purchase occurs.
Investor B Shares of Nations Government Securities Fund, Nations Diversified
Income Fund and Nations U.S. Government Bond Fund purchased prior to August 1,
1997, will automatically convert to Investor A Shares at the end of the month
in which the ninth anniversary of such share purchase occurs.
Upon conversion, shareholders will receive Investor A Shares having a total
dollar value equal to the total dollar value of their Investor B Shares,
without the imposition of any sales charge or other charge. The operating
expenses applicable to Investor A Shares, which are lower than those applicable
to Investor B Shares, shall thereafter be applied to such newly converted
shares. Shareholders holding converted shares will benefit from the lower
annual operating expenses of Investor A Shares, which will have a positive
effect on total returns. In each case, shareholders have the right to decline
an automatic conversion by notifying their Agent or the Transfer Agent within
90 days before a conversion that they do not desire such conversion.
Investor B Shares acquired in connection with the reinvestment of dividends or
distributions will convert to Investor A Shares at the same time as the
20
<PAGE>
original shares purchased. 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.
Factors to Consider When Selecting Investor A Shares or Investor B Shares:
Before purchasing Investor A Shares or Investor B Shares, investors should
consider whether, during the anticipated life of their investment in the Funds,
the initial sales charge, accumulated distribution and shareholder servicing
fee and potential CDSC (if applicable) on Investor A Shares would be less than
the accumulated shareholder servicing and distribution fees and potential CDSC
on Investor B Shares. Over time, the cumulative expense of the annual
shareholder servicing and distribution fees on the Investor B Shares may equal
or exceed the initial sales charge and combined distribution and servicing fee
applicable to Investor A Shares.
Because holders of Investor A Shares are subject to a lower fee for
distribution and shareholder services, they can be expected to earn
correspondingly higher dividends per share. However, because initial sales
charges are deducted at the time of purchase, purchasers of Investor A Shares
that do not qualify for waivers of or reductions in the initial sales charge
would have less of their purchase price initially invested in the Funds than
purchasers of Investor B Shares. Any positive investment return on the
additional invested amount for Investor B Shares, however, would be partially
or wholly offset by the expected higher annual expenses borne by Investor B
Shares.
Investor A Shares -- Charges and Features
The public offering price of Investor A Shares in the Funds is the sum of the
net asset value per share of the shares being purchased plus any applicable
sales charge. No sales charge will be assessed on the reinvestment of dividends
or other distributions.
SHORT-TERM FIXED INCOME FUNDS:
The following schedule of sales charges will be assessed on Investor A Shares
of Nations Short-Term Income Fund:
<TABLE>
<CAPTION>
Dealers'
Total Sales Charge Reallowance
As of % of As a % of As a %
Offering Net Asset Offering
Amount of Price Value Price
Transaction Per Share Per Share Per Share
<S> <C> <C> <C>
$ 0-$99,999 1.00 1.01 0.75
$100,000-$249,999 0.75 0.76 0.50
$250,000-$999,999 0.50 0.50 0.40
$1,000,000 and over 0.00* 0.00* 0.00**
</TABLE>
SHORT-INTERMEDIATE FIXED INCOME FUNDS:
The following schedule of sales charges will be assessed on Investor A Shares
of Nations Short- Intermediate Government Fund and Nations Stra
tegic Fixed Income Fund.
<TABLE>
<CAPTION>
Dealers'
Total Sales Charge Reallowance
As a % of As a % of As a % of
Offering Net Asset Offering
Amount of Price Value Price
Transaction Per Share Per Share Per Share
<S> <C> <C> <C>
$ 0-$99,999 3.25 3.36 3.00
$100,000-$249,999 2.50 2.56 2.25
$250,000-$499,999 2.00 2.04 1.75
$500,000-$999,999 1.50 1.53 1.25
$1,000,000 and over 0.00* 0.00* 0.00**
</TABLE>
The Dealers' Reallowance, which may be changed from time to time, is paid to
Agents.
21
<PAGE>
LONG FIXED INCOME FUNDS:
The following schedule of sales charges will be assessed on Investor A Shares
of Nations U.S. Government Bond Fund, Nations Government Securities Fund and
Nations Diversified Income Fund.
<TABLE>
<CAPTION>
Dealers'
Total Sales Charge Reallowance
As a % of As a % of As a % of
Offering Net Asset Offering
Amount of Price Value Price
Transaction Per Share Per Share Per Share
<S> <C> <C> <C>
$ 0-$49,999 4.75 4.99 4.25
$ 50,000-$99,999 4.50 4.71 4.00
$100,000-$249,999 3.50 3.63 3.00
$250,000-$499,999 2.50 2.56 2.25
$500,000-$999,999 2.00 2.04 1.75
$1,000,000 and over 0.00* 0.00* 0.00**
</TABLE>
* Subject to certain waivers specified below, Investor A Shares that are
purchased in amounts of $1 million or more at net asset value will be subject
to a Contingent Deferred Sales Charge ("CDSC") of 1.00% if redeemed within
one year of purchase, declining to 0.50% in the second year after purchase
and eliminated thereafter.
** 1.00% on first $3,000,000, plus 0.50% on the next $47,000,000, plus 0.25% on
amounts over $50,000,000. Stephens will pay the Dealers' Reallowance in
connection with the purchase of shares in amounts of $1 million or more, for
which it may be reimbursed out of the CDSC if such shares are redeemed within
two years of purchase.
Investor A Shares Contingent Deferred Sales Charge: Subject to certain waivers
specified below, Investor A Shares of the Funds that are purchased at net asset
value in amounts of $1 million or more will be subject to a CDSC equal to 1.00%
of the lesser of the market value or the purchase price of the shares being
redeemed if such shares are redeemed within one year of purchase, declining to
0.50% in the second year after purchase and eliminated thereafter. No CDSC is
imposed on increases in net asset value above the initial purchase price,
including shares acquired by reinvestment of distributions.
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 A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as
amended (the "Code")) of a shareholder (including a registered joint owner),
(ii) in connection with the following retirement plan distributions: (a) 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 A Shares held in the
account is less than the minimum account size, (v) in connection with the
combination of Nations Funds with any other registered investment company by a
merger, acquisition of assets or by any other transaction, and (vi) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of
the Investor A Shares in the account. In addition, the CDSC will be waived on
Investor A 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. Nations Fund may
terminate any waiver of the CDSC by providing notice in the Funds' Prospectus,
but any such termination would only affect shares purchased after such
termination.
Redemption Fee: A redemption fee of 1% of the current net asset value will be
assesed on certain Investor A Shares purchased between July 31, 1997 and
November 15, 1998 and redeemed within 18 months of the date of purchase by a
Substantial
22
<PAGE>
Investor (as defined in the footnotes to the "Expenses Summary"). In addition,
a 1% redemption fee will be assesed on Investor A Shares purchased between July
31, 1997 and November 15, 1998 by an employee benefit plan that (i) made its
initial investment between July 31, 1997 and November 15, 1998 and (ii)
redeemed such shares within 18 months of purchase in connection with a complete
liquidation of such plan's holdings in the Nations Funds Family. This fee is
retained by the Fund or Funds for the benefit of the remaining shareholders and
is intended to encourage long-term investment in the Funds and to avoid
transaction and other expenses associated with short-term investments. The
Funds reserve the right to modify the terms of or terminate this fee at any
time.
Automatic Withdrawal Plan: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor A Shares in his/her accounts within the Nations Funds Family (valued
at the net asset value at the time of the establishment of the AWP) equals
$10,000 or more. Investor A Shares redeemed under the AWP will not be subject
to a CDSC, provided that the shares so redeemed do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account.
Otherwise, any applicable CDSC will be imposed on shares redeemed under the
AWP. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings
account in a stated amount of not less than $25 on or about the 10th or 25th
day of the applicable month of withdrawal. Investor A Shares will be redeemed
(net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals may reduce principal and will eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. AWPs may be terminated by shareholders
on 30 days' written notice to their Selling Agent or by Nations Funds at any
time.
Reduced Sales Charge: An investor may be entitled to reduced sales charges on
Investor A Shares through Rights of Accumulation, a Letter of Intent, or
Quantity Discounts.
To qualify for a reduced sales charge, an investor must notify the Agent
through which the Investor A Shares are purchased, which in turn must notify
Stephens, the Transfer Agent or their respective agents at the time of
purchase. Reduced sales charges may be modified or terminated at any time.
Investors are responsible for providing evidence sufficient to establish that
they are eligible for any reduction in sales charges.
Rights of Accumulation: An investor who has previously purchased Investor A,
Investor B, or Investor C Shares in the Nations Funds (excluding Nations Funds
money market and index funds may aggregate investments in such shares with
current purchases to determine the applicable sales charge for current
purchases of Investor A Shares. An investor's aggregate investment in Investor
A, Investor B and Investor C Shares in such Funds 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, Investor B and Investor C
Shares that are already beneficially owned by the investor.
Letter of Intent: A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the preceding table. The
size of investment shown in the preceding table also includes purchases of
shares of the participating Funds over a 13-month period based on the total
amount of intended purchases plus the value of all shares of the participating
Funds previously purchased and still owned. An investor may elect to compute
the 13-month period starting up to 90 days before the date of execution of a
Letter of Intent. Each investment made during the period receives the reduced
sales charge applicable to the total amount of the investment goal. If the goal
is not achieved within the period, the investor must pay the difference between
the charges applicable to the purchases made and the charges previously paid.
The initial purchase must be for an amount equal to at least five percent of
the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category.
23
<PAGE>
Quantity Discounts: As shown in the table under "Sales Charges," larger
purchases may reduce the sales charge paid on Investor A Shares. Purchases of
Investor A Shares in the non-money market funds of the Nations Funds Family
that are made on the same day by the investor, his/her spouse, and his/her
children under age 21 will be combined when calculating the sales charge. For
the purpose of calculating the amount of the transaction, certain distributions
or payments from dissolution of certain qualified plans are permitted to
aggregate plan participant's investments.
Purchases of Shares at Net Asset Value:
o Full-time employees and retired employees of BankAmerica Corporation (and its
predecessors), its affiliates and subsidiaries and the immediate families of
such persons may purchase Investor A Shares in the Funds at net asset value.
o Individuals receiving a distribution from a NationsBank trust or other
fiduciary account may use the proceeds of such distribution to purchase
Investor A Shares of the Funds at net asset value, provided that the proceeds
are invested through a trust account established with another trustee and
invested in the Funds within 90 days. Those investors who transfer their
proceeds to a fiduciary account with selected trustees may continue to
purchase shares in the Funds at net asset value.
o Nations Fund's Trustees and Directors also may purchase Investor A Shares at
net asset value.
o Registered broker/dealers that have entered into a Nations Fund dealer
agreement with Stephens may purchase Investor A Shares at net asset value for
their investment account only.
o Registered personnel and employees of such broker/dealers also may purchase
Investor A Shares at net asset value in accordance with the internal policies
and procedures of the employing broker/dealer provided such purchases are
made for their own investment purposes.
o Employees of the Transfer Agent may purchase Investor A Shares of the Funds
at net asset value.
o Former shareholders of Class B Shares of the Special Equity Portfolio of The
Capitol Mutual Funds who held such shares as of January 31, 1994 or received
Investor A Shares of Nations Disciplined Equity Fund in connection with the
reorganization of the Special Equity Portfolio into Nations Disciplined
Equity Fund may purchase Investor A Shares of Nations Disciplined Equity Fund
at net asset value.
o 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 may purchase Investor A Shares at net asset value.
Investor A Shares also may be purchased at net asset value by (i) pension,
profit sharing or other employee benefit plans established under Section 401 or
Section 457 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) employee benefit plans created pursuant to Section 403(b) of the Code and
sponsored by a non-profit organization qualified under Section 501(c)(3) of the
Code, provided that, in either case, the plan (a) has at least $500,000
invested in Investor A Shares of the Nations Fund non-money market funds, (b)
has signed a letter of intent indicating that the plan intends to purchase at
least $500,000 of Investor A Shares of the Nations Fund non-money market funds,
(c) is an employer-sponsored plan with at least 100 eligible participants (a
"Qualified Plan") or (d) is a participant in an alliance program that has
entered into an agreement with the Fund or an Agent. Stephens may pay Agents or
other financial service firms up to 1.00% of the net asset value of Investor A
Shares purchased without a sales charge, for which it may be reimbursed out of
any applicable CDSC.
Reinstatement Privilege: Investor A Shares in a Fund may be purchased at net
asset value, without any sales charge, by persons who have redeemed Investor A
Shares of the same Fund within the previous 120 days. 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 con-
24
<PAGE>
nection with the prior redemption. A shareholder may not exercise this
privilege with the proceeds of a redemption of shares previously purchased
through the reinstatement privilege. In order to exercise this privilege, a
written order for the purchase of Investor A Shares must be received by the
Transfer Agent, Stephens or their respective agents within 120 days after the
redemption.
Investor A Shares may be purchased at net asset value, without a sales charge,
to the extent such a purchase, which must be at least $1,000, is paid for with
the proceeds from the redemption of shares of a nonaffiliated mutual fund. A
qualifying purchase of Investor A Shares must occur within 45 days of the prior
redemption and Nations Funds must receive a copy of the confirmation of the
redemption transaction. Stephens may compensate dealers in connection with such
purchases. This privilege may be revoked at any time.
Nations Funds may terminate any waiver of or reduction in the sales charge by
providing notice in the Fund's Prospectus, but any such termination would only
affect future purchases of shares. For more information about reduced sales
charge, contact an Agent or Stephens.
Investor B Shares -- Charges and Features
Investor B Shares Contingent Deferred Sales Charge: Subject to certain waivers
specified below, Investor B Shares purchased prior to January 1, 1996 and after
July 31, 1997, may be subject to a CDSC if such shares are redeemed within the
years designated in the applicable CDSC schedule set forth below. No CDSC is
imposed on increases in net asset value above the initial purchase price, or
shares acquired by reinvestment of distributions. Subject to the waivers
described below, the amount of the CDSC is determined as a percentage of the
lesser of the market 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
SHORT-TERM FIXED INCOME FUNDS:
Investor B Share pricing is not available on Nations Short-Term Income Fund.
However, investors desiring to invest in this Fund may purchase Investor A
Shares.
SHORT-INTERMEDIATE FIXED INCOME FUNDS:
A CDSC is imposed at the following declining rates on Investor B Shares of
Nations Short-Intermediate Government Fund and Nations Strategic Fixed Income
Fund:
Shares Purchased after November 15, 1998*
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 3.0%
Second 3.0%
Third 2.0%
Fourth 1.00%
Fifth None
</TABLE>
* Investor B Shares are not available to purchasers desiring to invest $250,000
or more, however, investors desiring to invest $250,000 or more may be
eligible to purchase Investor A Shares.
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of $0
- -- $499,999
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
</TABLE>
25
<PAGE>
Shares Purchased Between August 1, 1997 and November 15, 1998 in amount of
$500,000 -- $999,999
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 2.0%
Second 1.0%
Third and thereafter None
</TABLE>
Shares Purchased Prior to January 1, 1996
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
LONG FIXED INCOME FUNDS:
A CDSC is imposed at the following declining rates on Investor B Shares of
Nations Government Securities Fund, Nations Diversified Income Fund and Nations
U.S. Government Bond Fund:
Shares Purchased After November 15, 1998*
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
* Investor B Shares are not available to purchasers desiring to invest $250,000
or more, however, investors desiring to invest $250,000 or more may be
eligible to purchase Investor A Shares.
Shares Purchased between August 1, 1997 and November 15, 1998 in amount of $0
- -- $249,999
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 1.0%
Sixth and thereafter None
</TABLE>
Shares Purchased between August 1, 1997 and November 15, 1998 in amount of
$250,000 -- $499,999
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
</TABLE>
Shares Purchased between August 1, 1997 and November 15, 1998 in amount of
$500,000 -- $999,999
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 2.0%
Second 1.0%
Third and thereafter None
</TABLE>
26
<PAGE>
Shares Purchased Prior to January 1, 1996
<TABLE>
<CAPTION>
CDSC as a Percentage of
Dollar Amount Subject to
Year Since Purchase Made Charge
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, the 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) in connection with the
combination of Nations Funds with any other registered investment company by a
merger, acquisition of assets or by any other transaction, and (vi) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of
the Investor B Shares in the account. In addition, the CDSC will be waived on
Investor B Shares purchased before September 30, 1994 by current or retired
employees of NationsBank and its affiliates or by current or former Trustees or
Directors of Nations Funds or other management companies managed by
NationsBank. Shareholders are responsible for providing evidence sufficient to
establish that they are eligible for any waiver of the CDSC.
Reinstatement Privilege: Within 120 days after a redemption of Investor B
Shares of a Fund, a shareholder may reinvest any portion of the proceeds of
such redemption in Investor B Shares of the same Fund. The amount which may be
so reinvested is limited to an amount up to, but not exceeding, the redemption
proceeds (or to the nearest full share if fractional shares are not purchased).
A shareholder exercising this privilege would receive a pro rata credit for any
CDSC paid in connection with the prior redemption. A shareholder may not
exercise this privilege with the proceeds of a redemption of shares previously
purchased through the reinvestment privilege. In order to exercise this
privilege, a written order for the purchase of Investor B Shares must be
received by the Transfer Agent or by Stephens within 120 days after the
redemption.
Automatic Withdrawal Plan: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor B Shares in his/her accounts within the Nations Funds Family (valued
at the net asset value at the time of the establishment of the AWP) equals
$10,000 or more. Investor B Shares redeemed under the AWP will not be subject
to a CDSC, provided that the shares so redeemed do not exceed, on an annual
basis, 12% of the net asset value of the Investor B Shares in the account.
Otherwise, any applicable CDSC will be imposed on shares redeemed under the
AWP. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings
account in a stated amount of not less than $25 on or about the 10th or 25th
27
<PAGE>
day of the applicable month of withdrawal. Investor B Shares will be redeemed
(net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals may reduce principal and will eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. AWPs may be terminated by shareholders
on 30 days' written notice to their Selling Agent or by Nations Funds at any
time.
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Nations Funds 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 orders for Investor A or Investor B Shares of the Fund which are
received by Stephens, the Transfer Agent or their respective agents before the
close of regular trading on the Exchange (currently 4:00 p.m., Eastern time) on
any Business Day are priced according to the net asset value next determined
after acceptance of the order, less any applicable CDSC. In the event that the
Exchange closes early, redemption orders received prior to closing will be
priced as of the time the Exchange closes and redemption orders received after
the Exchange closes will be deemed received on the next Business Day and priced
according to the net asset value determined on the next Business Day.
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, by the
Transfer Agent or their respective agents.
Redemption orders are effected at the net asset value per share next determined
after receipt of the order by the Fund, Stephens, the Transfer Agent, or their
respective agents as the case may be, less any applicable CDSC. The Agents are
responsible for transmitting redemption orders to Stephens, the Transfer Agent
or their respective agents 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. Except for any CDSC which may be applicable upon redemption of
Investor A Shares or Investor B Shares, as described above, there is no
redemption charge.
Nations Funds may redeem a shareholder's Investor A or Investor B Shares upon
60 days' written notice if the balance in the shareholder's account drops below
$500 as a result of redemptions. Share balances also may be redeemed at the
direction of an Agent pursuant to arrangements between the Agent and its
Customers. Nations Funds also may redeem shares of the 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 or 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.
28
<PAGE>
How To Exchange Shares
Investor A 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 (other than an index fund) of Nations Funds
when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor A Shares
that meets the requirements discussed in this section. If Investor A Shares of
a Fund are exchanged for shares of the same class of another fund (other than
an index fund), any CDSC applicable to the shares exchanged will be applied
upon the redemption of the acquired shares. The holding period of such Investor
A Shares (for purposes of determining whether a CDSC is applicable upon
redemption) will be computed from the time of the initial purchase of the
Investor A Shares of the Fund.
Shareholders who have paid a front-end sales charge on purchases of Investor A
Shares of one of Nations Fund's non-money market funds (including Investor A
Shares acquired through the reinvestment of dividends and distributions on such
shares) may exchange those Investor A Shares at net asset value without any
sales charge for Investor A Shares available under the exchange privilege
described herein, provided that the maximum sales charge applicable to the
acquired Investor A Shares is equal to or less than the "maximum sales charge
applicable" to the Investor A Shares being exchanged. For purposes of
determining the "maximum sales charge applicable" to the Investor A Shares
being exchanged, a shareholder may include any sales charge paid on shares of
the same class offered by one of Nations Fund's other funds that were
previously exchanged to acquire the subject Investor A Shares then being
exchanged, provided that notification of such prior exchange is made to the
Transfer Agent, Stephens or their respective agents.
If Investor A Shares are exchanged for shares of the same class of another fund
(other than an index 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 a Nations Funds
money market fund. If a redemption fee ultimately is charged, it will be
retained by the initial Fund purchased.
Investor A Shares of Nations Short-Term Income Fund acquired directly or
indirectly through an exchange from Investor B Shares of another non-money
market fund may be re-exchanged only for Investor B Shares of another non-money
market fund or Investor C Shares of a Nations Funds money market fund. Such
shares (and any Investor C Shares acquired through the exchange of such shares)
will remain subject to the CDSC schedule applicable to the Investor B Shares
originally purchased. The
29
<PAGE>
holding period (for the purpose of determining the applicable rate of the CDSC)
does not accrue while the shares owned are Investor A Shares of Nations
Short-Term Municipal Income Fund or Nations Short-Term Income Fund or Investor
C Shares of a Nations Funds money market fund. The CDSC that is ultimately
charged upon redemption is based upon the total period of time the shareholder
holds Investor B Shares of any fund that charges a CDSC.
Automatic Exchange Feature: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder of Investor A Shares 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.
Investor B 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 (with the
exception of Nations Short-Term Income Fund and Nations Short-Term Municipal
Income Fund which are not available in this share class), 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, 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. 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.
General: For shareholders who maintain an account directly with a Fund,
exchange requests should be communicated to the Fund by calling Nations Funds
at 1-800-321-7854 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Funds and each of the other funds of Nations Funds may limit the number of
times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Funds upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectus for each Fund 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 resi-
30
<PAGE>
dence may be acquired in an exchange. Only shares of a class that is accepting
investments generally may be acquired in an exchange.
The Investor A Shares and 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
Investor A Shares:
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits each Fund to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Nations Short-Term Municipal Income Fund, however, may not pay for shareholder
services under the Investor A Plan. Aggregate payments under the Investor A
Plan are calculated daily and paid monthly at a rate or rates set from time to
time by each Fund, provided that the annual rate may not exceed .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, the
Transfer Agent or their respective agents; (ii) providing Customers with a
service that invests the assets of their accounts in Investor A Shares pursuant
to specific or preauthorized instructions; (iii) processing dividend and
distribution payments from a Fund on behalf of Customers; (iv) providing
information periodically to Customers showing their positions in Investor A
Shares; (v) arranging for bank wires; and (vi) providing general shareholder
liaison services. Nations Short-Term Municipal Income Fund, however, may not
pay for shareholder services under the Investor A Plan. The fees payable to
Selling Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
advertising provided by Nations Funds to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
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
31
<PAGE>
Agreements. See the SAI for more details on the Investor A Plan.
In addition, the Trustees and Directors have approved a Shareholder Servicing
Plan (the "Servicing Plan") with respect to the Investor A Shares of Nations
Short-Term Municipal Income Fund. Pursuant to its Servicing Plan, Nations
Short-Term Municipal Income Fund may pay Servicing Agents that have entered
into a Servicing Agreement with Nations Funds for certain shareholder support
services that are provided by the Servicing Agents. Payments under the Fund's
Servicing Plan may not exceed .25% of the average daily net asset value of the
Fund's Investor A Shares. The shareholder services provided by Servicing Agents
include, but are not limited to, those listed above with respect to the
Investor A Plan.
Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
Investor B Shares:
Shareholder Servicing Plan: The Funds' shareholder servicing plan ("Servicing
Plan") permits the Funds to compensate Servicing Agents for services provided
to their Customers that own Investor B Shares. Payments under the Servicing
Plan are calculated daily and paid monthly at a rate or rates set from time to
time by the Funds, provided that the annual rate may not exceed .25% of the
average daily net asset value of the Investor B Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor B Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii)
providing Customers with a service that invests the assets of their accounts in
Investor B Shares pursuant to specific or preauthorized instructions; (iii)
processing dividend and distribution payments from the Funds on behalf of
Customers; (iv) providing information periodically to Customers showing their
positions in Investor B Shares; (v) arranging for bank wires; and (vi)
providing general shareholder liaison services.
Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
Distribution Plan: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees of
Nations Fund Trust and the Directors of Nations Fund, Inc. have approved a
Distribution Plan with respect to Investor B Shares of the Funds. Pursuant to
the Distribution Plan, the Funds may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Funds'
Investor B Shares. Payments under the Distribution Plan will be calculated
daily and paid monthly at a rate or rates set from time to time by the Trustees
or Directors provided that the annual rate may not exceed .75% of the average
daily net asset value of the Funds' Investor B Shares.
The fees payable under the Distribution Plan are used primarily to compensate
or reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing
and distributing prospectuses, sales literature and advertising materials;
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or 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
sup-
32
<PAGE>
plies, (ii) the costs of client sales seminars and travel related to
distribution and sales support activities, and (iii) other expenses relating to
distribution and sales support activities.
Nations Funds and Stephens may suspend or reduce payments under the
Distribution Plan at any time, and payments are subject to the continuation of
the Distribution Plan described above and the terms of the Sales Support
Agreement between Selling Agents and Stephens. See the SAI for more details on
the Distribution Plan.
General: Nations Funds understands that Agents may charge fees to their
Customers who own Investor A or 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.
The Adviser may also pay out of its own assets amounts to Stephens or other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders.
In addition, Stephens may, from time to time, at its expense or as an expense
for which it may be reimbursed under the plan adopted pursuant to Rule 12b-1
under the 1940 Act, pay a bonus or other consideration or incentive to Selling
Agents who sell a minimum dollar amount of shares of the Funds during a
specified period of time. Stephens may also from time to time, pay additional
consideration to Selling Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares and 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.
Stephens has also established a non-cash compensation program, pursuant to
which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may
be amended or terminated at any time by Stephens.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing
the total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares of the Funds are valued as of the close of regular
trading on the Exchange (currently 4:00 p.m., Eastern time) on each Business
Day. In the event that the Exchange closes early, shares of the Funds will be
priced as of the time the Exchange closes. Currently, the days on which the
Exchange is closed (other than weekends) are: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees or Directors.
33
<PAGE>
How Dividends And Distributions Are Made; Tax Information
Dividends and Distributions: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
Investor A and Investor B Shares of the Funds and Tax-Exempt Bond Funds are
eligible to begin earning dividends that are declared on the day the purchase
order is executed and continue to be eligible for dividends through and
including the day before the redemption order is executed.
The net asset value of Investor A and Investor B Shares will be reduced by the
amount of any dividend or distribution. Accordingly, dividends and
distributions on newly purchased shares represent, in substance, a return of
capital. However, such dividends and distributions would nevertheless be
taxable. Certain Selling Agents may provide for the reinvestment of dividends
in the form of additional Investor A or Investor B Shares of the same Fund.
Dividends and distributions are paid in cash within five Business Days of the
end of the month to which the payment 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 or Investor B Shares.
Tax Information: Each Fund intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves the Funds of liability for Federal income
tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its net investment income
each taxable year. Distributions by a Fund of its net investment income
(including net foreign currency gain) and the excess, if any, of its net
short-term capital gain over its net long-term capital loss generally are
taxable as ordinary income to shareholders, whether such income is received in
cash or reinvested in additional shares. Corporate investors generally will not
be entitled to the dividends received deduction on dividends paid by the Funds.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions generally will be taxable to
shareholders as net capital gains, regardless of how long the shareholders have
held the Funds' shares and whether such distributions are received in cash or
reinvested in additional shares. Noncorporate shareholders may be taxed on such
distributions at preferential rates.
Each year, shareholders will be notified as to the amount and Federal tax
status of all dividends and capital gain distributions paid during the prior
year. Such dividends and capital gain distributions may be subject to state and
local taxes.
Dividends and distributions declared in October, November, or December of any
year payable to shareholders of record on a specified date in such months will
be deemed to have been received by shareholders and paid by the Funds on
December 31 of such year in the event such dividends and distributions are
actually paid during January of the following year.
Federal law requires Nations Funds to withhold 31% from any distributions 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 with-
34
<PAGE>
holding. 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 dividendspaid to certain foreign shareholders.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to foreign, state and local taxes. Further
tax information is contained in the SAI.
Financial Highlights
The following financial information has been derived from the audited financial
statements of Nations Fund Trust and Nations Fund, Inc. PricewaterhouseCoopers
LLP is the independent accountant to Nations Fund Trust and Nations Fund, Inc.
The reports of PricewaterhouseCoopers LLP for the most recent fiscal period of
Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such period and are incorporated by reference in the SAI, which is
available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
Information for Investor B Shares of Nations U.S. Government Bond Fund has been
derived from the audited financial statements dated May 16, 1997 for the Class
B Shares of The Pilot Funds' U.S. Government Securities Fund, the predecessor
fund to Nations U.S. Government Bond Fund. This information has been audited by
Arthur Andersen LLP and is provided to help you understand the historical
performance of the Fund and its predecessor. The reports of Arthur Andersen LLP
accompany the financial statements dated May 16, 1997 and are incorporated by
reference in the SAI, which is available upon request.
35
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Term Income Fund
<TABLE>
<CAPTION>
YEAR YEAR
Investor A ENDED ENDED
Shares 03/31/98 03/31/97#
<S> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 9.68 $ 9.76
Net investment income 0.54 0.56
Net realized and
unrealized gain/(loss)
on investments 0.09 (0.08)
Net increase/(decrease) in
net asset value from
operations 0.63 0.48
Distributions:
Dividends from net
investment income (0.54) (0.56)
Distributions in excess of
net investment income -- --
Distributions from capital -- --
Total dividends and
distributions (0.54) (0.56)
Net asset value, end of
period $ 9.77 $ 9.68
Total return++ 6.67% 5.04%
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $13,688 $6,169
Ratio of operating
expenses to average net
assets 0.76%(b)(c) 0.75%(b)
Ratio of net investment
income to average net
assets 5.55% 5.77%
Portfolio turnover rate 66% 172%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 1.06%(c) 1.05%
<CAPTION>
PERIOD YEAR YEAR YEAR PERIOD
Investor A ENDED ENDED ENDED ENDED ENDED
Shares 03/31/96(a)# 11/30/95# 11/30/94# 11/30/93 11/30/92*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75 $ 10.00
Net investment income 0.19 0.59 0.48 0.51 0.08
Net realized and
unrealized gain/(loss)
on investments (0.08) 0.36 ( 0.51) 0.26 ( 0.26)
Net increase/(decrease) in
net asset value from
operations 0.11 0.95 ( 0.03) 0.77 ( 0.18)
Distributions:
Dividends from net
investment income (0.19) (0.59) ( 0.46) ( 0.51) ( 0.07)
Distributions in excess of
net investment income -- -- ( 0.02) -- --
Distributions from capital -- -- ( 0.02) -- --
Total dividends and
distributions (0.19) (0.59) ( 0.50) ( 0.51) ( 0.07)
Net asset value, end of
period $ 9.76 $ 9.84 $ 9.48 $ 10.01 $ 9.75
Total return++ 1.13% 10.29% ( 0.33)% 8.03% ( 1.81)%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $2,810 $2,969 $2,490 $11,205 $ 254
Ratio of operating
expenses to average net
assets 0.75%+ 0.76% 0.71% 0.57% 0.45%+
Ratio of net investment
income to average net
assets 5.87%+ 6.12% 5.02% 5.07% 5.39%+
Portfolio turnover rate 73% 224% 293% 121% 45%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 1.08%+ 1.06% 1.03% 0.99% 1.05%+
</TABLE>
* Nations Short-Term Income Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of interest expense on the operating expense ratio was less than
0.01%.
(c) The effect of the fees reduced by the credits allowed by the custodian on
the operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
36
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Term Income Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98 03/31/97# 03/31/96(a)# 11/30/95# 11/30/94# 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 9.68 $ 9.76 $ 9.84 $ 9.48 $ 10.01 $ 9.94
Net investment income 0.53 0.55 0.19 0.57 0.47 0.22
Net realized and unrealized
gain/(loss) on investments 0.09 (0.08) (0.08) 0.36 ( 0.51) 0.07
Net increase/(decrease) in net
asset value from operations 0.62 $ 0.47 0.11 0.93 ( 0.04) 0.29
Distributions:
Dividends from net investment
income (0.53) (0.55) (0.19) (0.57) ( 0.45) ( 0.22)
Distributions in excess of net
investment income -- -- -- -- ( 0.02) --
Distributions from capital -- -- -- -- ( 0.02) --
Total dividends and
distributions (0.53) (0.55) (0.19) (0.57) ( 0.49) ( 0.22)
Net asset value, end of period 9.77 $ 9.68 $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 6.51% 4.89% 1.08% 10.10% ( 0.46)% 2.96%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $4,602 $5,536 $7,339 $8,873 $16,550 $39,861
Ratio of operating expenses to
average net assets 0.91%(b)(c) 0.90%(b) 0.90%+ 0.91% 0.85% 0.72%+
Ratio of net investment income
to average net assets 5.40% 5.62% 5.72%+ 5.97% 4.88% 4.92%+
Portfolio turnover rate 66% 172% 73% 224% 293% 121%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.21%(c) 1.20% 1.23%+ 1.21% 1.17% 1.14%+
</TABLE>
* Nations Short-Term Income Fund Investor B Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of interest expense on the operating expense ratio was less than
0.01%.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
37
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Intermediate Government Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98 03/31/97#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 3.99 $ 4.07
Net investment income 0.22 0.22
Net realized and unrealized gain/(loss) on
investments 0.13 (0.08)
Net increase/(decrease) in net asset value from
operations 0.35 0.14
Distributions:
Dividends from net investment income (0.22) (0.22)
Distributions from net realized capital gains -- --
Total dividends and distributions (0.22) (0.22)
Net asset value, end of period $ 4.12 $ 3.99
Total return++ 8.89% 3.51%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $49,478 $42,468
Ratio of operating expenses to average net assets 0.81% 0.83%(c)(d)
Ratio of net investment income to average net
assets 5.33% 5.53%
Portfolio turnover rate 538% 529%
Ratio of operating expenses to average net assets
without waivers and/or expense
reimbursements 1.01% 1.03%(d)
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
Investor A Shares 03/31/96(b)# 11/30/95# 11/30/94
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28
Net investment income 0.07 0.23 0.22
Net realized and unrealized gain/(loss) on
investments (0.07) 0.21 (0.33)
Net increase/(decrease) in net asset value from
operations 0.00 0.44 (0.11)
Distributions:
Dividends from net investment income (0.07)(a) (0.23)(a) (0.22)(a)
Distributions from net realized capital gains -- -- (0.02)
Total dividends and distributions (0.07) (0.23) (0.24)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93
Total return++ 0.00%### 11.48% (2.41)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $57,381 $64,848 $77,128
Ratio of operating expenses to average net assets 0.83%+ 0.80% 0.77%
Ratio of net investment income to average net
assets 5.12%+ 5.68% 5.58%
Portfolio turnover rate 189% 328% 133%
Ratio of operating expenses to average net assets
without waivers and/or expense
reimbursements 1.06%+ 1.00% 0.98%
</TABLE>
* Nations Short-Intermediate Government Fund Investor A Shares commenced
operations on August 5, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
## Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25,
1991, the net asset value doubled as a result of the reclassification of
each outstanding share into half as many shares (reverse split).
### Amount represents less than 0.01%.
(a) Includes distribution in excess of less than $0.01 per share.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements, was less than
0.01%.
38
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Intermediate Government Fund (cont.)
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 11/30/93 11/30/92 11/30/91*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.16 $ 4.17 $ 4.00##
Net investment income 0.22 0.27 0.10
Net realized and unrealized gain/(loss) on investments 0.14 (0.01) 0.17
Net increase/(decrease) in net asset value from operations 0.36 0.26 0.27
Distributions:
Dividends from net investment income (0.22) (0.27) (0.10)
Distributions from net realized capital gains (0.02) -- --
Total dividends and distributions (0.24) (0.27) (0.10)
Net asset value, end of period $ 4.28 $ 4.16 $ 4.17
Total return++ 8.85% 6.61% 6.81%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $173,449 $188,624 $53,874
Ratio of operating expenses to average net assets 0.70% 0.48% 0.08%+
Ratio of net investment income to average net assets 5.25% 6.34% 7.21%+
Portfolio turnover rate 92% 25% 11%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.94% 0.88% 0.82%+
</TABLE>
* Nations Short-Intermediate Government Fund Investor A Shares commenced
operations on August 5, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
## Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25,
1991, the net asset value doubled as a result of the reclassification of
each outstanding share into half as many shares (reverse split).
### Amount represents less than 0.01%.
(a) Includes distribution in excess of less than $0.01 per share.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements was less than 0.01%.
39
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Intermediate Government Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor B Shares 03/31/98 03/31/97#
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 3.99 $ 4.07
Net investment income 0.20 0.20
Net realized and unrealized
gain/(loss) on investments 0.13 (0.08)
Net increase/(decrease) in net asset
value from operations 0.33 0.12
Distributions:
Dividends from net investment
income (0.20) (0.20)
Distributions from net realized
capital gains -- --
Total dividends and distributions (0.20) (0.20)
Net asset value, end of period $ 4.12 $ 3.99
Total return++ 8.35% 3.10%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $9,815 $10,788
Ratio of operating expenses to
average net assets 1.34% 1.23%(c)(d)
Ratio of net investment income to
average net assets 4.80% 5.13%
Portfolio turnover rate 538% 529%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.54% 1.43%(d)
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/96(b)# 11/30/95# 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.26
Net investment income 0.07 0.21 0.20 0.09
Net realized and unrealized
gain/(loss) on investments (0.07) 0.21 (0.33) 0.02
Net increase/(decrease) in net asset
value from operations 0.00 0.42 (0.13) 0.11
Distributions:
Dividends from net investment
income (0.07)(a) (0.21)(a) (0.20)(a) (0.09)
Distributions from net realized
capital gains -- -- (0.02) --
Total dividends and distributions (0.07) (0.21) (0.22) (0.09)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28
Total return++ (0.13)% 11.02% (2.81)% 2.65%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $13,789 $14,893 $10,974 $8,847
Ratio of operating expenses to
average net assets 1.23%+ 1.20% 1.19% 1.15%+
Ratio of net investment income to
average net assets 4.72%+ 5.28% 5.16% 4.80%+
Portfolio turnover rate 189% 328% 133% 92%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.46%+ 1.40% 1.40% 1.39%+
</TABLE>
* Nations Short-Intermediate Government Fund Investor B Shares commenced
operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Includes distribution in excess of less than $0.01 per share.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements, was less than
0.01%.
40
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Securities Fund
<TABLE>
<CAPTION>
YEAR
ENDED
Investor A Shares 03/31/98
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.39
Net investment income 0.52
Net realized and unrealized gain/(loss) on
investments 0.51
Net increase/(decrease) in net asset value from
operations 1.03
Distributions:
Dividends from net investment income (0.52)
Distributions in excess of net investment income --
Distributions in excess of net realized capital gains --
Distributions from capital --
Total dividends and distributions (0.52)
Net asset value, end of period $ 9.90
Total return++ 11.37%
Ratios to average net assets/ supplemental data:
Net assets, end of period (in 000's) $8,509
Ratio of operating expenses to average net assets 1.10%(c)(d)
Ratio of net investment income to average net assets 5.38%
Portfolio turnover rate 303%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.24%(d)
<CAPTION>
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
Investor A Shares 03/31/97# 03/31/96(a)# 05/31/95# 05/31/94
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Net investment income 0.58 0.50 0.61 0.62
Net realized and unrealized gain/(loss) on
investments (0.30) (0.19) 0.06 ( 0.61)
Net increase/(decrease) in net asset value from
operations 0.28 0.31 0.67 0.01
Distributions:
Dividends from net investment income (0.56) (0.48) (0.57) ( 0.56)
Distributions in excess of net investment income -- (0.02) -- ( 0.02)
Distributions in excess of net realized capital gains -- -- -- ( 0.05)
Distributions from capital (0.00)(b) -- (0.04) ( 0.04)
Total dividends and distributions (0.56) (0.50) (0.61) ( 0.67)
Net asset value, end of period $ 9.39 $ 9.67 $ 9.86 $ 9.80
Total return++ 2.92% 3.20% 7.29% ( 0.11)%
Ratios to average net assets/ supplemental data:
Net assets, end of period (in 000's) $9,852 $11,662 $10,928 $14,044
Ratio of operating expenses to average net assets 1.05% 1.05%+ 1.01% 0.90%
Ratio of net investment income to average net assets 6.03% 6.11%+ 6.44% 5.91%
Portfolio turnover rate 468% 199% 413% 56%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.19% 1.20%+ 1.19% 1.11%
</TABLE>
* Nations Government Securities Fund Investor A Shares commenced operations on
April 17, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year ended changed to March 31. Prior to this, the fiscal year ended
was May 31.
(b) Amount represents less than $0.01.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements, was less than
0.01%.
41
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Securities Fund (cont.)
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 05/31/93# 05/31/92 05/31/91*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.36 $ 10.05 $ 10.01
Net investment income 0.66 0.71 0.09
Net realized and unrealized gain/(loss) on investments 0.16 0.38 0.02
Net increase/(decrease) in net asset value from operations 0.82 1.09 0.11
Distributions:
Dividends from net investment income ( 0.68) ( 0.75) ( 0.07)
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains -- -- --
Distributions in excess of net realized capital gains ( 0.04) ( 0.03) --
Distributions from capital -- -- --
Total dividends and distributions ( 0.72) ( 0.78) ( 0.07)
Net asset value, end of period $ 10.46 $ 10.36 $ 10.05
Total return++ 8.18% 11.18%+++ 1.07%+++
Ratios to average net assets/ supplemental data:
Net assets, end of period (in 000's) $15,354 $3,326 $ 661
Ratio of operating expenses to average net assets 1.00% 1.31% 1.35%+
Ratio of net investment income to average net assets 6.52% 6.90% 7.22%+
Portfolio turnover rate 103% 130% 5%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.15% 1.97% 1.94%+++
</TABLE>
* Nations Government Securities Fund Investor A Shares commenced operations on
April 17, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year ended changed to March 31. Prior to this, the fiscal year ended
was May 31.
(b) Amount represents less than $0.01.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements, was less than
0.01%.
42
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Securities Fund
<TABLE>
<CAPTION>
YEAR
ENDED
Investor B Shares 03/31/98
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.39
Net investment income 0.47
Net realized and unrealized gain/(loss) on
investments 0.51
Net increase/(decrease) in net asset value from
operations 0.98
Distributions:
Dividends from net investment income (0.47)
Distributions in excess of net investment income --
Distributions in excess of net realized capital gains --
Distributions from capital --
Total dividends and distributions (0.47)
Net asset value, end of period $ 9.90
Total return++ 10.78%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $32,391
Ratio of operating expenses to average net assets 1.63%(c)(d)
Ratio of net investment income to average net assets 4.85%
Portfolio turnover rate 303%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.77%(d)
<CAPTION>
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares 03/31/97# 03/31/96(b)# 05/31/95# 05/31/94*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.67 $ 9.86 $ 9.80 $ 10.49
Net investment income 0.54 0.47 0.58 0.54
Net realized and unrealized gain/(loss) on
investments (0.30) (0.19) 0.06 ( 0.64)
Net increase/(decrease) in net asset value from
operations 0.24 0.28 0.64 ( 0.10)
Distributions:
Dividends from net investment income $ (0.52) (0.45) (0.54) ( 0.49)
Distributions in excess of net investment income -- (0.02) -- ( 0.01)
Distributions in excess of net realized capital gains -- -- -- ( 0.05)
Distributions from capital $ (0.00)(a) -- (0.04) ( 0.04)
Total dividends and distributions $ (0.52) (0.47) (0.58) ( 0.59)
Net asset value, end of period $ 9.39 $ 9.67 $ 9.86 $ 9.80
Total return++ 2.51% 2.85% 6.86% ( 1.09)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $38,807 $50,958 $56,155 $56,313
Ratio of operating expenses to average net assets 1.45% 1.45%+ 1.41% 1.38%+
Ratio of net investment income to average net assets 5.63% 5.71%+ 6.04% 5.43%+
Portfolio turnover rate 468% 199% 413% 56%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.59% 1.60%+ 1.59% 1.59%+
</TABLE>
* Nations Government Securities Fund Investor B Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements, was less than
0.01%.
43
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Strategic Fixed Income Fund
<TABLE>
<CAPTION>
YEAR YEAR
Investor A ENDED ENDED
Shares 03/31/98 03/31/97#
<S> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 9.62 $ 9.93
Net investment income 0.56 0.56
Net realized and
unrealized gain/(loss)
on investments 0.41 (0.20)
Net increase/(decrease) in
net asset value from
operations 0.97 0.36
Distributions:
Dividends from net
investment income ( 0.56) (0.56)
Distributions in excess of
net investment income -- --
Distributions from net
realized capital gains -- (0.11)
Distributions from capital -- $(0.00)(b)
Total dividends and
distributions ( 0.56) (0.67)
Net asset value, end of
period $ 10.03 $ 9.62
Total return++ 10.30% 3.70%
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $26,054 $6,345
Ratio of operating
expenses to average net
assets 0.92%(c)(d) 0.91%(c)
Ratio of net investment
income to average net
assets 5.66% 5.78%
Portfolio turnover rate 244% 368%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 1.03%(d) 1.01%(d)
<CAPTION>
PERIOD YEAR YEAR YEAR PERIOD
Investor A ENDED ENDED ENDED ENDED ENDED
Shares 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94 $ 9.99
Net investment income 0.18 0.57 0.51 0.54 0.01
Net realized and
unrealized gain/(loss)
on investments ( 0.29) 0.90 ( 0.89) 0.62 (0.06)
Net increase/(decrease) in
net asset value from
operations ( 0.11) 1.47 ( 0.38) 1.16 (0.05)
Distributions:
Dividends from net
investment income ( 0.18) ( 0.57) ( 0.49) ( 0.54) --
Distributions in excess of
net investment income -- -- ( 0.02) -- --
Distributions from net
realized capital gains -- -- ( 0.34) ( 0.01) --
Distributions from capital -- -- -- -- --
Total dividends and
distributions ( 0.18) ( 0.57) ( 0.85) ( 0.55) --
Net asset value, end of
period $ 9.93 $ 10.22 $ 9.32 $ 10.55 $ 9.94
Total return++ ( 1.11)% 16.22% ( 3.76)% 11.88% (0.49)%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $6,440 $6,662 $ 967 $1,138 $ 113
Ratio of operating
expenses to average net
assets 0.92%+ 0.91% 0.86% 0.76% 0.40%+
Ratio of net investment
income to average net
assets 5.29%+ 5.85% 5.25% 5.25% 6.00%+
Portfolio turnover rate 133% 228% 307% 161% 12%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 1.03%+ 1.01% 0.94% 0.92% 1.00%+
</TABLE>
* Nations Strategic Fixed Income Fund Investor A Shares commenced operations
on November 19, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
44
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Strategic Fixed Income Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98 03/31/97# 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.62 $ 9.93 $ 10.22 $ 9.32 $ 10.55 $ 10.39
Net investment income 0.51 0.52 0.16 0.53 0.47 0.21
Net realized and unrealized
gain/(loss) on investments 0.41 (0.20) ( 0.29) 0.90 ( 0.89) 0.17
Net increase/(decrease) in net asset
value from operations 0.92 0.32 ( 0.13) 1.43 ( 0.42) 0.38
Distributions:
Dividends from net investment
income ( 0.51) (0.52) ( 0.16) ( 0.53) ( 0.45) ( 0.21)
Distributions in excess of net
investment income -- -- -- -- ( 0.02) --
Distributions of net realized capital
gains -- (0.11) -- -- ( 0.34) ( 0.01)
Distributions from capital -- (0.00)(b) -- -- -- --
Total dividends and distributions ( 0.51) (0.63) ( 0.16) ( 0.53) ( 0.81) ( 0.22)
Net asset value, end of period $ 10.03 $ 9.62 $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ 9.73% 3.23% ( 1.26)% 15.70% ( 4.21)% 3.64%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $2,662 $2,109 $2,496 $2,578 $2,145 $1,620
Ratio of operating expenses to
average net assets 1.47%(c)(d) 1.36%(c) 1.37%+ 1.36% 1.33% 1.26%+
Ratio of net investment income to
average net assets 5.11% 5.33% 4.84%+ 5.40% 4.78% 4.75%+
Portfolio turnover rate 244% 368% 133% 228% 307% 161%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.58%(d) 1.46%(d) 1.48%+ 1.46% 1.41% 1.42%+
</TABLE>
* Nations Strategic Fixed Income Fund Investor B Shares commenced operations
on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01.
(c) The effect of the credits allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense reimbursements was less than
0.01%.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
45
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Diversified Income Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
Investor A ENDED ENDED ENDED
Shares 03/31/98 03/31/97# 03/31/96(a)
<S> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 10.11 $ 10.42 $ 10.82
Net investment income 0.63 0.66 0.22
Net realized and
unrealized gain/(loss)
on investments 0.44 ( 0.18) ( 0.40)
Net increase/(decrease) in
net asset value from
operations 1.07 0.48 ( 0.18)
Distributions:
Dividends from net
investment income ( 0.63) ( 0.66) ( 0.22)
Distributions from net
realized capital gains -- ( 0.13) --
Total dividends and
distributions ( 0.63) ( 0.79) ( 0.22)
Net asset value, end of
period $ 10.55 $ 10.11 $ 10.42
Total return++ 10.80% 4.71% ( 1.67)%
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $11,946 $11,662 $13,332
Ratio of operating
expenses to average net
assets 0.98%(b) 1.00%(b) 1.02%+
Ratio of net investment
income to average net
assets 6.02% 6.48% 6.24%+
Portfolio turnover rate 203% 278% 69%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 1.08%(b) 1.10%(b) 1.12%+
<CAPTION>
YEAR YEAR YEAR PERIOD
Investor A ENDED ENDED ENDED ENDED
Shares 11/30/95 11/30/94# 11/30/93# 11/30/92*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 9.67 $ 10.88 $ 9.96 $ 10.02
Net investment income 0.71 0.72 0.76 0.01
Net realized and
unrealized gain/(loss)
on investments 1.15 ( 1.06) 0.92 ( 0.06)
Net increase/(decrease) in
net asset value from
operations 1.86 ( 0.34) 1.68 ( 0.05)
Distributions:
Dividends from net
investment income ( 0.71) ( 0.72)(c) ( 0.76) ( 0.01)
Distributions from net
realized capital gains -- ( 0.15) -- --
Total dividends and
distributions ( 0.71) ( 0.87) ( 0.76) ( 0.01)
Net asset value, end of
period $ 10.82 $ 9.67 $ 10.88 $ 9.96
Total return++ 19.82% ( 3.26)% 17.32% ( 0.49)%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) $13,150 $10,819 $13,291 $ 18
Ratio of operating
expenses to average net
assets 1.05% 0.96% 0.70% 0.40%+
Ratio of net investment
income to average net
assets 6.78% 7.09% 6.87% 7.61%+
Portfolio turnover rate 96% 144% 86% 46%
Ratio of operating
expenses to average net
assets without waivers
and/or expense
reimbursements 1.18% 1.17% 1.10% 1.00%+
</TABLE>
* Nations Diversified Income Fund Investor A Shares commenced operations on
November 25, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(c) Includes distributions in excess of less than 0.01 per share.
46
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Diversified Income Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98 03/31/97# 03/31/96(b) 11/30/95 11/30/94# 11/30/93#*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.11 $ 10.42 $ 10.82 $ 9.67 $ 10.88 $ 10.59
Net investment income 0.57 0.61 0.21 0.66 0.67 0.30
Net realized and unrealized
gain/(loss) on investments 0.44 ( 0.18) ( 0.40) 1.15 ( 1.06) 0.29
Net increase/(decrease) in net asset
value from operations 1.01 0.43 ( 0.19) 1.81 ( 0.39) 0.59
Distributions:
Dividends from net investment
income ( 0.57) ( 0.61) ( 0.21) ( 0.66) ( 0.67)(a) ( 0.30)
Distributions from net realized
capital gains -- ( 0.13) -- -- ( 0.15) --
Total dividends and distributions ( 0.57) ( 0.74) ( 0.21) ( 0.66) ( 0.82) ( 0.30)
Net asset value, end of period $ 10.55 $ 10.11 $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ 10.18% 4.18% ( 1.83)% 19.22% ( 3.77)% 5.58%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $65,248 $70,631 $84,692 $90,887 $55,058 $24,630
Ratio of operating expenses to
average net assets 1.55%(c) 1.50%(c) 1.52%+ 1.55% 1.49% 1.30%+
Ratio of net investment income to
average net assets 5.45% 5.98% 5.74%+ 6.28% 6.56% 6.27%+
Portfolio turnover rate 203% 278% 69% 96% 144% 86%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.65%(c) 1.60%(c) 1.62%+ 1.68% 1.70% 1.70%+
</TABLE>
* Nations Diversified Income Fund Investor B Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Includes distribution in excess of less than $0.01 per share.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements was less than 0.01%.
47
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations U.S. Government Bond Fund
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Investor A Shares* 03/31/98 05/16/97 08/31/96 08/31/95(b)
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, at the beginning of the period $ 10.20 $ 10.54 $ 11.19 $ 10.48
Net investment income 0.46 0.39 0.59 0.37
Net realized and unrealized gain/(loss) on investments 0.30 0.17 ( 0.20) 0.71
Net increase in net asset value from operations 0.76 0.56 0.39 1.08
Distributions:
Dividends from net investment income ( 0.46) ( 0.39) ( 0.59) ( 0.37)
Distributions from net realized capital gains ( 0.13) ( 0.51) ( 0.45) --
Total dividends and distributions ( 0.59) ( 0.90) ( 1.04) ( 0.37)
Net asset value, end of the period $ 10.37 $ 10.20 $ 10.54 $ 11.19
Total return ++ 7.51% 5.44% 3.44% 10.41%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,927 $ 734 $ 632 $ 87
Ratio of operating expenses to average net assets 0.85%(a)+ 0.87%+ 0.85% 0.82%+
Ratio of net investment income to average net assets 5.01%+ 5.35%+ 5.44% 5.76%+
Portfolio turnover rate 188% 58% 87% 132%
Ratio of expenses to average net assets (without waivers or
expense reimbursements) 1.11%(a)+ 1.07%+ 1.07% 1.12%+
</TABLE>
* The financial information for the fiscal periods prior to May 23, 1997
reflects the financial information for the Pilot U.S. Government Securities
Fund's Class A Shares, which were reorganized into the Investor A Shares of
Nations U.S. Government Bond Fund as of May 23, 1997.
+ Annualized
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of the fees reduced by the credits allowed by the custodian on
the expense ratio, with and without waivers and/or expense reimbursements,
was less than 0.01%.
(b) Investor A Shares commenced operations on February 7, 1995.
48
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations U.S. Government Bond Fund
<TABLE>
<CAPTION>
PERIOD PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor B Shares* 03/31/98 05/16/97 08/31/96 08/31/95(b)
<S> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of the period $ 10.19 $ 10.52 $ 11.19 $ 10.05
Net investment income 0.41 0.34 0.51 0.46
Net realized and unrealized gain/(loss) on investments 0.31 0.18 ( 0.22) 1.14
Net increase in net asset value from operations 0.72 0.52 0.29 1.60
Distributions:
Dividends from net investment income ( 0.41) ( 0.34) ( 0.51) ( 0.46)
Distributions from net realized capital gains ( 0.13) ( 0.51) ( 0.45) --
Total dividends and distributions ( 0.54) ( 0.85) ( 0.96) ( 0.46)
Net asset value at the end of the period $ 10.37 $ 10.19 $ 10.52 $ 11.19
Total return++ 7.14% 4.99% 2.43% 16.19%
Ratios to average net assets/supplemental data:
Net assets at end of period (in 000's) $1,004 $1,529 $1,237 $ 146
Ratio of operating expenses to average net assets 1.40%(a)+ 1.62%+ 1.65% 1.62%+
Ratio of net investment income to average net assets 4.46%+ 4.60%+ 4.60% 5.19%+
Portfolio turnover rate 188% 58% 87% 132%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.66%(a)+ 1.77%+ 1.82% 1.87%+
</TABLE>
* The financial information for the fiscal periods prior to May 23, 1997
reflects the financial information for the Pilot U.S. Government Securities
Fund's Class B Shares which were reorganized into the Nations U.S.
Government Bond Fund Investor B Shares as of May 23, 1997.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements was less than 0.01%.
(b) Investor B Shares commenced operations on November 10, 1994.
49
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
Asset-Backed Securities: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments
will be a function of current market interest rates and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in
prepayments in response to sharply falling interest rates will shorten the
security's average maturity and limit the potential appreciation in the
security's value relative to a conventional debt security. Consequently,
asset-backed securities may not be as effective in locking in high, long-term
yields. Conversely, in periods of sharply rising rates, prepayments are
generally slow, increasing the security's average life and its potential for
price depreciation.
Mortgage-Backed Securities: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private
lenders and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC"). Such Certificates are
mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the
securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal invested far
in advance of the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from
their coupon rates for the following reasons: (i) Certificates may be issued at
a premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly
50
<PAGE>
which has the effect of raising the effective yield earned on the Certificates;
and (iv) the actual yield of each Certificate is affected by the prepayment of
mortgages included in the mortgage pool underlying the Certificates and the
rate at which principal so prepaid is reinvested. In addition, prepayment of
mortgages included in the mortgage pool underlying a GNMA Certificate purchased
at a premium may result in a loss to the Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations or "CMOs," are debt obligations
collateralized by mortgage loans or mortgage pass-through securities
(collateral collectively hereinafter referred to as "Mortgage Assets").
Multi-class pass-through securities are interests in a trust composed of
Mortgage Assets and all references herein to CMOs will include multi-class
pass-through securities. Payments of principal of and interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs or make scheduled distribution on the multi-class
pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any
has been paid. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied
to the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. A Fund will only invest in SMBS that are obligations
backed by the full faith and credit of the U.S. Government. SMBS are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of mortgage assets. A Fund will only
invest in SMBS whose mortgage assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of
the underlying mortgage instruments. The average life is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities as the result of mortgage prepayments, mortgage refinancings, or
foreclosures. The rate of mortgage prepayments, and hence the average life of
the certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined
by the Adviser and used for the purpose of determining the average weighted
maturity and duration of the Funds. For additional information concerning
mortgage-backed securities, see the SAI.
The mortgage-backed securities in which the Funds invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the Funds
also may be subject to credit risk. Credit risk is the risk that the issuers of
securities in which a Fund invests may default in the payment of principal
and/or interest. Any such defaults or adverse changes in an issuers financial
condition or credit
51
<PAGE>
rating may adversely affect the value of the Funds' portfolio investments and,
hence, the value of your investment in the corresponding Fund.
Non-Mortgage Asset-Backed Securities: Non- mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass- through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers.
Non-mortgage backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations unique to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties.
Due to the larger number of vehicles involved, however, the certificate of
title to each vehicle financed, pursuant to the obligations underlying the
asset-backed securities, usually is not amended to reflect the assignment of
the seller's security interest for the benefit of the holders of the
asset-backed securities. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on those securities. In addition, various state and Federal laws give the motor
vehicle owner the right to assert against the holder of the owner's obligation
certain defenses such owner would have against the seller of the motor vehicle.
The assertion of such defenses could reduce payments on the related asset-backed
securities. Insofar as credit card receivables are concerned, credit card
holders are entitled to the protection of a number of state and Federal
consumer credit laws, many of which give such holders the right to set off
certain amounts against balances owed on the credit card, thereby reducing the
amounts paid on such receivables. In addition, unlike most other asset-backed
securities, credit card receivables are unsecured obligations of the card
holder.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic
banks ("Eurodollar" obligations) and domestic branches of foreign banks
("Yankee dollar" obligations) and other foreign obligations involve special
investment 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 for-
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eign issuers, there may be difficulties in enforcing a judgment against a
foreign issuer or the accounting, auditing and financial reporting standards,
practices and requirements applicable to foreign issuers may differ from those
applicable to domestic issuers. In addition, foreign banks are not subject to
examination by U.S. Government agencies or instrumentalities.
Borrowings: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements with BONY, the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells
a portfolio security to another party, such as a bank or broker/dealer, in
return for cash, and agrees to buy the security back at a future date and
price. Reverse repurchase agreements may be used to provide cash to satisfy
unusually heavy redemption requests without having to sell portfolio
securities, or for other temporary or emergency purposes. Generally, the effect
of such a transaction is that the Funds can recover all or most of the cash
invested in the portfolio securities involved during the term of the reverse
repurchase agreement, while they will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government Securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Fund only enters into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be creditworthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending
on market conditions, the Funds' asset coverage and other factors at the time
of a reverse repurchase, the Funds may not establish a segregated account when
the Adviser believes it is not in the best interests of the Funds to do so. In
this case, such reverse repurchase agreements will be considered borrowings
subject to the asset coverage described above.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. If the broker/dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of the
dollar roll; the security that the Fund is required to repurchase may be worth
less than the security that the Fund originally held, and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
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Commercial Instruments: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objectives. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
Convertible Securities, Preferred Stock, and Warrants: Each Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
Fixed Income Investing: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
Foreign Currency Transactions: Each Fund may enter into foreign currency
exchange transactions to convert foreign currencies to and from the U.S.
dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward
foreign currency exchange contract is an obligation by a Fund to purchase or
sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the
prices of a Fund's portfolio securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the
investment program of such Fund and the flexibility of such Fund to purchase
additional securities. Although forward contracts will be used primarily to
protect a Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted.
In addition, the Euro will become the single currency in at least 11 European
nations used in many financial transactions. Accordingly, the German mark,
French franc and other national currencies will no longer be used. Although the
impact of implementing the Euro is not possible to predict, the transition
could have an effect on the financial markets and economic environment in
Europe and other parts of the world. For example, investors may begin to view
those countries participating in the Economic Monetary Union as a single
combined entity
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and may alter their investment behavior accordingly. In response to any such
effect of the Euro implementation, the Adviser may need to adapt its investment
policies and strategy.
Foreign Securities: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition
of withholding taxes on income (including interest, distributions and
disposition proceeds), possible seizure or nationalization of foreign deposits,
the possible establishment of exchange controls, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. In addition, foreign issuers in
general may be subject to different accounting, auditing, reporting, and record
keeping standards than those applicable to domestic companies, and securities
of foreign issuers may be less liquid and their prices more volatile than those
of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and
in most foreign markets volume and liquidity are less than in the United
States. Fixed commissions on foreign securities exchanges are generally higher
than the negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign securities exchanges, brokers,
and companies than in the United States. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, or diplomatic developments
that could affect investments within those countries. Because of these and
other factors, securities of foreign companies acquired by a Fund may be
subject to greater fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, American Depositary Shares ("ADSs"), Global
Depositary Receipts ("GDRs") and EDRs or other securities representing
securities of companies based in countries other than the United States.
Transactions in these securities may not necessarily be settled in the same
currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered
form, are designed for use in the U.S. securities markets. GDRs are designed
for use in both the U.S. and European securities markets. EDRs, in bearer form,
are designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs
also involve certain risks of other investments in foreign securities.
Futures, Options and Other Derivative Instruments: Each Fund may attempt to
reduce the overall level of investment risk of particular securities and
attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and
swaps and swap-related products such as equity swap contracts, interest rate
swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of
futures, options
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and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid. Repurchase agreements, time deposits and guaranteed investment
contracts that do not provide for payment to a Fund within seven days after
notice, and illiquid restricted securities are subject to the limitation on
illiquid securities.
If otherwise consistent with their investment objectives and policies, the
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of
Directors/Trustees or the Adviser, acting under guidelines approved and
monitored by such Fund's Board of Directors/Trustees, after considering trading
activity, availability of reliable price information and other relevant
information, that an adequate trading market exists for that security. To the
extent that, for a period of time, qualified institutional or other buyers
cease purchasing such restricted securities pursuant to Rule 144A or otherwise,
the level of illiquidity of a Fund holding such securities may increase during
such period.
Interest Rate Transactions: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
A Fund will enter into a swap transaction on a net basis, i.e., the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent a specified index is below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest rate floor. The Adviser expects to enter into these transactions on
behalf of a Fund primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in
the price of securities the Fund anticipated purchasing at a later date rather
than for speculative purposes. A Fund will not sell interest rate caps or
floors that it does not own.
Lower-Rated Debt Securities: Nations Diversified Income Fund may invest in
lower-rated debt securities. Lower rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of
principal and interest. Lower-quality bonds involve greater risk of default or
price changes due to changes in the issuer's creditworthiness than securities
assigned a higher quality rating. These securities are considered to have
speculative characteristics and indicate an aggressive approach to income
investing. Each Fund that may invest in lower-rated debt securities intends to
limit their investments in lower-quality debt securities to 35% of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quo-
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tations are not available, these lower-rated securities will be valued in
accordance with procedures established by the Board of Directors/ Trustees of
the Funds, including the use of outside pricing services. Adverse publicity and
changing investor perceptions may affect the ability of outside pricing
services used by a Fund to value its portfolio securities, and a Fund's ability
to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than
higher-rated securities and may decline significantly in periods of general
economic difficulty which may follow periods of rising interest rates. During
an economic downturn or a prolonged period of rising interest rates, the
ability of issuers of lower quality debt to service their payment obligations,
meet projected goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser
will try to minimize the risks inherent in investing in lower-rated debt
securities by engaging in credit analysis, diversification, and attention to
current developments and trends affecting interest rates and economic
conditions. The Adviser will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future obligations,
have improved, or are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies
regarding lower-rated debt securities is not fundamental and may be changed at
any time without shareholder approval.
Money Market Instruments: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
Obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
Municipal Securities: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by a Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by
a Fund will be determined by the Adviser to be of comparable quality at the
time of purchase to instruments rated "high quality" by any major rating
service. Where necessary to ensure that an instrument is of comparable "high
quality," a Fund will require that an issuer's obligation to pay the principal
of the note may be backed by an unconditional bank letter or line of credit,
guarantee, or commitment to lend.
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Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases,"
and units of participation in trusts holding pools of tax exempt leases. Such
loans in most cases are not backed by the taxing authority of the issuers and
may have limited marketability or may be marketable only by virtue of a
provision requiring repayment following demand by the lender. Such loans made
by a Fund may have a demand provision permitting the Fund to require payment
within seven days. Participations in such loans, however, may not have such a
demand provision and may not be otherwise marketable. To the extent these
securities are illiquid, they will be subject to each Fund's limitation on
investments in illiquid securities. As it deems appropriate, the Adviser will
establish procedures to monitor the credit standing of each such municipal
borrower, including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying
municipal securities. To the extent that municipal participation interests are
considered to be "illiquid securities," such instruments are subject to each
Fund's limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/ dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified municipal securities at a specified price. A Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity and do
not intend to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent
that more than 25% of a Fund's total assets are invested in Municipal
Securities that are payable from the revenues of similar projects, a Fund will
be subject to the peculiar risks presented by such projects to a greater extent
than it would be if its assets were not so concentrated.
Other Investment Companies: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with
the Fund's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations. Pursuant to an exemptive order issued by the SEC, the Nations
Funds' non-money market funds may purchase shares of Nations Funds' money
market funds.
Repurchase Agreements: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can
be liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
Securities Lending: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or
in recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be creditworthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not
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exceed 33% of the value of its total assets, which may include cash collateral
received for securities loans. Cash collateral received by a Nations Fund may
be invested in a Nations Funds' money market fund.
Stock Index, Interest Rate and Currency Futures Contracts: The Funds may
purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the
purpose of hedging against changes in values of a Fund's securities or changes
in the prevailing levels of interest rates or currency exchange rates. The
contracts entail certain risks, including but not limited to the following: no
assurance that futures contracts transactions can be offset at favorable
prices; possible reduction of a Fund's total return due to the use of hedging;
possible lack of liquidity due to daily limits on price fluctuation; imperfect
correlation between the contracts and the securities or currencies being
hedged; and potential losses in excess of the amount invested in the futures
contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike
trading on domestic commodity exchanges, trading on foreign commodity exchanges
is not regulated by the CFTC and may be subject to greater risks than trading
on domestic exchanges. For example, some foreign exchanges are principal
markets for which no common clearing facility exists and a trader may look only
to the broker for performance of the contract. In addition, unless a Fund
hedges against fluctuations in the exchange rate between the U.S. dollar and
the currencies in which trading is done on foreign exchanges, any profits that
such Fund might realize could be eliminated by adverse changes in the exchange
rate, or the Fund could incur losses as a result of those changes.
U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any
of its agencies, authorities or instrumentalities. Direct obligations are
issued by the U.S. Treasury and include all U.S. Treasury instruments. U.S.
Treasury obligations differ only in their interest rates, maturities and 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 GNMA; some are supported by the right of the
issuer to borrow from the U.S. Government, such as obligations of Federal Home
Loan Banks, and some are backed only by the credit of the issuer itself, such
as obligations of the FNMA. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Variable- and Floating-Rate Instruments:
Certain instruments issued, guaranteed or sponsored by the U.S. Government or
its agencies, state and local government issuers, and certain debt instruments
issued by domestic and foreign banks and corporations may carry variable or
floating rates of interest. Such instruments bear interest rates which are not
fixed, but which vary with changes in specified market rates or indices, such
as a Federal Reserve composite index. A variable-rate demand instrument is an
obligation with a variable or floating interest rate and an unconditional right
of demand on the part of the holder to receive payment of unpaid principal and
accrued interest. An instrument with a demand period exceeding seven days may
be considered illiquid if there is no secondary market for such security.
When-Issued, Delayed Delivery and Forward Commitment Securities: The purchase
of new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of secu--
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rities 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 eight 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.
CCC, CC -- An obligation rated CCC is vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse conditions, the obligor is not likely to have the
capacity to meet its financial commitments on the obligation; an
obligation rated CC is highly vulnerable to nonpayment.
To provide more detailed indications of credit quality, the AA, A, BBB and CCC
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 eight ratings used by Moody's for
corporate and municipal bonds. The first four ratings denote investment grade
securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
60
<PAGE>
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa, Ca -- Bonds that are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest. Bonds that are rated Ca represent
obligations that are speculative in a high degree. Such issues are often
in default or have other marked shortcomings.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate
bonds rated Aa through B. The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category. With regard to municipal
bonds, those bonds in the Aa, A and Baa groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1, A1 or
Baa1, respectively.
The following summarizes the highest four ratings used by D&P for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to
time because of economic conditions.
A -- Bonds that are rated A have protection factors which are average
but adequate. However, risk factors are more variable and greater in
periods of economic stress.
BBB -- Bonds that are rated BBB have below average protection factors
but still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- "AAA" ratings denote the lowest expectation of credit risk. They
are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA -- "AA" ratings denote a very low expectation of credit risk. They
indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to
foreseeable events.
A -- "A" ratings denote a low expectation of credit risk. The capacity
for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vul-
61
<PAGE>
nerable to changes in circumstances or in economic conditions than is
the case for higher ratings.
BBB -- "BBB" ratings indicate that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments
is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows,
superior liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in
the preceding group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The 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:
F1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in
degree than issues rated F1+.
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. Commercial paper rated A-3
exhibits adequate protection parameters. However, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation. Commercial paper
rated A-3 or B correlates with the S&P Bond rankings (described above) of BBB/
BBB- and BB+, respectively.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of senior short-term obligations. This
will normally be evidenced by many of the characteristics of issu-
62
<PAGE>
ers 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. Issuers rated Prime-3 have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the
rated instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are,
however, more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
63
<PAGE>
Prospectus
Investor A Shares and
Investor B Shares
August 1, 1998
as supplemented on
November 16, 1998
This Prospectus describes the investment portfolios listed in the column to the
right (each a "Fund") of Nations Fund Trust, Nations Fund, Inc., and Nations
Fund Portfolios, Inc. ("Nations Portfolios"), each an open-end management
investment company in the Nations Funds Family ("Nations Funds" or "Nations
Funds Family"). This Prospectus describes two classes of shares of each Fund --
Investor A Shares and Investor B Shares.
This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Investor A Shares and Investor B Shares should
consider before investing. Investors should read this Prospectus and retain it
for future reference. Additional information about Nations Fund Trust, Nations
Fund, Inc., and Nations Portfolios is contained in 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 Funds, 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 each of the Funds. Gartmore Global Partners ("Gartmore")
is the investment sub-adviser to Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations International
Growth Fund. Brandes Investment Partners, L.P. ("Brandes") is the investment
sub-adviser to Nations International Value Fund and Marsico Capital Management,
LLC ("Marsico Capital") is the investment sub-adviser to Nations Marsico
Focused Equities Fund and Nations Marsico Growth & Income Fund. TradeStreet
Investment Associates, Inc. ("TradeStreet") is the investment sub-adviser to
all other Nations Funds. As used herein the term "Adviser" shall mean NBAI,
Tradestreet, Gartmore, Brandes and/or Marsico Capital as the context may
require, see "How The Funds Are Managed."
SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK, N.A. ("NATIONSBANK") OR BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION OR ANY OF THEIR AFFILIATES. SUCH SHARES
ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO NATIONS FUNDS,
FOR WHICH THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Emerging Growth Fund
Nations Small Company Growth Fund
Nations Disciplined Equity Fund
Nations Capital Growth Fund
Nations Marsico Focused Equities Fund
Nations Marsico Growth & Income Fund
Nations International Equity Fund
Nations International Growth Fund
Nations International Value Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
BALANCED FUND:
Nations Balanced Assets Fund
For Fund information call:
1-800-321-7854
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
[NATIONS FUNDS LOGO APPEARS HERE]
NF-98660-11/98
<PAGE>
Table Of Contents
Prospectus Summary 3
-----------------------------------------------------
About The
Expenses Summary 5
-----------------------------------------------------
Funds
Objectives 12
-----------------------------------------------------
How Objectives Are Pursued 13
-----------------------------------------------------
How Performance Is Shown 27
-----------------------------------------------------
How The Funds Are Managed 30
-----------------------------------------------------
Organization And History 35
-----------------------------------------------------
How To Buy Shares 37
-----------------------------------------------------
About Your
Investor A Shares -- Charges and Features 40
-----------------------------------------------------
Investment
Investor B Shares -- Charges and Features 43
-----------------------------------------------------
How To Redeem Shares 45
-----------------------------------------------------
How To Exchange Shares 47
-----------------------------------------------------
Shareholder Servicing And Distribution Plans 49
-----------------------------------------------------
How The Funds Value Their Shares 51
-----------------------------------------------------
How Dividends And Distributions Are Made;
Tax Information 51
-----------------------------------------------------
Financial Highlights 53
-----------------------------------------------------
Appendix A -- Portfolio Securities 81
-----------------------------------------------------
Appendix B -- Description Of Ratings 91
-----------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE FUNDS' SAI INCORPORATED HEREIN
BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUNDS OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING BY NATIONS FUNDS OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
o TYPE OF COMPANIES: Open-end management investment companies.
o INVESTMENT OBJECTIVES AND POLICIES:
o EQUITY FUNDS:
o Nations Value Fund's investment objective is to seek growth of capital by
investing in companies that are believed to be undervalued.
o Nations Equity Income Fund's investment objective is to seek current income
and growth of capital by investing primarily in companies with above-average
dividend yields.
o Nations Emerging Growth Fund's investment objective is to seek capital
appreciation by investing in emerging growth companies that are believed to
have superior long-term earnings growth prospects.
o Nations Small Company Growth Fund's investment objective is to seek long-term
capital growth by investing primarily in equity securities.
o Nations Disciplined Equity Fund's investment objective is to seek growth of
capital by investing in companies that are expected to produce significant
increases in earnings per share.
o Nations Capital Growth Fund's investment objective is to seek growth of
capital by investing in companies that are believed to have superior earnings
growth potential.
o Nations Marsico Focused Equities Fund's investment objective is to seek
long-term growth of capital. It is a non-diversified fund that pursues its
objective by normally investing in a core position of 20-30 common stocks.
o Nations Marsico Growth & Income Fund's investment objective is to seek
long-term growth of capital with a limited emphasis on income. Under normal
circumstances, the Fund pursues its objective by investing up to 75% of its
assets in equity securities selected primarily for their growth potential and
at least 25% of its assets in securities that have income potential.
o Nations International Equity Fund's investment objective is to seek long-term
capital growth by investing primarily in equity securities of non-United
States companies in Europe, Australia, the Far East and other regions,
including developing countries.
o Nations International Growth Fund's investment objective is to seek long-term
capital growth by investing primarily in equity securities of companies
domiciled in countries outside the United States and listed on major stock
exchanges primarily in Europe and the Pacific Basin.
o Nations International Value Fund's investment objective is to seek long-term
capital growth by investing primarily in equity securities of foreign
issuers, including emerging markets countries.
o Nations Emerging Markets Fund's investment objective is to seek long-term
capital growth by investing primarily in equity securities of companies in
emerging markets countries, such as those in Latin America, Eastern Europe,
the Pacific Basin, the Far East, Africa and India.
3
<PAGE>
o Nations Pacific Growth Fund's investment objective is to seek long-term
capital growth by investing primarily in equity securities of companies in
the Pacific Basin and the Far East (excluding Japan).
o BALANCED FUND:
o Nations Balanced Assets Fund's investment objective is to seek total return
by investing in equity and fixed income securities.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment management services to more
than 60 investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc., an affiliate of NBAI, Gartmore Global Partners,
provides investment sub-advisory services to Nations International Equity
Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
International Growth Fund, Brandes Investment Partners, L.P. provides
investment sub-advisory services to Nations International Value Fund and
Marsico Capital Management, LLC provides investment sub-advisory services to
Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income
Fund. For more information about the investment adviser and investment
sub-advisers to the Nations Funds, see "How The Funds Are Managed."
o DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid monthly by Nations Capital Growth Fund, Nations Disciplined Equity
Fund, Nations Equity Income Fund, Nations Value Fund and Nations Small Company
Growth Fund. Dividends from net investment income are declared and paid
annually by Nations International Growth Fund and Nations International Value
Fund. All other Equity Funds and the Balanced Fund declare and pay dividends
from net investment income each calendar quarter. Each Fund's net realized
capital gains, including net short-term capital gains are distributed at least
annually.
o RISK FACTORS: Although NBAI, together with the sub-advisers, seek to achieve
the investment objective of each Fund, there is no assurance that they will be
able to do so. Investments in a Fund are not insured against loss of
principal. Investments by a Fund in common stocks and other equity securities
are subject to stock market risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods. The
U.S. stock markets tend 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 markets, as measured by the S&P 500 Index (as
defined below) and other commonly used indices, were trading at or close to
record levels. There can be no guarantee that these levels will continue. In
addition, certain of the Funds may invest in securities of smaller and newer
issuers. Investments in such companies may present greater opportunities for
capital appreciation because of high potential earnings growth, but also
present greater risks than investments in more established companies with
longer operating histories and greater financial capacity. Investments by a
Fund in debt securities are subject to interest rate risk, which is the risk
that increases in market interest rates will adversely affect a Fund's
investments in debt securities. The value of a Fund's investments in debt
securities, including U.S. Government Obligations (as defined below), will
tend to decrease when interest rates rise and increase when interest rates
fall. In general, longer-term debt instruments tend to fluctuate in value more
than shorter-term debt instruments in response to interest rate movements. In
addition, debt securities which are not issued or guaranteed by the U.S.
Government are subject to credit risk, which is the risk that the issuer may
not be able to pay principal and/or interest when due. Certain of the Funds'
investments may constitute derivative securities. Certain types of derivative
securities can, under particular circumstances, significantly increase an
investor's exposure to market and other risks. Certain of the Funds invest in
foreign securities which present additional risks associated with
international investing, including, among others, heightened economic and
political risk, as well as foreign currency risk. For a discussion of these
and other fac-
4
<PAGE>
tors, see "How Objectives Are Pursued -- Risk Considerations", "How
Objectives Are Pursued -- Special Risk Considerations Relevant to an
Investment in the International Funds" and "Appendix A."
o MINIMUM PURCHASE: $1,000 minimum initial investment per record holder except
that the minimum initial investment is: $500 for Individual Retirement Account
("IRA") investors; $250 for non-working spousal IRAs; and $100 for investors
participating on a monthly basis in the Systematic Investment Plan. There is
no minimum investment amount for investments by certain 401(k) and employee
pension plans or salary reduction. The minimum subsequent investment is $100,
except for investments pursuant to the Systematic Investment Plan. See "How To
Buy Shares."
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds.
The following tables summarize shareholder transaction and operating expenses
for Investor A Shares and Investor B Shares of the Funds. The Examples show the
cumulative expenses attributable to a hypothetical $1,000 investment in the
Funds over specified periods.
NATIONS FUNDS EQUITY FUNDS INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations Small Nations
Shareholder Transaction Nations Equity Emerging Company Disciplined
Expenses Value Fund Income Fund Growth Fund Growth Fund Equity Fund
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price) 5.75% 5.75% 5.75% 5.75% 5.75%
Maximum Deferred Sales Charge (as a percentage of
the lower of the original purchase price or
redemption proceeds)1 1.00% 1.00% 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2) None(2) None(2)
Annual Fund Operating
Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .75% .63% .75% .75% .75%
Rule 12b-1 Fees (Including Shareholder Servicing
Fees) .25% .25% .25% .25% .25%
Other Expenses (After Expense Reimbursements) .19% .23% .23% .20% .23%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) 1.19% 1.11% 1.23% 1.20% 1.23%
</TABLE>
(1) Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges".
(2) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investors investing $1 million or more
("Substantial Investors") in Investor A Shares held less than 18 months and
purchased between July 31, 1997 and November 15, 1998. See "How To Redeem
Shares -- Redemption Fee."
5
<PAGE>
NATIONS FUNDS EQUITY FUNDS INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations
Nations Marsico Marsico
Shareholder Transac- Capital Focused Growth &
tion Expenses Growth Fund Equities Fund Income Fund
<S> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of offering
price) 5.75% 5.75% 5.75%
Maximum Deferred Sales Charge (as a
percentage of the lower of the original
purchase price or redemption
proceeds)1 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2)
Annual Fund Operating
Expenses
(as a percentage of average net
assets)
Management Fees (After Fee Waivers) .75% .85% .85%
Rule 12b-1 Fees (Including Shareholder
Servicing Fees) .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .20% .40% .40%
Total Operating Expenses (After Fee
Waivers and Expense
Reimbursements) 1.20% 1.50% 1.50%
<CAPTION>
Nations Nations Nations
Shareholder Transac- International International International
tion Expenses Equity Fund Growth Fund Value Fund
<S> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of offering
price) 5.75% 5.75% 5.75%
Maximum Deferred Sales Charge (as a
percentage of the lower of the original
purchase price or redemption
proceeds)1 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2)
Annual Fund Operating
Expenses
(as a percentage of average net
assets)
Management Fees (After Fee Waivers) .90% .90% .90%
Rule 12b-1 Fees (Including Shareholder
Servicing Fees) .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .24% .22% .22%
Total Operating Expenses (After Fee
Waivers and Expense
Reimbursements) 1.39% 1.37% 1.37%
</TABLE>
(1) Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges".
(2) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investors investing $1 million or more
("Substantial Investors") in Investor A Shares held less than 18 months and
purchased between July 31, 1997 and November 15, 1998. See "How To Redeem
Shares -- Redemption Fee."
6
<PAGE>
NATIONS FUNDS EQUITY/BALANCED FUNDS INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations
Emerging Pacific Balanced
Shareholder Transaction Expenses Markets Fund Growth Fund Assets Fund
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 5.75% 5.75% 5.75%
Maximum Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 1.00% 1.00% 1.00%
Redemption Fees Payable to the Fund None(2) None(2) None(2)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) 1.10% .90% .75%
Rule 12b-1 Fees (Including Shareholder Servicing Fees) (After Fee Waivers) .25% .25% .25%
Other Expenses (After Expense Reimbursements) .47% .47% .33%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) 1.82% 1.62% 1.33%
</TABLE>
(1) Certain Investor A Shares that are purchased at net asset value are subject
to a Deferred Sales Charge if redeemed within two years of purchase. See
"Sales Charges".
(2) There is a 1% redemption fee retained by the Fund or Funds which is imposed
only on certain redemptions by investors investing $1 million or more
("Substantial Investors") in Investor A Shares held less than 18 months and
purchased between July 31, 1997 and November 15, 1998. See "How To Redeem
Shares -- Redemption Fee."
7
<PAGE>
NATIONS FUNDS EQUITY FUNDS INVESTOR B SHARES
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Nations Small Nations Nations Marsico Marsico
Shareholder Nations Equity Emerging Company Disciplined Capital Focused Growth &
Transaction Value Income Growth Growth Equity Growth Equities Income
Expenses Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases None None None None None None None None
Maximum Deferred Sales
Charge
(as a percentage of the lower
of the original purchase price
or redemption proceeds)1 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Annual Fund
Operating
Expenses
(as a percentage of average
net assets)
Management Fees (After Fee
Waivers) .75% .63% .75% .75% .75% .75% .85% .85%
Rule 12b-1 Fees .75% .75% .75% .75% .75% .75% .75% .75%
Shareholder Servicing Fees .25% .25% .25% .25% .25% .25% .25% .25%
Other Expenses
(After Expense
Reimbursements) .19% .23% .23% .20% .23% .20% .40% .40%
Total Operating Expenses
(After Fee Waivers
and Expense
Reimbursements) 1.94% 1.86% 1.98% 1.95% 1.98% 1.95% 2.25% 2.25%
</TABLE>
(1) Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 5.00% in the first year after
purchase, declining to 1.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule see "How to
Redeem Shares -- Contingent Deferred Sales Charge."
8
<PAGE>
NATIONS FUNDS EQUITY/BALANCED FUNDS INVESTOR B SHARES
<TABLE>
<CAPTION>
Nations Nations Nations Nations Nations Nations
International International International Emerging Pacific Balanced
Equity Growth Value Markets Growth Assets
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction Expenses
Sales Load Imposed on Purchases None None None None None None
Maximum Deferred Sales Charge (as a
percentage of the lower of the original
purchase price or redemption proceeds)1 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Annual Fund
Operating Expenses
(as a percentage of average
net assets)
Management Fees .90% .90% .90% 1.10% .90% .75%
Rule 12b-1 Fees (After Fee Waivers) .75% .75% .75% .75% .75% .75%
Shareholder Servicing Fees .25% .25% .25% .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .24% .22% .22% .47% .47% .33%
Total Operating Expenses (After Fee
Waivers and Expense Reimbursements) 2.14% 2.12% 2.12% 2.57% 2.37% 2.08%
</TABLE>
(1) Investor B Shares purchased prior to January 1, 1996 or after July 31, 1997
are subject to the Deferred Sales Charge as set forth in the applicable
schedule. The Maximum Deferred Sales Charge is 5.00% in the first year after
purchase, declining to 1.00% in the sixth year after purchase and eliminated
thereafter. For the applicable Deferred Sales Charge schedule see "How to
Redeem Shares -- Contingent Deferred Sales Charge."
Examples: You would pay the following expenses on a $1,000 investment in
Investor A Shares of the indicated Fund, assuming (1) a 5% annual return and
(2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations
Nations Marsico Marsico
Nations Nations Small Nations Nations Focused Growth &
Nations Equity Emerging Company Disciplined Capital Equities Income
Value Fund Income Fund Growth Fund Growth Fund Equity Fund Growth Fund Fund Fund
------------ ------------- ------------- ------------- ------------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 69 $ 68 $ 69 $ 69 $ 69 $ 69 $ 72 $ 72
3 Years $ 93 $ 91 $ 94 $ 93 $ 94 $ 93 $102 $102
5 Years $119 $115 $121 $120 $121 $120 $135 $135
10 Years $194 $185 $198 $195 $198 $195 $226 $226
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Nations
International Nations Nations Nations Nations Nations
Equity International International Emerging Pacific Balanced
Fund Growth Fund Value Fund Markets Fund Growth Fund Assets Funds
--------------- --------------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 71 $ 71 $ 71 $ 75 $ 73 $ 70
3 Years $ 99 $ 98 $ 98 $111 $106 $ 97
5 Years $129 $128 $128 $150 $141 $126
10 Years $215 $213 $213 $259 $239 $208
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor B
Shares of the indicated Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Nations Small Nations Nations Marsico Marsico
Nations Equity Emerging Company Disciplined Capital Focused Growth &
Value Income Growth Growth Equity Growth Equities Income
Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 70 $ 69 $ 70 $ 70 $ 70 $ 70 $ 73 $ 73
3 Years $ 91 $ 88 $ 92 $ 91 $ 92 $ 91 $100 $100
5 Years $125 $121 $127 $ 125 $127 $125 $140 $140
10 Years $207 $198 $211 $ 208 $211 $208 $240 $240
</TABLE>
<TABLE>
<CAPTION>
Nations Nations Nations Nations Nations
International International Nations Emerging Pacific Balanced
Equity Growth International Markets Growth Assets
Fund Fund Value Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 72 $ 72 $ 72 $ 76 $ 74 $ 71
3 Years $ 97 $ 96 $ 96 $110 $104 $ 95
5 Years $135 $134 $134 $157 $147 $132
10 Years $228 $226 $226 $272 $252 $222
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor B
Shares of the indicated Fund, assuming a 5% annual return and no redemption.
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Nations Small Nations Nations Marsico Marsico
Nations Equity Emerging Company Disciplined Capital Focused Growth
Value Income Growth Growth Equity Growth Equities & Income
Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 20 $ 19 $ 20 $ 20 $ 20 $ 20 $ 23 $ 23
3 Years $ 61 $ 58 $ 62 $ 61 $ 62 $ 61 $ 70 $ 70
5 Years $105 $101 $107 $105 $107 $105 $120 $120
10 Years $207 $198 $211 $208 $211 $208 $240 $240
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Nations Nations Nations Nations Nations
International International Nations Emerging Pacific Balanced
Equity Growth International Markets Growth Assets
Fund Fund Value Fund Fund Fund Funds
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 22 $ 22 $ 22 $ 26 $ 24 $ 21
3 Years $ 67 $ 66 $ 66 $ 80 $ 74 $ 65
5 Years $115 $114 $114 $137 $127 $112
10 Years $228 $226 $226 $272 $252 $222
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares and Investor B Shares will bear either directly or
indirectly. The figures contained in the above tables are based on amounts
incurred during each Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. There is no assurance that
any fee waivers and/or reimbursements will continue. In particular, to the
extent Other Expenses are less than those shown, 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 expense reimbursements are decreased or discontinued, the amounts
contained in the "Examples" above may increase. Long-term shareholders of the
Funds could pay more in sales charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
For a more complete description of the Rule 12b-1 and shareholder servicing
fees payable by the Funds, see "Shareholder Servicing And Distribution Plan."
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for
Investor A Shares of the indicated Fund would have been as follows: Nations
International Value Fund 1.00% and 1.47%, respectively.
Absent expense reimbursements, "Other Expenses" and "Total Operating Expenses"
for Investor A Shares of the indicated Fund would have been as follows: Nations
Value Fund -- .20% and 1.20%, respectively; Nations International Growth --
.27% and 1.42%, respectively; Nations Marsico Focused Equities Fund -- .67% and
1.77%, respectively; and Nations Marsico Growth & Income Fund -- 1.12% and
2.22%.
Absent fee waivers and expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" for Investor A Shares of the indicated
Fund would have been as follows: Nations Small Company Growth Fund -- 1.00%,
.26% and 1.51%, respectively.
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for
Investor B Shares of Nations International Value Fund would have been 1.00% and
2.22%, respectively.
Absent expense reimbursements, "Other Expenses" and "Total Operating Expenses"
for Investor B Shares of the indicated Fund would have been as follows: Nations
Value Fund -- .20% and 1.95%, respectively; Nations International Growth --
.27% and 2.17%, respectively; Nations Marsico Focused Equities Fund -- .67% and
2.52%, respectively; and Nations Marsico Growth & Income Fund -- 1.12% and
2.97%, respectively.
Absent fee waivers and expense reimbursements, "Management Fees, " "Other
Expenses" and "Total Operating Expenses" for Investor B Shares of Nations Small
Company Growth Fund would have been 1.00%, .26% and 2.26%, respectively.
Effective May 1999, it is anticipated that certain voluntary Total Operating
Expenses limits put in place in connection with the reorganization of The Pilot
Funds into the Nations Funds will terminate with
11
<PAGE>
respect to the following Funds: Nations Value Fund, Nations Equity Income Fund,
Nations Disciplined Equity Fund, Nations Small Company Growth Fund and Nations
International Growth Fund. For more information, see the SAI.
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.
Objectives
Equity Funds:
Nations Value Fund: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
Nations Equity Income Fund: Nations Equity Income Fund's investment objective
is to seek current income and growth of capital by investing primarily in
companies with above-average dividend yields.
Nations Emerging Growth Fund: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
Nations Small Company Growth Fund: Nations Small Company Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities.
Nations Disciplined Equity Fund: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
Nations Capital Growth Fund: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to
have superior earnings growth potential.
Nations Marsico Focused Equities Fund: Nations Marsico Focused Equities Fund's
investment objective is to seek long-term growth of capital.
Nations Marsico Growth & Income Fund: Nations Marsico Growth & Income Fund's
investment objective is to seek long-term growth of capital with a limited
emphasis on income.
Nations International Equity Fund: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other regions, including developing countries.
Nations International Growth Fund: Nations International Growth Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of companies domiciled in countries outside the United
States and listed on major stock exchanges primarily in Europe and the Pacific
Basin.
Nations 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.
Nations Emerging Markets Fund: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging market countries, such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
Nations Pacific Growth Fund: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
Balanced Fund:
Nations Balanced Assets Fund: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assur-
12
<PAGE>
ance that it will be able to do so. No single Fund should be considered, by
itself, to provide a complete investment program for any investor. The net
asset value of the shares of the Funds will fluctuate based on market
conditions. Therefore, investors should not rely upon the Funds for short-term
financial needs nor are the Funds meant to provide a vehicle for participating
in short-term swings in the stock market. Investments in the Funds are not
insured against loss of principal.
How Objectives Are Pursued
Equity Funds:
Nations Value Fund: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure
the growth, profitability, and leverage of such issuers that it believes will
help maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are
undervalued relative to the overall stock market. The principal factor
considered by the Adviser in making these determinations is the ratio of a
stock's price-to-earnings relative to corresponding ratios of other stocks
issued by companies in the same industry or economic sector. The Adviser
believes that companies with lower price-to-earnings ratios are more likely to
provide better opportunities for capital appreciation. This "value" approach
typically produces a dividend yield greater than the market average. The
Adviser will attempt to temper risk by broad diversification among economic
sectors and industries. Through this strategy, the Fund pursues above-average
returns while seeking to avoid above-average risks.
The Fund invests under normal market conditions at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stock, and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest up to 20% of its assets in foreign securities. The Fund
also may hold up to 20% of its total assets in obligations issued or guaranteed
as to payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade
securities of domestic companies. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by
Moody's Investor's Service, Inc. ("Moody's")) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. Subsequent to its purchase by the
Fund, an issue of securities may cease to be rated or its rating may be reduced
below the minimum rating required for purchase by the Fund. The Adviser will
consider such an event in determining whether the Fund should continue to hold
the obligation. Unrated obligations may be acquired by the Fund if they are
determined by the Adviser to be of comparable quality at the time of purchase
to rated obligations that may be acquired.
The Fund may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary
defensive measure if market conditions warrant.
Nations Equity Income Fund: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable
13
<PAGE>
and predictable source of return than capital appreciation. While the price of
a company's stock generally increases or decreases in response to short-term
earnings and market fluctuations, its dividends are generally less volatile.
Second, diversifying equity holdings in a manner that includes every major
economic sector contributes to reduced volatility, without a commensurate
reduction in expected investment return. Finally, investing in dividend paying
stocks in all the economic sectors can provide greater income than provided by
the stocks in Standard & Poor's 500 Composite Stock Price Index ("S&P 500
Index")1 with less volatility. Collectively, these traits may be combined in
such a fashion as to produce returns in excess of the market (S&P 500 Index) on
a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
o are income producing;
o appear undervalued relative to the S&P 500 Index on a risk adjusted basis; and
o have favorable trends in personal stock ownership by the underlying company's
officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (I.E., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed-income securities (corporate and government bonds of various maturities),
preferred stocks and warrants. The Fund may invest in debt securities that are
considered investment grade (E.G. securities rated in one of the top four
investment categories by S&P or Moody's, or if not rated, are of equivalent
investment quality as determined by the Adviser). Obligations rated in the
lowest of the top four invest ment grade rating categories (E.G., rated "BBB" by
S&P or "Baa" by Moody's) have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade debt obligations. The Fund also may invest up to 5% of its assets in debt
securities that are rated below investment grade (E.G. rated "BB" by S&P or
"Baa" by Moody's), or if not rated, are of equivalent investment quality as
determined by the Adviser. Non- investment grade debt securities, sometimes
referred to as "high yield bonds" or "junk bonds" tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities. The Fund will invest in such high-yield debt
securities only when the Adviser believes that the issue presents minimal credit
risk. For a description of corporate debt ratings, see "Appendix B." Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary
defensive measure if market conditions warrant.
Nations Emerging Growth Fund: The Fund will invest in equity securities,
consisting of common stocks, preferred stocks and convertible securities, such
as warrants, rights and securities convertible into common stocks, selected
from a universe of emerging growth companies monitored by the Adviser. Most of
the companies will have revenues between $50 million and $1.5 billion and a
debt ratio of less than 50% of capitalization. The universe focuses on
companies with above average earnings growth rates and profit margins, yet the
portfolio may include positions of special situation companies whose growth is
expected to accelerate. These companies are believed to offer significant
opportunities for capital appreciation and the Adviser will attempt to identify
these oppor-
- ---------------------
(1)"Standard & Poor's" and "Standard & Poor's 500" are trademarks of The
McGraw-Hill Companies, Inc.
14
<PAGE>
tunities before their potential is recognized by investors in general.
In managing the Fund, the Adviser applies a disciplined process with rigorous
fundamental analysis providing the basis for stock selection. Its methodology
combines fundamental, valuation and momentum-based disciplines in portfolio
construction. First, the Adviser evaluates nearly 1500 stocks by using
quantitative modeling techniques. Companies within this universe are analyzed
using the following criteria: earnings growth trends, earnings momentum,
earnings estimate trends, relative price performance and importantly, valuation
or price/earnings ratios relative to forecasted earnings growth. Next, the
Adviser conducts a bottom-up, fundamental analysis of each candidate company.
This process, which involves using both internal and external research and
conducting one on one conversations with senior company executives, requires
several steps: gaining an understanding of the business, evaluating its growth
potential, risks and competitive strengths, discussing its growth strategy with
company management, and validating that strategy with third parties and the
Adviser's network of regional brokerage research resources. Stocks are selected
after this rigorous analysis only when their valuation is attractive relative
to forecasted growth.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund may invest in various money market
instruments and repurchase agreements. The Fund may invest without limitation
in such instruments pending investment, to meet anticipated redemption
requests, or as a temporary defensive measure if market conditions warrant.
The volatility of emerging growth stocks is greater than that of larger
companies. Many of these stocks trade over-the-counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund
is diversified and typically invests in 75 to 130 companies which represent a
broad range of industries and sectors, both in the United States and abroad.
Although the Fund invests primarily in securities of U.S. issuers, it may
invest up to 20% of its total assets in foreign securities.
Nations Small Company Growth Fund: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in equity securities, consisting of common stocks, preferred stocks and
convertible securities, such as warrants, rights and convertible debt. In
addition, the Fund will invest at least 65% of its total assets in companies
with a market capitalization of $1 billion or less.
The investment philosophy of the Small Company Growth Fund is based on the
premise that stock prices are driven by earnings growth and that superior stock
market returns occur when a company experiences rapid and accelerating earnings
growth due to improving fundamentals.
In managing the Fund, the Adviser applies a disciplined process with rigorous
fundamental analysis providing the basis for stock selection. Its methodology
combines fundamental, valuation and momentum-based disciplines in portfolio
construction. First, the Adviser evaluates nearly 5000 stocks by using
quantitative modeling techniques. Companies with a market capitalization of
less than $1 billion are analyzed using the following criteria: earnings growth
trends, earnings momentum, earnings estimate trends, relative price performance
and importantly, valuation or price/ earnings ratios relative to forecasted
earnings growth. Next, the Adviser conducts a bottom-up, fundamental analysis
of each candidate company. This process, which involves using both internal and
external research and conducting one on one conversations with senior company
executives, requires several steps: gaining an understanding of the business,
evaluating its growth potential, risks and competitive strengths, discussing
the growth strategy with company management, and validating that strategy with
third parties and the Adviser's network of regional brokerage research
resources.
Overall, the Fund's strategy is to own those investments offering both
attractive fundamental valuation and relatively good prospects for earnings
improvement. Typically, two types of companies are candidates for purchase: (i)
mature companies which may have fallen from a larger market value due to
business difficulties, but which now exhibit improving prospects; and (ii)
smaller or younger companies which are experiencing strong
15
<PAGE>
trends in earnings growth, but remain reasonably valued and therefore offer
premium growth at a discount in comparison to other companies.
The Fund's weighted median capitalization generally is not expected to exceed
125% of the weighted median capitalization of the Russell 2000 Small Stock
Index (the "Russell 2000") as measured on a quarterly basis, although this may
vary from time to time. The volatility of the small cap growth stocks in which
the Fund invests is greater than that of larger companies. Many of these stocks
trade over-the-counter and may not have widespread interest among institutional
investors. These securities may have larger potential for gains but also carry
more risk if unexpected company developments adversely affect the stock prices.
To help reduce risk, the Fund is diversified and typically invests in 75 to 130
companies which represent a broad range of industries and sectors, both in the
United States and abroad.
The Fund may invest up to 35% of its total assets in securities of issuers with
a market capitalization greater than $1 billion and in debt securities.
However, the Fund will not invest more than 10% of its total assets in debt
securities, unless the Fund assumes a temporary defensive position as discussed
below. Debt securities, if any, purchased by the Fund will be rated "AA" or
above by S&P or "Aa" or above by Moody's or, if unrated, determined by the
Adviser to be of comparable quality. For temporary defensive purposes, the Fund
may invest up to 100% of its total assets in debt securities. Debt securities
in which the Fund may invest include short-term and intermediate-term
obligations of corporations, the U.S. and foreign governments and international
organizations (such as the International Bank for Reconstruction and
Development (the "World Bank")), and money market instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending, forward foreign exchange contracts and repurchase
agreements. The Fund currently intends to limit any investment in foreign
securities to 20% of total assets.
Nations Disciplined Equity Fund: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By
pursuing this investment philosophy, the Fund seeks to provide investors with
long-term capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for the Fund, the Adviser utilizes quantitative analysis
and optimization tools. This approach seeks to identify companies with
improving profit potential through analysis of earnings forecasts issued by
investment banks, broker/dealers and other investment professionals. The
Adviser believes that companies experiencing such earnings trends have the
potential to generate significant increases in per share earnings. The Adviser
also believes that companies with increasing earnings should experience
positive trends in their stock price. The quantitative analysis also includes
ranking the attractiveness of equity securities according to a multi-factor
valuation model. Both value and growth factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while growth characteristics
such as price momentum, earnings growth and earnings acceleration measure a
stock relative to others in the same industry. The objective is to maintain a
broadly diversified portfolio which ranks in the top quartile on earnings
momentum and in the top third on valuation. This approach generally produces a
dividend yield less than the market average. Although this Fund seeks to invest
in attractively priced securities with increasing earnings, its investment
objective focuses on long-term capital appreciation; income is not an objective
of this Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options,
16
<PAGE>
U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $1 billion or greater) that are
determined to have favorable price-to-earnings ratios. The Fund also may invest
in securities issued by companies with market capitalizations of less than $1
billion. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by a nationally recognized
statistical rating organization "NRSRO" or, if not rated, are of equivalent
quality as determined by the Adviser). Obligations rated in the lowest of the
top four investment grade rating categories have speculative characteristics
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments,
money market instruments and repurchase agreements.
Nations Capital Growth Fund: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
o above-average earnings growth relative to the S&P 500 Index;
o established operating histories, strong balance sheets and favorable financial
characteristics; and
o above-average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the
following types of companies:
o companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service industries;
o companies that own or develop natural resources, such as energy exploration
companies;
o companies that may benefit from changing consumer demands and lifestyles, such
as financial service organizations and telecommunication companies;
o foreign companies, including those in countries with more rapid economic
growth than the U.S.;
o companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
o companies whose earnings are temporarily depressed and are currently out of
favor with most investors.
Through intensive research, visits to many companies each year, and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
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The Fund also may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary
defensive measure if market conditions warrant.
Nations Marsico Focused Equities Fund: Nations Marsico Focused Equities Fund is
a non-diversified fund that pursues its objective by normally investing in a
core position of 20-30 common stocks. Under normal circumstances, the Fund
invests at least 65% of its total assets in large capitalization common stocks
selected for their growth potential. The Fund may invest to a lesser degree in
other types of securities, including preferred stock, warrants, convertible
securities and debt securities.
In building the portfolio, the Adviser seeks to identify individual companies
with earnings growth potential that may not be recognized by the market at
large. To identify such opportunities, the Adviser looks for a combination of
four characteristics:
o Change -- The Adviser believes that extraordinary growth derives from
products, markets and technologies that are in flux.
o Franchise -- The Adviser looks for strong brand franchises that can be
leveraged in a changing global environment.
o Global reach -- The Adviser selects securities without geographic bias in the
belief that the global market is both a source of growth opportunity and a
hedge against fluctuations and dislocations of local markets.
o Themes -- The Adviser seeks companies that are moving with, not against, the
major social, economic and cultural shifts taking place in the world.
Once an opportunity is identified, it is subjected to a disciplined analytic
process including both "top-down" element and "bottom-up" elements. The "top-
down" element of the process takes into consideration such macroeconomic
factors as interest rates, inflation, the regulatory environment and the global
competitive landscape, and also analyzes such factors as the most attractive
global opportunities, industry consolidation and the sustainability of economic
trends. With respect to the "bottom-up" element, the Adviser considers company
fundamentals such as commitment to research, market franchise and management's
strength and vision to determine the present and future value of the company as
an investment.
Realization of income is not a significant investment consideration. Any income
realized on the Fund's investments will be incidental to its objective.
Nations Marsico Growth & Income Fund: Under normal circumstances, Nations
Marsico Growth & Income Fund pursues its objective by investing up to 75% of its
total assets in equity securities selected primarily for their growth potential
and at least 25% of its total assets in securities that have income potential.
The Fund typically emphasizes the growth component. However, in adverse market
conditions, the Fund may reduce the growth component of its portfolio to 25% of
its total assets. The Fund may invest in any combination of common stock,
preferred stock, warrants, convertible securities and debt securities. However,
it is expected that the Fund will emphasize investments in large capitalization
common stocks. The Fund may shift assets between the growth and income
components of its portfolio based on the Adviser's analysis of relevant market,
financial and economic conditions. If the Adviser believes that growth
securities will provide better returns than the yields then available or
expected on income-producing securities, then the Fund will place a greater
emphasis on the growth component. In building the portfolio, the Adviser seeks
to identify individual companies with earnings growth potential that may not be
recognized by the market at large. To identify such opportunities, the Adviser
looks for a combination of four characteristics:
o Change -- The Adviser believes that extra-ordinary growth derives from
products, markets and technologies that are in flux.
o Franchise -- The Adviser looks for strong brand franchises that can be
leveraged in a changing global environment.
o Global reach -- The Adviser selects securities without geographic bias in the
belief that the global market is both a source of growth opportunity and a
hedge against fluctuations and dislocations of local markets.
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o Themes -- The Adviser seeks companies that are moving with, not against, the
major social, economic and cultural shifts taking place in the world.
Once an opportunity is identified, it is subjected to a disciplined analytic
process including both "top-down" and "bottom-up" elements. The "top-down"
element of the process takes into consideration such macroeconomic factors as
interest rates, inflation, the regulatory environment and the global
competitive landscape, and also analyzes such factors as the most attractive
global opportunities, industry consolidation and the sustainability of economic
trends. With respect to the "bottom-up" element, the Adviser considers company
fundamentals such as commitment to research, market franchise and management's
strength and vision to determine the present and future value of the company as
an investment.
Because income is a part of the investment objective of the Fund, the Adviser
may also consider dividend-paying characteristics in selecting equity
securities for the Fund. The Fund may also find opportunities for capital
growth from debt securities because of anticipated changes in interest rates,
credit standing, currency relationships or other factors. Investors in the Fund
should keep in mind that the Fund is not designed to produce a consistent level
of income.
Nations International Equity Fund: The Fund intends to diversify investments
broadly among countries and to normally invest in securities representing at
least three different countries. The Fund may invest in companies in the Far
East and Western Europe as well as Australia, Canada, and other areas
(including developing countries). Under unusual circumstances, however, the
Fund may invest substantially all of its assets in companies in one or two
countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that the
Adviser believes have potential for growth of capital. The Fund may invest up
to 35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depository Receipts ("EDRs"), American
Depository Shares ("ADSs"), bonds, notes, other debt securities of foreign
issuers, securities of foreign investment funds or trusts and real estate
investment trust securities. For defensive purposes, the Fund may temporarily
invest substantially all of its assets in U.S. financial markets or in U.S.
dollar-denominated instruments.
Nations International Growth Fund: In pursuing its investment objective, under
normal market conditions, the Fund will invest at least 65% of its total assets
in foreign equity securities listed on major exchanges, consisting of common
stocks, preferred stocks and convertible securities, such as warrants, rights
and convertible debt. The Fund may purchase the stock of small-, mid- and
large-capitalization companies.
The Fund may invest up to 35% of its total assets in securities of issuers
domiciled in developing countries. These countries are generally located in
Eastern Europe, the Asia-Pacific region, Latin and South America, Africa and,
subject to approval by the Board of Directors, the former Soviet Union and the
Middle East. Debt securities, if any, purchased by the Fund will be rated in
the top two categories by an NRSRO or, if unrated, determined by the Adviser to
be of comparable quality. For temporary defensive purposes, the Fund may invest
up to 100% of its assets in debt and equity securities of U.S. issuers. Debt
securities in which the Fund may invest include short-term and
intermediate-term obligations of corporations, foreign governments and
international organizations (such as the World Bank), including money market
instruments.
The Fund may invest in common stocks (including securities convertible into
common stocks) of foreign issuers and rights to purchase common stock, options
and futures contracts on securities, securities indexes and foreign currencies,
securities lending and repurchase agreements. The Fund also may invest in ADRs,
GDRs, EDRs and ADSs.
For defensive purposes, the Fund may temporarily invest substantially all of
its assets in U.S. financial markets or in U.S. dollar-denominated instruments.
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<PAGE>
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-United States 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, ADRs, EDRs, and/or 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 equity
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 its total 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 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, Hong Kong, Singapore 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
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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.
Nations Emerging Markets Fund: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
equity securities of companies in emerging markets.
The Fund considers countries with emerging markets to include the following:
(i) countries with an emerging stock market as defined by the International
Finance Corporation; (ii) countries with low- to middle-income economies
according to the World Bank; and (iii) countries listed in World Bank
publications as developing. The Adviser seeks to identify and invest in those
emerging markets that have a relatively low gross national product per capita,
compared to the world's major economies, and which exhibit potential for rapid
economic growth. The Adviser believes that investment in equity securities of
emerging market issuers offers significant potential for long-term capital
appreciation.
Emerging market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the Czech Republic, Colombia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru,
Russia, Singapore, South Africa, Thailand, Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. A company will
be considered to conduct its principal business activities in a country, market
or region if it derives a significant portion (at least 50%) of its revenues or
profits from goods produced or sold, investments made, or services performed in
such country, market or region or has at least 50% of its total assets situated
in such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment
trust securities. The Fund may invest in ADRs, GDRs, EDRs, and ADSs of such
issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's or S&P or, if unrated, determined by
the Adviser to be comparable in quality to instruments so rated. Obligations
with the lowest investment grade rating (E.G., rated "Baa" by Moody's or "BBB"
by S&P) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or
a significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the International Funds," below. When allocating
investments among individual countries, the Adviser will consider various
criteria, such as the relative economic growth potential of the various
economies and securities markets, expected levels of inflation, government
21
<PAGE>
policies influencing business conditions and the outlook for currency
relationships.
For defensive purposes, the Fund may temporarily invest substantially all of
its assets in U.S. financial markets or in U.S. dollar-denominated instruments.
Nations Pacific Growth Fund: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the
Pacific Basin and the Far East. An issuer will be considered in a region if it
conducts its principal business activities in the region. An issuer will be
considered to conduct its principal business activities in a region if it
derives a significant portion (at least 50%) of its revenues or profits from
goods produced or sold, investments made, or services performed in such region
or has at least 50% of its assets situated in such region. The Pacific Basin
and Far East include Australia, Hong Kong, India, Indonesia, South Korea,
Malaysia, New Zealand, Pakistan, the People's Republic of China, the
Philippines, Singapore, Sri Lanka, Taiwan and Thailand and may include other
markets that develop in the region. The Fund will not invest in securities of
issuers in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the
time of purchase by Moody's or S&P or, if unrated, determined by the Adviser to
be comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or
a significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in the International Funds" below. When allocating
investments among individual countries, the Adviser will consider various
criteria, such as the relative economic growth potential of the various
economies and securities markets, expected levels of inflation, government
policies influencing business conditions and the outlook for currency
relationships.
The Fund may invest in ADRs, GDRs, EDRs and ADSs. For defensive purposes, the
Fund may temporarily invest substantially all of its assets in U.S. financial
markets or in U.S. dollar-denominated instruments.
Balanced Fund:
Nations Balanced Assets Fund: In pursuing the Fund's objective, the Adviser
will allocate the Fund's assets based upon its judgment of the relative
valuation and the expected returns of the three major asset classes in which
the Fund principally invests: common stocks, fixed income securities and cash
equivalents. In assessing relative value and expected returns, the Adviser will
evaluate current economic and financial market conditions (both domestically
and internationally), current interest rate trends, earnings and dividend
prospects for common stocks, and overall financial market stability. These
asset classes are actively managed in an effort to maximize total return. In
general, the Adviser believes that common stocks offer the best opportunity for
long-term capital appreciation.
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The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and
other types of securities having common stock characteristics (such as rights
and warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's
assets will be invested in fixed income securities. The Fund may invest in
government, corporate and municipal debt securities, as well as mortgage-backed
and asset-backed securities. Most obligations acquired by the Fund will be
issued by companies or governmental entities located within the United States.
Debt obligations acquired by the Fund will be rated investment grade at the
time of purchase by S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"),
Fitch IBCA ("Fitch") or Thomson BankWatch, Inc. ("BankWatch") or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
S&P, Moody's, D&P, Fitch and BankWatch are nationally recognized statistical
rating organizations (collectively "NRSROs"). Obligations with the lowest
investment grade rating (E.G. rated "BBB" by S&P or "Baa" by Moody's) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. The Adviser will consider such an event in determining whether the Fund
should continue to hold the obligation. Unrated obligations may be acquired by
the Fund if they are determined by the Adviser to be of comparable quality at
the time of purchase to rated obligations that may be acquired.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund may invest in various money market instruments and repurchase
agreements. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary
defensive measure if market conditions warrant.
General: Each Equity Fund may invest in certain specified derivative
securities, including: exchange-traded options; over-the-counter options
executed with primary dealers, including long calls and puts and covered calls
to enhance return; and U.S. and foreign exchange-traded financial futures
approved by the Commodity Futures Trading Commission (the "CFTC") and options
thereon for market exposure risk management. Nations Balanced Assets Fund also
may engage in reverse repurchase agreements and dollar roll transactions. Each
Fund may lend its portfolio securities to qualified institutional investors and
may invest in repurchase agreements, restricted, private placement and other
illiquid securities. Each Equity Fund also may invest in real estate investment
trust securities. In addition, each Equity Fund may invest in securities issued
by other investment companies, consistent with the Fund's investment objective
and policies and repurchase agreements. Nations International Equity Fund,
Nations International Growth Fund, Nations International Value Fund, Nations
Pacific Growth Fund and Nations Emerging Markets Fund (collectively the
"International Funds") may invest in forward foreign exchange contracts. For
more information concerning these and other investments in which the Funds may
invest and their investment practices, see "Appendix A."
Nations Value Fund, Nations Equity Income Fund, Nations Capital Growth Fund,
Nations Emerging Growth Fund, Nations Small Company Growth Fund and Nations
Disciplined Equity Fund are managed with careful consideration to the overall
tax implications of portfolio activity.
The Adviser considers employing various techniques to minimize the distribution
of capital gains to shareholders. These techniques, which the Adviser uses when
consistent with each Fund's overall objectives and policies, may include:
o MANAGING PORTFOLIO TURNOVER. By appropriately limiting the number of buy and
sell transactions, each Fund attempts to effectively manage its distribution
of capital gains.
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o SELLING SHARE LOTS THAT GENERATE THE LOWEST TAX BURDEN TO THE SHAREHOLDER.
After the decision is made to sell a specific security, each Fund will
endeavor to sell the shares that create the lowest potential tax burden to
shareholders, as a general matter.
o OFFSETTING CAPITAL GAINS WITH CAPITAL LOSSES. Each Fund may, when prudent,
sell securities in order to realize capital losses. Capital losses can be used
to offset capital gains thus reducing capital gains distributions.
While each Fund seeks to minimize the distribution of capital gains, consistent
with its investment objective, there can be no assurance that all taxable
distributions to shareholders can be avoided. In addition, the ability to
utilize these tax management techniques may be reduced or eliminated by future
legislation, regulation, administrative interpretations or court decisions.
For more information concerning these and other instruments in which the Funds
may invest and their investment practices, see "Appendix A."
Portfolio Turnover: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it
may result in higher brokerage costs and possible tax consequences for the Fund
and its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
Risk Considerations: Investments by a Fund in common stocks and other equity
securities are subject to stock market risk. The value of the stocks that a
Fund holds, like the broader stock market, may decline over short or even
extended periods. The U.S. stock markets tend 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 markets, as measured by the S&P 500
Index and other commonly used indices, were trading at or close to record
levels. There can be no guarantee that these levels will continue.
The value of a Fund's investments in debt securities, including U.S. Government
Obligations, will tend to decrease when interest rates rise and increase when
interest rates fall. In general, longer-term debt instruments tend to fluctuate
in value more than short-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the U.S.
Government are subject to credit risk, which is the risk that the issuer may
not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities, which are
securities whose value is derived, at least in part, from an underlying index
or reference rate. There are certain types of derivative securities that can,
under certain circumstances, significantly increase a purchaser's exposure to
market or other risks. The Adviser, however, only purchases derivative
securities in circumstances where it believes such purchases are consistent
with a Fund's investment objective and do not unduly increase the Fund's
exposure to market or other risks. For additional risk information regarding
the Funds' investments in particular instruments, see "Appendix A."
Certain of the Funds may invest in securities of smaller and newer issuers.
Investments in such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also present
greater risks than investments in more established companies with longer
operating histories and greater financial capacity.
Special Risk Considerations Relevant to an Investment in Nations Marsico
Focused Equities Fund and Nations Marsico Growth & Income Fund: Nations Marsico
Focused Equities Fund, as a non-diversified fund, may invest in fewer issuers
than a diversified fund, such as Nations Marsico Growth & Income Fund.
Therefore, appreciation or depreciation of an investment in a single issuer
could have a greater impact on the Fund's net asset value. Nations Marsico
Focused Equities Fund reserves the right to become a diversified fund by
limiting the investments in which more than 5% of its total assets are
invested. The techniques employed by the Adviser in managing this Fund
generally result in a portfolio of fewer holdings than that of other equity
mutual funds. As a result, the net asset value of a share in the Fund tends to
fluctuate more greatly than would otherwise be the case with an equity fund
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<PAGE>
that invested more broadly. In other words, an investment in the Fund
represents both greater risks and potential rewards than may be the case with
an equity fund whose portfolio is more diversified.
Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund
(together the "Marsico Funds") may also invest up to 25% of their assets in
mortgage- and asset-backed securities, up to 10% of their assets in zero
coupon, pay-in-kind and step coupon securities, and may invest without limit in
indexed/structured securities. The Marsico Funds will invest no more than 35%
of their assets in high-yield/high-risk securities. The Marsico Funds may also
purchase high-grade commercial paper, certificates of deposit, and repurchase
agreements. The Marsico Funds may also invest in short-term debt securities as
a means of receiving a return on idle cash. See "Appendix B" for a description
of ratings.
When the Adviser believes that market conditions are not favorable for
profitable investing or when the Adviser is otherwise unable to locate
favorable investment opportunities, the Marsico Funds may hold cash or cash
equivalents and invest without limit in U.S. Government Obligations and short-
term debt securities or money market instruments if the Adviser determines that
a temporary defensive position is advisable or to meet anticipated redemption
requests. In other words, the Funds do not always stay fully invested in stocks
and bonds. Cash or similar investments are a residual -- they represent the
assets that remain after the Adviser has committed available assets to
desirable investment opportunities. When the Marsico Funds' cash position
increases, it may not participate in stock market advances or declines to the
extent that it would if it remained more fully invested in common stocks.
The Marsico Funds may invest up to 25% of their assets in foreign equity and
debt securities. The Funds may invest directly in foreign securities
denominated in a foreign currency and not publicly traded in the United States.
Other ways of investing in foreign securities include depositary receipts or
shares, and passive foreign investment companies. Foreign securities are
generally selected on a company-by-company basis without regard to any defined
allocation among countries or geographic regions. However, certain factors such
as expected levels of inflation, government policies influencing business
conditions, the outlook for currency relationships, and prospects for economic
growth among countries, regions or geographic areas may warrant greater
consideration in selecting foreign securities. The Marsico Funds may use
options, futures, forward currency contracts and other types of derivatives for
hedging purposes. The Marsico Funds may purchase securities on a when-issued,
delayed delivery or forward commitment basis.
Special Risks Considerations Relevant to an Investment in the International
Funds: Investors should understand and consider carefully the special risks
involved in foreign investing. Such risks include, but are not limited to: (1)
restrictions on foreign investment and repatriation of capital; (2)
fluctuations in currency exchange rates, which can significantly affect a
Fund's share price; (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 impositions 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.
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 International Funds offer a more efficient way for
individual investors to participate in foreign markets, their expenses,
including custodial fees, are also typically higher than those of domestic
equity mutual funds.
Certain of the risks associated with investments by the International Funds in
foreign securities are heightened with respect to investment in developing
countries and emerging markets countries. Political and economic structures in
many emerging markets countries may be undergoing significant evolution and
rapid development, and may
25
<PAGE>
lack the social, political and economic stability characteristic of more
developed countries. Investing in emerging markets securities also 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 and some countries with emerging securities markets
have sustained long periods of substantially high inflation or rapid
fluctuation in inflation rates which can have negative effects on a country's
economy or securities markets.
In addition to the general risks inherent in foreign investing, investors
should understand and consider carefully the special risks involved in
investing in Eastern Europe, the Pacific Basin and the Far East. Economic and
political reforms in Eastern Europe are still in their infancy. As a result,
investment in such countries could be deemed to be highly speculative and could
result in losses to the Fund and, thus, to its shareholders. Countries in the
Pacific Basin and Far East are in various stages of economic development,
ranging from emerging markets to mature economies, but each has unique risks.
Most countries in this region are heavily dependent on international trade, and
some are especially vulnerable to recessions in other countries. Many of these
countries are also sensitive to world commodity prices. Some countries that
have experienced rapid growth may still have obsolete financial systems,
economic problems or archaic legal systems. In addition, many of these nations
are experiencing political and social uncertainties. See "Appendix A" for
additional discussion of the risks associated with an investment in the
International Funds.
Year 2000 Issue: Many computer programs employed throughout the world use two
digits to identify the year. Unless modified, these programs may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. Any failure to adapt these programs in time could
hamper the Funds' operations. The Funds' principal service providers have
advised the Funds that they have been actively working on implementing
necessary changes to their systems, and that they expect that their systems
will be adapted in time, although there can be no assurance of success. Because
the Year 2000 issue affects virtually all organizations, the companies or
governmental entities in which the Funds invest could be adversely impacted by
the Year 2000 issue, although the extent of such impact cannot be predicted. To
the extent the impact on a portfolio holding is negative, a Fund's return could
be adversely affected.
Investment Limitations: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund (except Nations International Value Fund) may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Except for Nations Marsico Focused Equities Fund, purchase securities of
any one issuer (other than securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if, immediately after such
purchase, more than 5% of the value of such Fund's total assets would be
invested in the securities of such issuer, except that up to 25% of the value
of the Fund's total assets may be invested without regard to these limitations
and with respect to 75% of such Fund's assets, such Fund will not hold more
than 10% of the voting securities of any issuer.
26
<PAGE>
Nations Marsico Focused Equities Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of a Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested
in the securities of one issuer.
Nations International Growth Fund may not:
Borrow money except as a temporary measure and then only in amounts not
exceeding 5% of the value of the Fund's total assets or from banks or in
connection with reverse repurchase agreements provided that immediately after
such borrowing, all borrowings of the Fund do not exceed one-third of the
Fund's total assets and no purchases of portfolio instruments will be made
while the Fund has borrowings outstanding in an amount exceeding 5% of its
total assets.
Nations Small Company Growth Fund may not:
Borrow money except as a temporary measure for extraordinary or emergency
purposes or except in connection with reverse repurchase agreements and
mortgage rolls; provided that the Fund will maintain asset coverage of 300% for
all borrowings.
Nations International Value 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 each Fund, unless otherwise specified,
are non-fundamental and may be changed without shareholder approval.
Shareholders of Nations Small Company Growth Fund and Nations International
Growth Fund, however, must receive at least 30 days' prior written notice in
the event an investment objective is changed. If the investment objective or
policies of a Fund change, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current positions and
needs.
How Performance Is Shown
From time to time, the Funds may advertise the "total return" and "yield" on a
class of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a
class of shares of a Fund may be calculated on an average total return basis or
an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return over one-, five-, and ten-year
periods or the life of a Fund (as stated in a Fund's advertisement) that would
equate an initial amount invested at the beginning of a stated period to the
ending redeemable value of the investment (reflecting the deduction of any
applicable contingent deferred sales charge ("CDSC")), assuming the
reinvestment of all dividend and capital gain distributions. Aggregate total
return reflects the total percentage change in the value of the investment over
the measuring period again assuming the reinvestment of all dividends and
capital gain
27
<PAGE>
distributions. Total return may also be presented for other periods or may not
reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per
share during a recent 30-day (or one month) period of a class of shares of a
Fund by the maximum public offering price per share on the last day of that
period. The yield on a class of shares does not reflect deduction of any
applicable CDSC.
Brandes Composite Performance: Set forth below is certain performance data
relating to the composite of certain international equity accounts of clients
of Brandes and the Brandes Institutional International Equity Fund, an open-end
management investment company (the "Brandes Composite"); and the Morgan Stanley
Capital International European, Australasian and Far Eastern Index (the "MSCI
EAFE Index"). The performance data for the Brandes Composite is deemed relevant
because the accounts and mutual fund in the Brandes Composite have investment
objectives and policies that are substantially similar to those of Nations
International Value Fund, and are managed by Brandes using substantially
similar, but not identical, investment strategies, policies and techniques as
those used in managing Nations International Value Fund. The data below
regarding the Brandes Composite and the MSCI EAFE Index should not be
considered as an indication of future performance of Nations International
Value Fund or of Brandes. The accounts that are included in the Brandes
Composite are not subject to the same types of expenses to which Nations
International Value Fund is subject nor to the diversification requirements,
specific tax restrictions and investment limitations imposed on Nations
International Value Fund by the 1940 Act or Subchapter M of the Internal
Revenue 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 or subject to the Fund's
expenses. 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>
One Five Since
Year Three Year Year Inception
<S> <C> <C> <C> <C>
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>
MSCI
Brandes EAFE
Year Composite* Index**
<S> <C> <C>
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- and asset-weighted total
return basis, assuming reinvestment of all dividends, interest and income,
realized and unrealized gains or losses and are net of all applicable
expenses, including 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. 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 July 1, 1990, having substantially the same investment
objectives, policies, techniques and restrictions, other than client
accounts denominated in currencies other than U.S. dollars. The Brandes
Composite results also include performance data relating to the Brandes
Institutional International Equity Fund since its inception on January 2,
1997.
** 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.
Marsico Prior Performance: Mr. Thomas Marsico is responsible for the investment
program of the Marsico Funds. Prior to forming Marsico Capital, Mr. Marsico
served as Portfolio Manager of the Janus Twenty Fund from January 31, 1988
through August 11, 1997, and served in the same capacity for the Janus Growth
and Income Fund from May 31, 1991, (inception) through August 11, 1997. The
average annual returns for the Janus Twenty Fund and the Janus Growth and
Income Fund ("Janus
28
<PAGE>
Funds") from the date on which Mr. Marsico began serving as Portfolio Manager
of each Janus Fund through August 7, 1997 were 22.38% and 21.19%, respectively.
On August 11, 1997, the date on which Mr. Marsico ceased serving as the
Portfolio Manager to both the Janus Twenty Fund and the Janus Growth and Income
Fund, the Janus Twenty Fund had approximately $6 billion in net assets, and the
Janus Growth and Income Fund had approximately $1.7 billion in net assets. As
Executive Vice President and Portfolio Manager of the Janus Twenty Fund and the
Janus Growth and Income Fund, Mr. Marsico had full discretionary authority over
the selection of investments for those funds. Average annual returns for the
one-year, three-year and five-year periods ended August 7, 1997, and for the
period during which Mr. Marsico managed those funds compared with the
performance of the S&P 500 Index were:
<TABLE>
<CAPTION>
Janus Janus
Twenty Growth and S&P 500
Fund (a) Income Fund (a) Index (b)
<S> <C> <C> <C>
One Year 48.21% 47.77% 46.41%
(8/8/96 - 8/7/97)
Three Years 32.07% 31.13% 30.63%
(8/11/94 - 8/7/97)
Five Years 20.02% 21.16% 20.98%
(8/13/92 - 8/7/97)
During Period of 22.38% 21.19% Janus Twenty:
Management by 18.20%(c)
Mr. Marsico Janus Growth
(through 8/7/97) and Income:
18.59%(d)
</TABLE>
(a) Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expenses.
(b) The S&P 500 Index is adjusted to reflect reinvestment of dividends.
(c) This figure represents the average annual return of the S&P 500 Index during
the period that Mr. Marsico managed the Janus Twenty Fund through August 7,
1997.
(d) This figure represents the average annual return of the S&P 500 Index during
the period that Mr. Marsico managed the Janus Growth and Income Fund through
August 7, 1997.
The Janus Twenty Fund has substantially similar investment policies,
strategies, and objectives as those of Nations Marsico Focused Equities Fund,
while the investment policies, strategies, and objectives of the Janus Growth
and Income Fund are substantially similar to those of Nations Marsico Growth &
Income Fund. Historical performance is not indicative of future performance.
For a majority of the periods shown above, the expenses of the Janus Twenty
Fund and the Janus Growth and Income Fund were lower than the anticipated
expenses of Nations Marsico Focused Equities Fund and Nations Marsico Growth &
Income Fund, respectively. Higher expenses, of course, would have resulted in
lower performance. The Janus Twenty Fund and the Janus Growth and Income Fund
are separate funds and their historical performance is not indicative of the
potential performance of Nations Marsico Focused Equities Fund and Nations
Marsico Growth & Income Fund, respectively. The Janus Twenty Fund and the Janus
Growth and Income Fund were the only investment vehicles that Mr. Marisco
managed during the period he was employed at Janus Capital Corporation that
have substantially similar objectives, policies, and strategies as those of the
Funds. Share prices and investment returns will fluctuate reflecting market
conditions, as well as changes in company-specific fundamentals of portfolio
securities.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolios and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with such Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
Any fees charged by a selling agent and/or servicing agent directly to its
customers' accounts in connection with investments in the Funds will not be
included in calculations of total return or yield.
In addition to Investor A and Investor B Shares, the Funds generally offer
Primary A, Primary B and Investor C Shares. Certain Funds, however, do not
offer shares in every class. 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
29
<PAGE>
each class of a Fund's shares. Any quotation of total return or yield not
reflecting CDSCs would be reduced if such sales charges were reflected. Each
Fund's annual report contains additional performance information and is
available upon request without charge from the Funds' distributor or an
investors' Agent (as defined below) or by calling Nations Funds at the
toll-free number indicated on the cover of this Prospectus.
How The Funds Are Managed
The business and affairs of Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios are managed under the direction of their Board of Trustees and
Boards of Directors, respectively. The SAI contains the names of and general
background information concerning each Director/Trustee of Nations Fund, Inc.,
Nations Portfolios and Nations Fund Trust, respectively.
As described below, each Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of each Fund.
Each Fund also is sub-advised by a separate investment sub-adviser, which as a
general matter is responsible for the day-to-day investment decisions for the
respective Fund.
Nations Funds and the Adviser have adopted codes of ethics which contain
policies on personal securities transactions by "access persons," including
portfolio managers and investment analysts. These policies substantially comply
in all material respects with the recommendations set forth in the May 9, 1994
Report of the Advisory Group on Personal Investing of the Investment Company
Institute.
Investment Adviser: NationsBanc Advisors, Inc., serves as investment adviser to
the Funds. NBAI is an indirect wholly owned subsidiary of NationsBank, which in
turn is a wholly owned banking subsidiary of BankAmerica Corporation, a bank
holding company organized as a Delaware corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to all of the Funds except for those Funds listed below, for which
Gartmore, Brandes or Marsico capital serve as investment sub-adviser.
TradeStreet is a wholly owned subsidiary of NationsBank. TradeStreet provides
investment management services to individuals, corporations and institutions.
Gartmore Global Partners, with principal offices at One NationsBank Plaza,
Charlotte, North Carolina 28255, serves as investment sub-adviser to certain of
Nations International Equity Fund, Nations Emerging Markets Fund, Nations
Pacific Growth Fund and Nations International Growth Fund, pursuant to
investment sub-advisory agreements. Gartmore is a joint venture structured as a
general partnership between NB Partner Corp., a wholly owned subsidiary of
NationsBank, and Gartmore U.S. Limited, an indirect, wholly owned subsidiary of
Gartmore Investment Management plc ("Gartmore plc"), a UK company which is the
holding company for a leading UK based international fund management group of
companies. National Westminster Bank plc and affiliated entities (collectively,
"NatWest") own 100% of the equity of Gartmore plc.
Brandes Investment Partners, L.P., with principal offices at 12750 High Bluff
Drive, San Diego, California 92130, serves as investment sub-adviser to Nations
International Value Fund pursuant to an investment sub-advisory agreement.
Marsico Capital Management, LLC, located at 1200 17th Street, Suite 1300,
Denver, Colorado 80202, serves as the investment sub-adviser to the Marsico
Funds pursuant to an investment sub-advisory agreement. NationsBank has an
option to purchase up to 50% of Marsico Capital.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists
30
<PAGE>
of approved investments for each Fund, makes decisions with respect to and
places orders for each Fund's purchases and sales of portfolio securities and
maintains records relating to such purchases and sales. The Adviser is
authorized to allocate purchase and sale orders for portfolio securities to
certain financial institutions, including, in the case of agency transactions,
financial institutions which are affiliated with the Adviser or which have sold
shares in such Funds, if the Adviser believes that the quality of the
transactions and the commissions are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various investment
advisory agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: .75% of the average daily net assets
of each of Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets Fund;
1.00% each of the average daily net assets of Nations Small Company Growth
Fund; and Nations International Value Fund; .90% of each of Nations
International Equity Fund's, Nations International Growth Fund's and Nations
Pacific Growth Fund's average daily net assets; 1.10% of the average daily net
assets of Nations Emerging Markets Fund; .85% each of the average daily net
assets of Nations Marsico Focused Equities Fund and Nations Marsico Growth &
Income Fund; and .75% of the first $100 million of Nations Equity Income Fund's
average daily net assets, plus .70% of the Fund's average daily net assets in
excess of $100 million and up to $250 million, plus .60% of the Fund's average
daily net assets in excess of $250 million.
For the services provided pursuant to investment sub-advisory agreements, NBAI
will pay TradeStreet sub-advisory fees, computed daily and paid monthly, at the
annual rates of: .20% of Nations Equity Income Fund's average daily net assets
and .25% of Nations Value Fund's, Nations Balanced Assets Fund's, Nations
Capital Growth Fund's, Nations Emerging Growth Fund's, Nations Small Company
Growth Fund's and Nations Disciplined Equity Fund's average daily net assets.
For services provided pursuant to investment sub-advisory agreements, NBAI will
pay Gartmore sub-advisory fees, computed daily and paid monthly, at the annual
rates of: .70% of Nations International Equity Fund's, Nations Pacific Growth
Fund's and Nations International Growth Fund's average daily net assets; and
.85% of Nations Emerging Markets Fund's average daily net assets.
For services provided pursuant to an investment sub-advisory agreement, NBAI
will pay Brandes sub-advisory fees, computed daily and paid monthly, at the
annual rate of .50% of Nations International Value Fund's average daily net
assets.
For the services provided pursuant to an investment sub-advisory agreement,
NBAI will pay Marsico Capital sub-advisory fees, computed daily and paid
monthly, at the annual rate of .45% of the average of Nations Marsico Focused
Equities Fund's daily net assets and .45% of Nations Marsico Growth & Income
Fund's average daily net assets.
From time to time, NationsBank (and/or TradeStreet, Gartmore, Brandes or
Marsico Capital) may waive or reimburse (either voluntarily or pursuant to
applicable state limitations) advisory fees and/or expenses payable by a Fund.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid NBAI under the investment advisory agreement, advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Value Fund -- .75%, Nations Capital Growth Fund -- .75%, Nations
Emerging Growth Fund -- .75%, Nations Disciplined Equity Fund -- .75%, and
Nations Balanced Assets Fund -- .75%.
For the fiscal period from December 31, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid NBAI under the investment advisory agreement, advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Marsico Focused Equities Fund -- .85% and Nations Marsico Growth &
Income Fund -- .00%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund, Inc. paid NBAI under the investment advisory agree-
31
<PAGE>
ment, advisory fees at the indicated rate of the following Funds' average daily
net assets: Nations International Equity Fund -- .90%, Nations International
Growth Fund -- .87%, Nations Equity Income -- .64%, and Nations Small Company
Growth Fund -- .70%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Portfolios paid NBAI under the investment advisory agreement, advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Emerging Markets Fund -- 1.10% and Nations Pacific Growth Fund -- .90%.
For the fiscal period from December 1, 1997 to May 15, 1998, after waivers, the
Emerald Funds paid Barnett Capital Advisors, Inc. ("Barnett"), under a previous
investment advisory agreement, advisory fees of .90% of the Nations
International Value Fund's average daily net assets (formerly called the
Emerald International Equity Fund).
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers, NBAI
paid TradeStreet under the investment sub-advisory agreements, sub-advisory
fees at the indicated rates of the following Funds' average daily net assets:
Nations Value Fund -- .25%, Nations Capital Growth Fund -- .25%, Nations
Emerging Growth Fund -- .25%, Nations Disciplined Equity Fund -- .25%, Nations
Balanced Assets Fund -- .25% and Nations Equity Income Fund -- .20%.
For the fiscal period from December 31, 1997 to March 31, 1998, after waivers,
NBAI paid Marsico Capital under the sub-advisory agreement, sub-advisory fees
at the indicated rates of the following Funds' average daily net assets:
Nations Focused Equities Fund -- .45% and Nations Marsico Growth & Income Fund
- -- .45%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers, NBAI
paid Gartmore under the sub-advisory agreements, sub-advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations
Emerging Markets Fund -- .85%, Nations Pacific Growth Fund -- .70%, Nations
International Equity Fund -- .70% and Nations International Growth Fund --
.70%.
For the fiscal period from December 1, 1997 to May 15, 1998, after waivers,
Barnett paid Brandes, under a previous investment sub-advisory agreement, sub-
advisory fees of .50% of Nations International Value Fund's average daily net
assets.
The Structured Products Management Team of TradeStreet is responsible for the
day-to-day management of Nations Disciplined Equity Fund.
The Value Management Team of TradeStreet is responsible for the day-to-day
management of Nations Value Fund, Nations Balanced Assets Fund and Nations
Equity Income Fund.
The Core Growth Management Team of TradeStreet is responsible for the
day-to-day management of Nations Capital Growth Fund.
The Strategic Growth Management Team of TradeStreet is responsible for the
day-to-day management of Nations Emerging Growth Fund and Nations Small Company
Growth Fund.
Philip Ehrmann is Co-Portfolio Manager of Nations International Equity Fund,
responsible for the Fund's investments in developing countries (since June
1998). Mr. Ehrmann is also Principal Portfolio Manager of Nations Emerging
Markets Fund (since 1995) and is Head of the Gartmore Emerging Markets Team.
Prior to joining Gartmore in 1995, Mr. Ehrmann was the Director of Emerging
Markets for Invesco in London. He began his career in 1981 as an institutional
stockbroker with Rowe & Pitman Inc. and also spent a brief period with
Prudential Bache Securities as an institutional salesman before joining Invesco
in 1984. Mr. Ehrmann graduated from the London School of Economics with a
degree in Economics, Industry and Trade.
Seok Teoh is Co-Portfolio Manager of Nations International Equity Fund,
responsible for the Fund's investments in Asia (since June 1998). Ms. Teoh is
also Principal Portfolio Manager of Nations Pacific Growth Fund (since that
Fund's inception in June 1995). She has been with Gartmore since 1990 as the
London based manager of its Far East Team. Previously, Ms. Teoh managed four
equity funds for Rothschild Asset Management in Tokyo and in Singapore. She was
also responsible for Singaporean and Malaysian equity sales at Overseas Union
Bank Securities in Singapore. Ms. Teoh, who is native to Singapore, is fluent
in Mandarin
32
<PAGE>
and Cantonese and received an Economics degree from the University of Durham.
Mark Fawcett is Co-Portfolio Manager of Nations International Equity Fund,
responsible for the Fund's investments in Japan (since June 1998). He is also
Senior Investment Manager for the Gartmore Japanese Equities Team. Mr. Fawcett
joined Gartmore as an investment manager on the Japanese Equity Team in 1991
and has specific responsibility for large stock research. Before joining
Gartmore in Tokyo he worked on the Far East desk of Provident Mutual, a major
London-based Life Assurance company, managing funds invested in Japan. Mr.
Fawcett graduated from Oxford University in 1986 with an honours degree in
Mathematics and Philosophy.
Stephen Jones is Co-Portfolio Manager of Nations International Equity Fund,
responsible for the Fund's investments in Europe (since June 1998). He is also
the Head of Gartmore European Equities. Mr. Jones joined Gartmore as a senior
investment manager in the European Equities Team in 1994 and was appointed Head
of the European Equity Team in 1995. He began his career at the Prudential in
1984, spending a year as a business analyst before becoming the personal
assistant to the Group Chief Executive. In 1987, he became a European equities
investment manager focusing primarily on France, Belgium and Switzerland. Mr.
Jones graduated from Manchester University in 1984 with an honours degree in
Economics.
Stephen Watson is Co-Portfolio Manager for Nations International Equity Fund,
responsible for allocating the Fund's assets among the various regions in which
it invests, as well as determining the Fund's investments in regions not
covered by the other Co-Portfolio Managers (since June 1998). Mr. Watson had
been the sole Portfolio Manager of the Fund since February 1995. He joined
Gartmore as a Global Fund Manager in 1993 and currently holds the position of
Chief Investment Officer of Gartmore Global Partners and is a member of
Gartmore's Global Policy Group. Previously, Mr. Watson was a director and
global fund manager with James Capel Fund Managers, London, as well as Client
Services Manager for international clients. From 1980 to 1987 he was with
Capel-Cure Myers in their Portfolio Management Division. He began his career in
1976 when he joined the investment division at Samuel Motagu. Mr. Watson is a
member of the Securities Institute.
Brian O'Neill is the Principal Senior Investment Manager of the Gartmore Global
Portfolio Team and has been the Portfolio Manager of Nations International
Growth Fund since July, 1997. Mr. O'Neill joined Gartmore as a Senior
Investment Manager on the Global Portfolio Team in 1981 with responsibility for
a variety of specialized global funds, including resource funds. Mr. O'Neill
began his career with Royal Insurance in 1970 as an investment analyst
specializing in United Kingdom research. He then expanded his field of
expertise to include management of global equities, and in 1978 he moved to
Antony Gibbs & Sons where he was appointed as a fund manager, specializing in
global equities. Mr. O'Neill graduated from Glasgow University in 1969 with an
MA Honours degree in Political Economy.
Brandes' Investment Committee is responsible for the day-to-day management of
Nations International Value Fund.
Thomas F. Marsico is the Chief Executive Officer of Marsico Capital and has
been the Portfolio Manager of both Nations Marsico Focused Equities Fund and
Nations Marsico Growth & Income Fund since each Fund's respective inception.
Prior to forming Marsico Capital, Mr. Marsico was a manager with Janus Funds
for 11 years and was responsible for the day-to-day management of Janus Twenty
Fund and Janus Growth and Income Fund. Overall, Mr. Marsico had 18 years of
experience as a securities analyst/portfolio manager before becoming the
Portfolio Manager of the Marsico Funds.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various investment
advisory agreements, and this Prospectus without violation of the
Glass-Steagall Act. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates,
33
<PAGE>
as well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to
perform, in whole or in part, such services. If any such entity were prohibited
from performing any of such services, it is expected that new agreements would
be proposed or entered into with another entity or entities qualified to
perform such services.
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Funds pursuant to administration agreements. Pursuant to the terms of
the administration agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of Nations
Funds pursuant to co-administration agreements. Under the co-administration
agreements, First Data provides various administrative and accounting services
to the Funds including performing the calculations necessary to determine the
net asset value per share and dividends of each class of shares of the Funds,
preparing tax returns and financial statements and maintaining the portfolio
records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the administration and co-administration
agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to .10% of each Fund's average daily net assets.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Value Fund -- .10%,
Nations Capital Growth Fund -- .10%, Nations Emerging Growth Fund -- .10%,
Nations Disciplined Equity Fund -- .10% and Nations Balanced Assets Fund --
.10%.
For the fiscal period from December 31, 1997 to March 31, 1998, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Focused Equities Fund
- -- .10% and Nations Growth & Income Fund -- .10%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Equity Income Fund --
.10%, Nations International Equity Fund -- .10%, Nations Small Company Growth
Fund -- .10% and Nations International Growth Fund -- .10%.
For the fiscal period from April 1, 1997 to March 31, 1998, after waivers,
Nations Portfolios paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Emerging Markets Fund
- -- .10% and Nations Pacific Growth Fund -- .10%.
NBAI serves as sub-administrator for the 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 Funds' 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 Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer, Nations Funds
has entered into distribution agreements with Stephens which provide that
Stephens has the exclusive right to distribute shares of the Funds. Stephens
may pay, out of its own resources, service fees or commissions to selling
agents which assist customers in purchasing Investor B Shares of the Funds. See
"Shareholder Servicing and Distribution Plans."
The Bank of New York ("BONY" or the "Custodian") located at 90 Washington
Street, New York, New York 10286, provides custodial services for
34
<PAGE>
the assets of all Nations Funds except the International Funds. In return for
providing custodial services to the Nations Funds Family, BONY is entitled to
receive, in addition to out of pocket expenses, fees at the rate of (i) 3/4 of
one basis point per annum on the aggregate net assets of all Nations Funds'
non-money market funds up to $10 billion; and (ii) 1/2 of one basis point on
the excess, including all Nations Funds' money market funds.
BONY, located at Avenue des Arts, 35 1040 Brussels, Belgium, provides custodial
services for the assets of the International Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor B Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
PricewaterhouseCoopers LLP serves as independent accountants to Nations Funds.
Their address is 160 Federal Street, Boston, Massachusetts 02110.
Expenses: The accrued expenses of each Fund are deducted from the Funds'
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and First Data; interest;
fees (including fees paid to Nations Funds' Directors, Trustees 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 and Investor B Shares may bear certain class
specific expenses and also bear certain additional shareholder service and
sales support costs. Any general expenses of Nations Fund Trust, Nations Fund,
Inc. and/or Nations Portfolios that are not readily identifiable as belonging
to a particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust, Nations Fund, Inc. and Nations Portfolios or in such other manner as the
Board of Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations 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 $40 billion.
Nations Fund Trust: Nations Fund Trust was organized as a Massachusetts
business trust on May 6, 1985. Nations Fund Trust's fiscal year end is March
31; prior to 1996, Nations Fund Trust's fiscal year end was November 30. The
Funds currently offer five classes of shares -- Primary A Shares, Primary B
Shares, Investor A Shares, Investor B Shares and Investor C Shares. Certain
funds, however do not offer shares in every class. This Prospectus relates only
to the Investor A and Investor B Shares of the following Funds of Nations Fund
Trust: Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund, Nations Balanced Assets Fund,
Nations Marsico Growth & Income Fund and Nations Marsico Focused Equities Fund.
To obtain additional information regarding the Funds' other classes of shares
which may be available to you, contact your Agent (as defined below) or Nations
Funds at 1-800-321-7854.
Each share in Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for
35
<PAGE>
each fractional share held. Shareholders of each fund of Nations Fund Trust
will vote in the aggregate and not by fund, and shareholders of each fund will
vote in the aggregate and not by class except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular fund or class. See
the SAI for examples of when the Investment Company Act of 1940, as amended
(the "1940 Act") requires voting by fund.
As of August 1, 1998, NationsBank and its affiliates possessed or shared power
to dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders
entitled to vote at least 10% of the outstanding shares of Nations Fund Trust
entitled to be voted at such meeting.
Nations Fund, Inc.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund,
Inc.'s fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal
year end was May 31. As of the date of this Prospectus, the authorized capital
stock of Nations Fund, Inc. consists of 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 and Investor B Shares of the following Funds of Nations Fund,
Inc.: Nations Equity Income Fund, Nations Small Company Growth Fund,
NationsInternational Equity Fund, Nations International Growth Fund, and
Nations International Value 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 fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the
exclusive right to vote on matters affecting only the rights of the holders of
such fund or class. In the event of dissolution or liquidation, holders of each
class will receive pro rata, subject to the rights of creditors, (a) the
proceeds of the sale of that portion of the assets allocated to that class held
in the respective fund of Nations Fund, Inc., less (b) the liabilities of
Nations Fund, Inc. attributable to the respective fund or class or allocated
among the funds or classes based on the respective liquidation value of each
fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s
shares. Nations Fund, Inc.'s shares, when issued, will be fully paid and
non-assessable.
As of August 1, 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. It is anticipated that Nations Fund, Inc. will
not hold annual shareholder meetings on a regular basis unless required by the
1940 Act or Maryland law.
Nations Portfolios: Nations Portfolios was incorporated in Maryland on January
28, 1995. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each
36
<PAGE>
of which consists of separate classes of shares. This Prospectus relates only
to the Investor A and Investor B Shares of the following Funds of Nations
Portfolios: Nations Emerging Markets Fund and Nations Pacific Growth Fund. To
obtain additional information regarding the Funds' other classes of shares
which may be available to you, contact your Agent (as defined below) or Nations
Funds at 1-800-321-7854.
Shares of a fund and class have equal rights with respect to voting, except
that the holders of shares of a fund or class will have the exclusive right to
vote on matters affecting only the rights of the holders of such fund or class.
In the event of dissolution or liquidation, holders of each class will receive
pro rata, subject to the rights of creditors, (a) the proceeds of the sale of
that portion of the assets allocated to that class held in the respective fund
of Nations Portfolios, less (b) the liabilities of Nations Portfolios
attributable to the respective fund or class or allocated among the funds or
classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be
called upon the request of 10% or more of the outstanding shares of Nations
Portfolios. There are no preemptive rights applicable to any of Nations
Portfolios' shares. Nations Portfolios' shares, when issued, will be fully paid
and non-assessable.
As of August 1, 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 Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the SAI. It is anticipated that Nations Portfolios will
not hold annual shareholder meetings on a regular basis unless required by the
1940 Act or Maryland law.
Because this Prospectus combines disclosure on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning another investment company, Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates
a right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
This Prospectus offers two classes of shares to the general public. Investor A
Shares are sold with an initial sales charge and are subject to a contingent
deferred sales charge ("CDSC") upon certain redemptions; Investor B Shares are
sold without an initial sales charge and are subject to a CDSC upon certain
redemptions. Investments greater than $250,000 are not eligible to purchase
Investor B Shares but may be directed to Investor A Shares. See "Factors to
Consider When Selecting Investor A Shares or Investor B Shares" for a
discussion of issues to consider in selecting which class of shares to
purchase. Contact your Agent or Nations Funds at 1-800-321-7854 for further
information.
The Funds have established various procedures for purchasing Investor A Shares
and 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 ("Servic-
37
<PAGE>
ing Agents") and/or a sales support agreement ("Sales Support Agreement") with
Stephens ("Selling Agents"). In addition, under certain circumstances, Investor
A Shares may be purchased directly from the Funds. If you invest through a
third party (rather than directly from the Funds), the policies and fees that
apply to you may differ from those set forth below. Banks, broker/dealers or
other institutions may charge other fees and may set limitations on buying or
selling shares or the privileges that apply to them.
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
o $500 for IRA investors;
o $250 for non-working spousal IRAs;
o $250 for accounts established with certain fee-based investment advisers or
financial planners, including wrap fee accounts and other managed agency/asset
allocation accounts; and
o $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified
employee pension plans ("SAR-SEPs"), Savings Incentives Method Plans for
Employees ("SIMPLE IRAs"), salary reduction-Individual Retirement Accounts
("SAR-IRAs") or similar types of accounts. However, the assets of such plans
must reach an asset value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs, and
SAR-IRAs) within one year of the account open date. If the assets of such plans
do not reach the minimum asset size within one year, Nations Funds reserves the
right to redeem the shares held by such plans on 60 days' written notice. The
minimum subsequent investment is $100, except for investments pursuant to the
Systematic Investment Plan described below.
Investor A Shares are purchased at net asset value plus any applicable sales
charge. Investor B Shares are purchased at net asset value per share without
the imposition of a sales charge, but are subject to a CDSC if redeemed within
a specified period after purchase. 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 A and 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 A and Investor B Shares is recorded on the books of the
Funds, and share certificates are not issued unless expressly requested in
writing. Certificates are not issued for fractional shares.
Effective Time of Purchases: Purchase orders for Investor A Shares and Investor
B Shares in the Funds which are received by Stephens, the Transfer Agent or
their respective agents before the close of regular trading 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. In the event that the Exchange
closes early, purchase orders received prior to closing will be priced as of
the time the Exchange closes and purchase orders received after the Exchange
closes will be deemed received on the next Business Day and priced according to
the net asset value determined on the next Business Day. Purchase orders are
not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by
the Funds' Custodian. Such payment must be received no later than 4:00 p.m.,
Eastern time, by the third Business Day following the receipt of the order, as
determined above. 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
and 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.
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<PAGE>
Systematic Investment Plan: Under the Funds' Systematic Investment Plan
("SIP"), a shareholder may automatically purchase Investor A or Investor B
Shares. On a bi-monthly, monthly or quarterly basis, shareholders may direct
cash to be transferred automatically from their checking or savings account at
any bank which is a member of the Automated Clearing House to their Fund
account. Transfers will occur on or about the 15th and/or the last day of the
applicable month. Subject to certain exceptions for employees of NationsBank
and its affiliates and pre-existing SIP accounts, the systematic investment
amount may be in any amount from $50 to $100,000. For more information
concerning the SIP, contact your Agent.
Telephone Transactions: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires the telephone transaction
feature after opening an account, a signature guarantee will be required.
Shareholders should be aware that by using the telephone transaction feature,
such shareholders may be giving up a measure of security that they may have if
they were to request such transactions in writing. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Funds and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Funds requires a form of personal
identification prior to acting upon instructions received by telephone and
provides written confirmation to shareholders of each telephone share
transaction. In addition, Nations Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
Conversion Feature: Investor B Shares purchased after November 15, 1998, will
automatically convert to Investor A Shares at the end of the month in which the
eighth anniversary of such share purchase occurs.
Investor B Shares purchased between August 1, 1997 and November 15, 1998, 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.
CONVERSION SCHEDULE
For Shares Purchased Between August 1, 1997 and November 15, 1998
<TABLE>
<CAPTION>
Amount of Purchase Year of Conversion
<S> <C>
$ 0-$249,000 9th
$250,000-$499,999 6th
$500,000-$999,999 5th
</TABLE>
Investor B Shares purchased prior to August 1, 1997, will automatically convert
to Investor A Shares at the end of the month in which the ninth anniversary of
such share purchase occurs.
Upon conversion, shareholders will receive Investor A Shares having a total
dollar value equal to the total dollar value of their Investor B Shares,
without the imposition of any sales chage or other charge. The operating
expenses applicable to Investor A Shares, which are lower than those applicable
to Investor B Shares, shall thereafter be applied to such newly converted
shares. Shareholders holding converted shares will benefit from the lower
annual operating expenses of Investor A Shares, which will have a positive
effect on total returns. In each case, shareholders have the right to decline
an automatic conversion by notifying their Agent or the Transfer Agent within
90 days before a conversion that they do not desire such conversion.
Investor B Shares acquired in connection with the reinvestment of dividends or
distributions will convert to Investor A Shares at the same time as the
original shares purchased. 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.
Factors to Consider When Selecting Investor A Shares or Investor B Shares:
Before purchasing Investor A Shares or Investor B Shares, investors should
consider whether, during the anticipated life of their investment in the Funds,
the initial sales charge, accumulated distribution and shareholder servicing
fee and potential CDSC (if applicable) on Investor A Shares would be less than
the accumulated shareholder servicing and distri-
39
<PAGE>
bution fees and potential CDSC on Investor B Shares. Over time, the cumulative
expense of the annual shareholder servicing and distribution fees on the
Investor B Shares may equal or exceed the initial sales chage and combined
distribution and servicing fee applicable to Investor A Shares.
Because holders of Investor A Shares are subject to a lower fee for
distribution and shareholder services, they can be expected to earn
correspondingly higher dividends per share. However, because initial sales
charges are deducted at the time of purchase, purchasers of Investor A Shares
that do not qualify for waivers of or reductions in the initial sales charge
would have less of their purchase price initially invested in the Funds than
purchasers of Investor B Shares. Any positive investment return on the
additional invested amount for Investor B Shares, however, would be partially
or wholly offset by the expected higher annual expenses borne by Investor B
Shares.
Investor A Shares -- Charges and Features
The public offering price of Investor A Shares in the Funds is the sum of the
net asset value per share of the shares being purchased plus any applicable
sales charge. No sales charge will be assessed on the reinvestment of dividends
or other distributions.
The following schedule of sales charges will be assessed on Investor A Shares
of the Funds.
<TABLE>
<CAPTION>
Dealers'
Total Sales Charge Reallowance
As a % of As a % of As a % of
Offering Net Asset Offering
Amount of Price Value Price
Transaction Per Share Per Share Per Share
<S> <C> <C> <C>
$ 0-$49,999 5.75 6.10 5.00
$ 50,000-$99,999 4.50 4.71 3.75
$100,000-$249,999 3.50 3.63 2.75
$250,000-$499,999 2.50 2.56 2.00
$500,000-$999,999 2.00 2.04 1.75
$1,000,000 and over 0.00* 0.00* 0.00**
</TABLE>
* Subject to certain waivers specified below, Investor A Shares that are
purchased in amounts of $1 million or more at net asset value will be subject
to a Contingent Deferred Sales Charge ("CDSC") of 1.00% if redeemed within
one year of purchase, declining to 0.50% in the second year after purchase
and eliminated thereafter.
** 1.00% on first $3,000,000, plus 0.50% on the next $47,000,000, plus 0.25% on
amounts over $50,000,000. Stephens will pay the Dealers' Reallowance in
connection with the purchase of shares in amounts of $1 million or more, for
which it may be reimbursed out of the CDSC if such shares are redeemed within
two years of purchase.
The Dealers' Reallowance, which may be changed from time to time, is paid to
Agents.
Investor A Shares Contingent Deferred Sales Charge: Subject to certain waivers
specified below, Investor A Shares of the Funds that are purchased at net asset
value in amounts of $1 million or more will be subject to a CDSC equal to 1.00%
of the lesser of the market value or the purchase price of the shares being
redeemed if such shares are redeemed within one year of purchase, declining to
0.50% in the second year after purchase and eliminated thereafter. No CDSC is
imposed on increases in net asset value above the initial purchase price,
including shares acquired by reinvestment of distributions.
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 A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as
amended (the "Code")) of a shareholder (including a registered joint owner),
(ii) in connection with the following retirement plan distributions: (a) 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, fol-
40
<PAGE>
lowing attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA; and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) payments made to pay medical expenses which
exceed 7.5% of income and distributions to pay for insurance by an individual
who has separated from employment and who has received unemployment
compensation under a federal or state program for at least 12 weeks, (iv)
effected pursuant to Nations Funds' right to liquidate a shareholder's account,
including instances where the aggregate net asset value of the Investor A
Shares held in the account is less than the minimum account size, (v) in
connection with the combination of Nations Funds with any other registered
investment company by a merger, acquisition of assets or by any other
transaction, and (vi) effected pursuant to the Automatic Withdrawal Plan
discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account. In
addition, the CDSC will be waived on Investor A 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. Nations Fund may terminate any waiver of the CDSC by
providing notice in the Funds' Prospectus, but any such termination would only
affect shares purchased after such termination.
Redemption Fee: A redemption fee of 1% of the current net asset value will be
assesed on certain Investor A Shares purchased between July 31, 1997 and
November 15, 1998 and redeemed within 18 months of the date of purchase by a
Substantial Investor (as defined in the footnotes to the "Expenses Summary").
In addition, a 1% redemption fee will be assesed on Investor A Shares purchased
between July 31, 1997 and November 15, 1998 by an employee benefit plan that
(i) made its initial investment between July 31, 1997 and November 15, 1998 and
(ii) redeemed such shares within 18 months of purchase in connection with a
complete liquidation of such plan's holdings in the Nations Funds Family. This
fee is retained by the Fund or Funds for the benefit of the remaining
shareholders and is intended to encourage long-term investment in the Funds and
to avoid transaction and other expenses associated with short-term investments.
The Funds reserve the right to modify the terms of or terminate this fee at any
time.
Automatic Withdrawal Plan: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor A Shares in his/her accounts within the Nations Funds Family (valued
at the net asset value at the time of the establishment of the AWP) equals
$10,000 or more. Investor A Shares redeemed under the AWP will not be subject
to a CDSC, provided that the shares so redeemed do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account.
Otherwise, any applicable CDSC will be imposed on shares redeemed under the
AWP. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings
account in a stated amount of not less than $25 on or about the 10th or 25th
day of the applicable month of withdrawal. Investor A Shares will be redeemed
(net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals may reduce principal and will eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. AWPs may be terminated by shareholders
on 30 days' written notice to their Selling Agent or by Nations Funds at any
time.
Reduced Sales Charge: An investor may be entitled to reduced sales charges on
Investor A Shares through Rights of Accumulation, a Letter of Intent, or
Quantity Discounts.
To qualify for a reduced sales charge, an investor must notify the Agent
through which the Investor A Shares are purchased, which in turn must notify
Stephens, the Transfer Agent or their respective agents at the time of
purchase. Reduced sales charges may be modified or terminated at any time.
Investors are responsible for providing evidence sufficient to establish that
they are eligible for any reduction in sales charges.
Rights of Accumulation: An investor who has previously purchased Investor A,
Investor B, or Investor C Shares in the Nations Funds (exclud-
41
<PAGE>
ing Nations Funds money market and index funds,) may aggregate investments in
such shares with current purchases to determine the applicable sales charge for
current purchases of Investor A Shares. An investor's aggregate investment in
Investor A, Investor B and Investor C Shares in such Funds 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, Investor B and
Investor C Shares that are already beneficially owned by the investor.
Letter of Intent: A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the preceding table. The
size of investment shown in the preceding table also includes purchases of
shares of the participating Funds over a 13-month period based on the total
amount of intended purchases plus the value of all shares of the participating
Funds previously purchased and still owned. An investor may elect to compute
the 13-month period starting up to 90 days before the date of execution of a
Letter of Intent. Each investment made during the period receives the reduced
sales charge applicable to the total amount of the investment goal. If the goal
is not achieved within the period, the investor must pay the difference between
the charges applicable to the purchases made and the charges previously paid.
The initial purchase must be for an amount equal to at least five percent of
the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustments in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category.
Quantity Discounts: As shown in the table under "Sales Charges," larger
purchases may reduce the sales charge paid on Investor A Shares. Purchases of
Investor A Shares in the non-money market funds of the Nations Funds Family
that are made on the same day by the investor, his/her spouse, and his/her
children under age 21 will be combined when calculating the sales charge. For
the purpose of calculating the amount of the transaction, certain distributions
or payments from dissolution of certain qualified plans are permitted to
aggregate plan participant's investments.
Purchases of Shares at Net Asset Value:
o Full-time employees and retired employees of BankAmerica Corporation (and its
predecessors), its affiliates and subsidiaries and the immediate families of
such persons may purchase Investor A Shares in the Funds at net asset value.
o Individuals receiving a distribution from a NationsBank trust or other
fiduciary account may use the proceeds of such distribution to purchase
Investor A Shares of the Funds at net asset value, provided that the proceeds
are invested through a trust account established with another trustee and
invested in the Funds within 90 days. Those investors who transfer their
proceeds to a fiduciary account with selected trustees may continue to
purchase shares in the Funds at net asset value.
o Nations Fund's Trustees and Directors also may purchase Investor A Shares at
net asset value.
o Registered broker/dealers that have entered into a Nations Fund dealer
agreement with Stephens may purchase Investor A Shares at net asset value for
their investment account only.
o Registered personnel and employees of such broker/dealers also may purchase
Investor A Shares at net asset value in accordance with the internal policies
and procedures of the employing broker/dealer provided such purchases are made
for their own investment purposes.
o Employees of the Transfer Agent may purchase Investor A Shares of the Funds at
net asset value.
o Former shareholders of Class B Shares of the Special Equity Portfolio of The
Capitol Mutual Funds who held such shares as of January 31, 1994 or received
Investor A Shares of Nations Disciplined Equity Fund in connection with the
reorganization of the Special Equity Portfolio into Nations Disciplined Equity
Fund may purchase Investor A Shares of Nations Disciplined Equity Fund at net
asset value.
42
<PAGE>
o 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 may purchase Investor A Shares at net asset value.
Investor A Shares also may be purchased at net asset value by (i) pension,
profit sharing or other employee benefit plans established under Section 401 or
Section 457 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) employee benefit plans created pursuant to Section 403(b) of the Code and
sponsored by a non-profit organization qualified under Section 501(c)(3) of the
Code, provided that, in either case, the plan (a) has at least $500,000
invested in Investor A Shares of the Nations Fund non-money market funds, (b)
has signed a letter of intent indicating that the plan intends to purchase at
least $500,000 of Investor A Shares of the Nations Fund non-money market funds,
(c) is an employer-sponsored plan with at least 100 eligible participants (a
"Qualified Plan") or (d) is a participant in an alliance program that has
entered into an agreement with the Fund or an Agent. Stephens may pay Agents or
other financial service firms up to 1.00% of the net asset value of Investor A
Shares purchased without a sales charge, for which it may be reimbursed out of
any applicable CDSC.
Reinstatement Privilege: Investor A Shares in a Fund may be purchased at net
asset value, without any sales charge, by persons who have redeemed Investor A
Shares of the same Fund within the previous 120 days. The amount which may be
so reinvested is limited to an amount up to, but not exceeding, the redemption
proceeds (or to the nearest full share if fractional shares are not purchased).
A shareholder exercising this privilege would receive a pro rata credit for any
CDSC paid in connection with the prior redemption. A shareholder may not
exercise this privilege with the proceeds of a redemption of shares previously
purchased through the reinstatement privilege. In order to exercise this
privilege, a written order for the purchase of Investor A Shares must be
received by the Transfer Agent, Stephens or their respective agents within 120
days after the redemption.
Investor A Shares may be purchased at net asset value, without a sales charge,
to the extent such a purchase, which must be at least $1,000, is paid for with
the proceeds from the redemption of shares of a nonaffiliated mutual fund. A
qualifying purchase of Investor A Shares must occur within 45 days of the prior
redemption and Nations Funds must receive a copy of the confirmation of the
redemption transaction. Stephens may compensate dealers in connection with such
purchases. This privilege may be revoked at any time.
Nations Funds may terminate any waiver of or reduction in the sales charge by
providing notice in the Fund's Prospectus, but any such termination would only
affect future purchases of shares. For more information about reduced sales
charge, contact an Agent or Stephens.
Investor B Shares -- Charges and Features
Investor B Shares Contingent Deferred Sales Charge: Subject to certain waivers
specified below, Investor B Shares purchased prior to January 1, 1996 and after
July 31, 1997, may be subject to a CDSC if such shares are redeemed within the
years designated in the applicable CDSC schedule set forth below. No CDSC is
imposed on increases in net asset value above the initial purchase price, or
shares acquired by reinvestment of distributions. Subject to the waivers
described below, the amount of the CDSC is determined as a percentage of the
lesser of the market 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:
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<PAGE>
CDSC SCHEDULES
Shares Purchased After November 15, 1998*
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
* Investor B Shares are not available to purchasers desiring to invest $250,000
or more, however, investors desiring to invest $250,000 or more may be
eligible to purchase Investor A Shares.
Shares Purchased between August 1, 1997 and November 15, 1998 in amount of $0
- -- $249,999
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
<S> <C>
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 between August 1, 1997 and November 15, 1998 in amount of
$250,000 -- $499,999
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
<S> <C>
First 3.0%
Second 2.0%
Third 1.0%
Fourth None
</TABLE>
Shares Purchased between August 1, 1997 and November 15, 1998 in amount of
$500,000 -- $999,999
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
<S> <C>
First 2.0%
Second 1.0%
Third None
</TABLE>
Shares Purchased Prior to January 1, 1996
<TABLE>
<CAPTION>
CDSC as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Funds will
first redeem shares not subject to any charge, and then shares 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
44
<PAGE>
exceed 7.5% of income and distributions to pay for insurance by an individual
who has separated from employment and who has received unemployment
compensation under a federal or state program for at least 12 weeks, (iv)
effected pursuant to Nations Funds' right to liquidate a shareholder's account,
including instances where the aggregate net asset value of the Investor B
shares held in the account is less than the minimum account size, (v) in
connection with the combination of Nations Funds with any other registered
investment company by a merger, acquisition of assets or by any other
transaction, and (vi) effected pursuant to the Automatic Withdrawal Plan
discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor B Shares in the account. In
addition, the CDSC will be waived on Investor B Shares purchased before
September 30, 1994 by current or retired employees of NationsBank and its
affiliates or by current or former Trustees or Directors of Nations Funds or
other management companies managed by NationsBank. Shareholders are responsible
for providing evidence sufficient to establish that they are eligible for any
waiver of the CDSC.
Reinstatement Privilege: Within 120 days after a redemption of Investor B
Shares of a Fund, a shareholder may reinvest any portion of the proceeds of
such redemption in Investor B Shares of the same Fund. The amount which may be
so reinvested is limited to an amount up to, but not exceeding, the redemption
proceeds (or to the nearest full share if fractional shares are not purchased).
A shareholder exercising this privilege would receive a pro rata credit for any
CDSC paid in connection with the prior redemption. A shareholder may not
exercise this privilege with the proceeds of a redemption of shares previously
purchased through the reinvestment privilege. In order to exercise this
privilege, a written order for the purchase of Investor B Shares must be
received by the Transfer Agent or by Stephens within 120 days after the
redemption.
Automatic Withdrawal Plan: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor B Shares in his/her accounts within the Nations Funds Family (valued
at the net asset value at the time of the establishment of the AWP) equals
$10,000 or more. Investor B Shares redeemed under the AWP will not be subject
to a CDSC, provided that the shares so redeemed do not exceed, on an annual
basis, 12% of the net asset value of the Investor B Shares in the account.
Otherwise, any applicable CDSC will be imposed on shares redeemed under the
AWP. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings
account in a stated amount of not less than $25 on or about the 10th or 25th
day of the applicable month of withdrawal. Investor B Shares will be redeemed
(net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals will reduce principal and may eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. An AWP may be terminated by a
shareholder on 30 days' written notice to his/her Selling Agent or by Nations
Funds at any time.
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Nations Funds 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 orders for Investor A or Investor B Shares of the Funds which are
received by Stephens, the Transfer Agent or their respective agents before the
close of regular trading on the Exchange (currently 4:00 p.m., Eastern time) on
any Business Day are priced according to the net asset value next determined
after acceptance of the order. In the event that the Exchange closes early,
redemption
45
<PAGE>
orders received prior to closing will be priced as of the time the Exchange
closes and redemption orders received after the Exchange closes will be deemed
received on the next Business Day and priced according to the net asset value
determined on the next Business Day.
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, by the
Transfer Agent or their respective agents.
Redemption orders are effected at the net asset value per share next determined
after receipt of the order by the Fund, Stephens, the Transfer Agent, or their
respective agents as the case may be, less any applicable CDSC. The Agents are
responsible for transmitting redemption orders to Stephens, the Transfer Agent
or their respective agents 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. Except for any CDSC which may be applicable upon redemption of
Investor A Shares or Investor B Shares, as described above, there is no
redemption charge.
Nations Funds may redeem a shareholder's Investor A or Investor B Shares upon
60 days' written notice if the balance in the shareholder's account drops below
$500 as a result of redemptions. Share balances also may be redeemed at the
direction of an Agent pursuant to arrangements between the Agent and its
Customers. Nations Funds also may redeem shares of the 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 or 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.
46
<PAGE>
How To Exchange Shares
Investor A 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 (other than an index fund) of Nations Funds
when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor A Shares
that meets the requirements discussed in this section. If Investor A Shares of
a Fund are exchanged for shares of the same class of another fund (other than
an index fund), any CDSC applicable to the shares exchanged will be applied
upon the redemption of the acquired shares. The holding period of such Investor
A Shares (for purposes of determining whether a CDSC is applicable upon
redemption) will be computed from the time of the initial purchase of the
Investor A Shares of the Fund.
Shareholders who have paid a front-end sales charge on purchases of Investor A
Shares of one of Nations Fund's non-money market funds (including Investor A
Shares acquired through the reinvestment of dividends and distributions on such
shares) may exchange those Investor A Shares at net asset value without any
sales charge for Investor A Shares available under the exchange privilege
described herein, provided that the maximum sales charge applicable to the
acquired Investor A Shares is equal to or less than the "maximum sales charge
applicable" to the Investor A Shares being exchanged. For purposes of
determining the "maximum sales charge applicable" to the Investor A Shares
being exchanged, a shareholder may include any sales charge paid on shares of
the same class offered by one of Nations Fund's other funds that were
previously exchanged to acquire the subject Investor A Shares then being
exchanged, provided that notification of such prior exchange is made to the
Transfer Agent, Stephens or their respective agents.
If Investor A Shares are exchanged for shares of the same class of another fund
(other than an index 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 or a Nations
Funds' money market fund. If a redemption fee ultimately is charged, it will be
retained by the initial Fund purchased.
Automatic Exchange Feature: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder of Investor A Shares 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.
Investor B 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 (with the
exception of Nations Short-Term Income Fund and Nations Short-Term Municipal
Income Fund which are not available in this share class), 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
47
<PAGE>
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, 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. 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.
General: For shareholders who maintain an account directly with a Fund,
exchange requests should be communicated to the Fund by calling Nations Funds
at 1-800-321-7854 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Funds and each of the other funds of Nations Funds may limit the number of
times this exchange feature may be exercised by a shareholder within a
specified period of time. Also the exchange feature may be terminated or
revised at any time by Nations Funds upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectus for each Fund 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.
The Investor A Shares and 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.
48
<PAGE>
Shareholder Servicing And Distribution Plans
Investor A Shares:
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits each Fund to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Nations Short-Term Municipal Income Fund, however, may not pay for shareholder
services under the Investor A Plan. Aggregate payments under the Investor A
Plan are calculated daily and paid monthly at a rate or rates set from time to
time by each Fund, provided that the annual rate may not exceed .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, the
Transfer Agent or their respective agents; (ii) providing Customers with a
service that invests the assets of their accounts in Investor A Shares pursuant
to specific or preauthorized instructions; (iii) processing dividend and
distribution payments from a Fund on behalf of Customers; (iv) providing
information periodically to Customers showing their positions in Investor A
Shares; (v) arranging for bank wires; and (vi) providing general shareholder
liaison services. Nations Short-Term Municipal Income Fund, however, may not
pay for shareholder services under the Investor A Plan. The fees payable to
Selling Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
advertising provided by Nations Funds to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
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.
In addition, the Trustees and Directors have approved a Shareholder Servicing
Plan (the "Servicing Plan") with respect to the Investor A Shares of Nations
Short-Term Municipal Income Fund. Pursuant to its Servicing Plan, Nations
Short-Term Municipal Income Fund may pay Servicing Agents that have entered
into a Servicing Agreement with Nations Funds for certain shareholder support
services that are provided by the Servicing Agents. Payments under the Fund's
Servicing Plan may not exceed .25% of the average daily net asset value of the
Fund's Investor A Shares. The shareholder services provided by Servicing Agents
include, but are not limited to, those listed above with respect to the
Investor A Plan.
Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
Investor B Shares:
Shareholder Servicing Plan: The Funds' shareholder servicing plan ("Servicing
Plan") permits
49
<PAGE>
the Funds to compensate Servicing Agents for services provided to their
Customers that own Investor B Shares. Payments under the Servicing Plan are
calculated daily and paid monthly at a rate or rates set from time to time by
the Funds, provided that the annual rate may not exceed .25% of the average
daily net asset value of the Investor B Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor B Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii)
providing Customers with a service that invests the assets of their accounts in
Investor B Shares pursuant to specific or preauthorized instructions; (iii)
processing dividend and distribution payments from the Funds on behalf of
Customers; (iv) providing information periodically to Customers showing their
positions in Investor B Shares; (v) arranging for bank wires; and (vi)
providing general shareholder liaison services.
Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
Distribution Plan: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and
Directors have approved a Distribution Plan with respect to Investor B Shares
of the Funds. Pursuant to the Distribution Plan, the Funds may compensate or
reimburse Stephens for any activities or expenses primarily intended to result
in the sale of the Funds' Investor B Shares. Payments under the Distribution
Plan will be calculated daily and paid monthly at a rate or rates set from time
to time by the Trustees and Directors provided that the annual rate may not
exceed .75% of the average daily net asset value of the Funds' Investor B
Shares.
The fees payable under the Distribution Plan are used primarily to compensate
or reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing
and distributing prospectuses, sales literature and advertising materials,
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or the Selling Agents;
overhead and other office expenses; opportunity costs relating to the
foregoing; and any other costs and expenses relating to distribution or sales
support activities. The overhead and other office expenses referenced above may
include, without limitation, (i) the expenses of operating Stephens' or the
Selling Agents' offices in connection with the sale of Fund shares, including
rent, the salaries and employee benefit costs of administrative, operations and
support personnel, utility costs, communications costs and the costs of
stationery and supplies, (ii) the costs of client sales seminars and travel
related to distribution and sales support activities, and (iii) other expenses
relating to distribution and sales support activities.
Nations Funds and Stephens may suspend or reduce payments under the
Distribution Plan at any time, and payments are subject to the continuation of
the Distribution Plan described above and the terms of the Sales Support
Agreements between Selling Agents and Stephens. See the SAI for more details on
the Distribution Plan.
General: Nations Funds understands that Agents may charge fees to their
Customers who are the owners of Investor A or 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.
50
<PAGE>
The Adviser may also pay out of its own assets amounts to Stephens or other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders. In addition, Stephens may, from
time to time, at its expense or as an expense for which it may be reimbursed
under the plan adopted pursuant to Rule 12b-1 under the 1940 Act, pay a bonus
or other consideration or incentive to Selling Agents who sell a minimum dollar
amount of shares of the Funds during a specified period of time. Stephens may
also from time to time, pay additional consideration to Selling Agents not to
exceed 1.00% of the offering price per share on all sales of Investor A Shares
and 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.
Stephens has also established a non-cash compensation program, pursuant to
which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise. This non-cash compensation program may
be amended or terminated at any time by Stephens.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing
the total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares of the Funds are valued as of the close of regular
trading on the Exchange (currently 4:00 p.m., Eastern time) on each Business
Day. In the event that the Exchange closes early, shares of the Funds will be
priced as of the time the Exchange closes. 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 or Trustees.
How Dividends And Distributions Are Made; Tax Information
Dividends and Distributions: Dividends from net investment income are declared
and paid monthly by Nations Capital Growth Fund, Nations Disciplined Equity
Fund, Nations Equity Income Fund, Nations Value Fund and Nations Small Company
Growth Fund. Nations Balanced Assets Fund, Nations Emerging Growth Fund,
Nations Marsico Growth & Income Fund, Nations Marsico Focused Equities Fund,
Nations International Equity Fund, Nations Emerging Markets Fund and Nations
Pacific Growth Fund distribute any net investment income each calendar quarter.
Dividends from net investment income are declared and paid annually by Nations
International Value Fund and Nations International Growth Fund. The Funds
distribute any net realized capital gains (including net short-term capital
gains) at least annually. Distributions from capital gains are made after
applying any available capital loss carryovers. Distributions paid by the Funds
with respect to one class of shares may be greater or less than those paid with
respect to another class of shares due to the different expenses of the
different classes.
51
<PAGE>
Investor A and Investor B Shares of the Funds are eligible to receive dividends
when declared, provided, however, that the purchase order for such shares is
received at least one day prior to the dividend declaration and such shares
continue to be eligible for dividends through and including the day before the
redemption order is executed
The net asset value of Investor A and Investor B Shares will be reduced by the
amount of any dividend or distribution. Accordingly, dividends and
distributions on newly purchased shares represent, in substance, a return of
capital. However, such dividends and distributions would nevertheless be
taxable. Certain Selling Agents may provide for the reinvestment of dividends
in the form of additional Investor A or Investor B Shares of the same Fund.
Dividends and distributions are paid in cash within five Business Days of the
end of the month, quarter or year to which the payment 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 or
Investor B Shares.
Tax Information: Each Fund intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves the Funds of liability for Federal income
taxes on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its net investment income
each taxable year. Distributions by a Fund of its net investment income
(including net foreign currency gains) and the excess, if any, of its net
short-term capital gain over its net long-term capital loss generally are
taxable as ordinary income to shareholders, whether such income is received in
cash or reinvested in additional shares.
Corporate investors in the Funds may be entitled to the dividends received
deduction on a portion of such Funds' dividends paid by these Funds to the
extent that a Fund's income is derived from dividends received from domestic
corporations.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions generally will be taxable to
shareholders as net capital gains, regardless of how long the shareholders have
held the Funds' shares and whether such distributions are received in cash or
reinvested in additional shares. Noncorporate shareholders may be taxed on such
distributions at preferential rates.
Each year, shareholders will be notified as to the amount and Federal tax
status of all dividends and capital gain distributions paid during the prior
year. Such dividends and capital gain distributions may be subject to state and
local taxes.
Dividends and distributions declared in October, November, or December of any
year payable to shareholders of record on a specified date in such months will
be deemed to have been received by shareholders and paid by the Funds on
December 31 of such year in the event such dividends and distributions are
actually paid during January of the following year.
Federal law requires Nations Funds to withhold 31% from any distributions paid
by Nations Funds and/or redemptions (including exchanges and redemptions
in-kind) that occur in certain shareholder accounts if the shareholder has not
properly furnished a certified correct Taxpayer Identification Number and has
not certified that withholding does not apply, or if the Internal Revenue
Service has notified Nations Funds that the Taxpayer Identification Number
listed on a shareholder account is incorrect according to its records, or that
the shareholder is subject to backup withholding. Amounts withheld are applied
to the shareholder's Federal tax liability, and a refund may be obtained from
the Internal Revenue Service if withholding results in overpayment of taxes.
Federal law also requires the Funds to withhold tax on dividends paid to
certain foreign shareholders.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to foreign, state and local taxes. Further
tax information is contained in the SAI.
52
<PAGE>
Financial Highlights
The following financial information has been derived from the audited financial
statements of Nations Fund Trust, Nations Fund, Inc. and Nations Portfolios.
PricewaterhouseCoopers LLP is the independent accountant to Nations Fund Trust,
Nations Fund, Inc. and Nations Portfolios. The reports of
PricewaterhouseCoopers LLP for the most recent fiscal period of Nations Fund
Trust, Nations Fund, Inc. and Nations Portfolios accompany the financial
statements for such period and are incorporated by reference in the SAI, which
is available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
The following financial highlights for Investor A Shares of Nations
International Value Fund have been derived from the audited financial
statements of the Emerald International Equity Fund (the predecessor
portfolio). KPMG Peat Marwick LLP were the independent auditors for the Emerald
International Equity Fund for the fiscal period December 1, 1997 through May
15, 1998 and for the fiscal year ended November 30, 1997.
PricewaterhouseCoopers LLP was the independent accountant for the Emerald
International Equity Fund for the fiscal period from December 27, 1995 through
November 30, 1996. The reports of KPMG Peat Marwick LLP for the fiscal period
December 1, 1997 through May 15, 1997 and for the fiscal year ended November
30, 1997 of the Emerald International Equity Fund accompany the financial
statements for such periods and are incorporated in the SAI, which is available
upon request. Financial Highlights for Investor B Shares of Nations
International Value Fund are not provided below because this Fund had not yet
commenced operations during the period indicated below.
53
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Value Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 03/31/98# 03/31/97
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.87 $ 16.60
Net investment income 0.15 0.21
Net realized and unrealized gain/(loss) on investments 5.98 2.70
Net increase/(decrease) in net asset value from operations 6.13 2.91
Distributions:
Dividends from net investment income ( 0.14) ( 0.22)
Distributions from net realized capital gains ( 3.94) ( 1.42)
Total dividends and distributions ( 4.08) ( 1.64)
Net asset value, end of period $ 19.92 $ 17.87
Total return++ 38.22% 17.80%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $149,167 $70,305
Ratio of operating expenses to average net assets 1.20%(b) 1.22%(b)
Ratio of net investment income to average net assets 0.79% 1.26%
Portfolio turnover rate 79% 47%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.20%(b) 1.22%(b)
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
Investor A Shares 03/31/96(a) 11/30/95 11/30/94
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.21 $ 12.98 $ 13.72
Net investment income 0.05 0.23 0.20
Net realized and unrealized gain/(loss) on investments 1.06 3.92 ( 0.20)
Net increase/(decrease) in net asset value from operations 1.11 4.15 0.00
Distributions:
Dividends from net investment income ( 0.10) ( 0.25) ( 0.20)
Distributions from net realized capital gains ( 0.62) ( 0.67) ( 0.54)
Total dividends and distributions ( 0.72) ( 0.92) ( 0.74)
Net asset value, end of period $ 16.60 $ 16.2 $ 12.98
Total return++ 7.07% 34.22% ( 0.17)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $54,341 $48,440 $35,445
Ratio of operating expenses to average net assets 1.21%+ 1.19% 1.18%
Ratio of net investment income to average net assets 1.05%+ 1.65% 1.60%
Portfolio turnover rate 12% 63% 75%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.21%+ 1.19% 1.18%
</TABLE>
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
Investor A Shares 11/30/93 11/30/92
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.45 $ 11.16
Net investment income 0.22 0.26
Net realized and unrealized gain/(loss) on investments 1.35 1.59
Net increase/(decrease) in net asset value from operations 1.57 1.85
Distributions:
Dividends from net investment income ( 0.21) ( 0.27)
Distributions from net realized capital gains ( 0.09) ( 0.29)
Total dividends and distributions ( 0.30) ( 0.56)
Net asset value, end of period $ 13.72 $ 12.45
Total return++ 12.80% 16.96%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $32,607 $24,536
Ratio of operating expenses to average net assets 1.21% 1.06%
Ratio of net investment income to average net assets 1.73% 2.15%
Portfolio turnover rate 64% 60%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.22% 1.15%
<CAPTION>
YEAR PERIOD
ENDED ENDED
Investor A Shares 11/30/91 11/30/90*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.71 $ 10.04
Net investment income 0.34 0.35
Net realized and unrealized gain/(loss) on investments 1.47 ( 0.36)
Net increase/(decrease) in net asset value from operations 1.81 ( 0.01)
Distributions:
Dividends from net investment income ( 0.36) ( 0.32)
Distributions from net realized capital gains -- --
Total dividends and distributions ( 0.36) ( 0.32)
Net asset value, end of period $ 11.16 $ 9.71
Total return++ 18.79%+++ ( 0.16)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $13,514 $7,020
Ratio of operating expenses to average net assets 0.53% 0.21%+
Ratio of net investment income to average net assets 3.33% 4.19%+
Portfolio turnover rate 51% 24%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.99% 1.11%+
</TABLE>
* Nations Value Fund Investor A Shares commenced operations on December 6,
1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment has been calculated using the monthly average share
method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
54
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Value Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98# 3/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.81 $ 16.55 $ 16.15 $ 12.94 $ 13.71 $ 13.08
Net investment income 0.02 0.14 0.03 0.17 0.15 0.11
Net realized and unrealized
gain/(loss) on investments 5.96 2.68 1.05 3.89 ( 0.22) 0.63
Net increase/(decrease) in net asset
value from operations 5.98 2.82 1.08 4.06 ( 0.07) 0.74
Distributions:
Dividends from net investment
income ( 0.04) ( 0.14) ( 0.06) ( 0.18) ( 0.16) ( 0.11)
Distributions from net realized
capital gains ( 3.94) ( 1.42) ( 0.62) ( 0.67) ( 0.54) --
Total dividends and distributions ( 3.98) ( 1.56) ( 0.68) ( 0.85) ( 0.70) ( 0.11)
Net asset value, end of period $ 19.81 $ 17.81 $ 16.55 $ 16.15 $ 12.94 $ 13.71
Total return++ 37.29% 17.21% 6.90% 33.55% ( 0.69)% 5.65%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $149,635 $99,999 $88,861 $83,699 $42,530 $10,449
Ratio of operating expenses to
average net assets 1.87%(b) 1.72%(b) 1.71%+ 1.69% 1.68% 1.71%+
Ratio of net investment income to
average net assets 0.12% 0.76% 0.55%+ 1.15% 1.10% 1.23%+
Portfolio turnover rate 79% 47% 12% 63% 75% 64%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.87%(b) 1.72%(b) 1.71%+ 1.69% 1.68% 1.72%+
</TABLE>
* Nations Value Fund Investor B Shares commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
55
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Equity Income Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
Investor A ENDED ENDED ENDED
Shares 03/31/98# 03/31/97 03/31/96(a)
<S> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 12.26 $ 13.11 $ 11.78
Net investment income 0.26 0.36 0.27
Net realized and
unrealized gain on
investments 3.77 1.58 1.77
Net increase in net
asset value from
operations 4.03 1.94 2.04
Distributions:
Dividends from net
investment income ( 0.24) ( 0.38) ( 0.34)
Distributions from net
realized capital gains ( 2.16) ( 2.41) ( 0.37)
Total dividends and
distributions ( 2.40) ( 2.79) ( 0.71)
Net asset value, end of
period $ 13.89 $ 12.26 $ 13.11
Total return++ 36.92% 15.30% 17.75%
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $68,006 $47,891 $42,606
Ratio of operating
expenses to average
net assets 1.11%(b) 1.16%(b) 1.15%+
Ratio of net investment
income to average net
assets 1.97% 2.84% 2.59%+
Portfolio turnover rate 74% 102% 59%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 1.11%(b) 1.16%(b) 1.15%+
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
Investor A ENDED ENDED ENDED ENDED ENDED
Shares 05/31/95 05/31/94 05/31/93 05/31/92 05/31/91*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 11.41 $ 12.02 $ 11.40 $ 10.19 $ 10.04
Net investment income 0.40 0.37 0.34 0.29 0.05
Net realized and
unrealized gain on
investments 1.10 0.21 1.05 1.27 0.10
Net increase in net
asset value from
operations 1.50 0.58 1.39 1.56 0.15
Distributions:
Dividends from net
investment income ( 0.40) ( 0.38) ( 0.32) ( 0.28) --
Distributions from net
realized capital gains ( 0.73) ( 0.81) ( 0.45) ( 0.07) --
Total dividends and
distributions ( 1.13) ( 1.19) ( 0.77) ( 0.35) --
Net asset value, end of
period $ 11.78 $ 11.41 $ 12.02 $ 11.40 $ 10.19
Total return++ 14.53% 4.74% 12.78% 15.59%+++ 1.49%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) 35,538 $33,691 $32,760 $3,418 $ 497
Ratio of operating
expenses to average
net assets 1.17% 1.19% 1.17% 1.35% 1.37%+
Ratio of net investment
income to average net
assets 3.50% 3.16% 3.12% 2.90% 3.40%+
Portfolio turnover rate 158% 116% 55% 84% 9%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 1.18% 1.20% 1.29% 2.46% 15.09%+
</TABLE>
* Nations Equity Income Fund Investor A Shares commenced operations on April
16, 1991.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
56
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Equity Income Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98# 03/31/97 03/31/96(a) 05/31/95 05/31/94*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.25 $ 13.10 $ 11.77 $ 11.40 $ 11.98
Net investment income 0.17 0.31 0.22 0.34 0.37
Net realized and unrealized gain on
investments 3.77 1.57 1.76 1.11 0.22
Net increase in net asset value from
operations 3.94 1.88 1.98 1.45 0.59
Distributions:
Dividends from net investment income ( 0.16) ( 0.32) ( 0.28 ( 0.35) ( 0.36)
Distributions from net realized capital gains ( 2.16) ( 2.41) ( 0.37) ( 0.73) ( 0.81)
Total dividends and distributions ( 2.32) ( 2.73) ( 0.65) ( 1.08) ( 1.17)
Net asset value, end of period $ 13.87 $ 12.25 $ 13.10 $ 11.77 $ 11.40
Total return++ 36.02% 14.76% 17.21% 14.03% 4.84%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $144,929 $108,055 $104,026 $75,371 $46,043
Ratio of operating expenses to average net
assets 1.78%(b) 1.66%(b) 1.65%+ 1.67% 1.69%+
Ratio of net investment income to average
net assets 1.30% 2.34% 2.09%+ 3.00% 2.66%+
Portfolio turnover rate 74% 102% 59% 158% 116%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.78%(b) 1.66%(b) 1.65%+ 1.68% 1.70%+
</TABLE>
* Nations Equity Income Investor B Shares commenced operations on June 7,
1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
57
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Emerging Growth Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/98# 03/31/97# 03/31/96#(a) 11/30/95 11/30/94# 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.69 $ 13.91 $ 14.17 $ 11.35 $ 10.85 $ 9.87
Net investment income/(loss) ( 0.10) ( 0.07) ( 0.01) ( 0.01) ( 0.06) ( 0.03)
Net realized and unrealized
gain/(loss) on investments 5.50 0.19 1.25 3.23 0.70 1.02
Net increase/(decrease) in net asset
value from operations 5.40 0.12 1.24 3.22 0.64 0.99
Distributions:
Distributions from net realized
capital gains ( 1.79) ( 1.34) ( 1.50) ( 0.40) ( 0.14) ( 0.01)
Total dividends and distributions ( 1.79) ( 1.34) ( 1.50) ( 0.40) ( 0.14) ( 0.01)
Net asset value, end of period $ 16.30 $ 12.69 $ 13.91 $ 14.17 $ 11.35 $ 10.85
Total return++ 44.86% .18% 9.80% 29.65% 5.90% 9.99%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $21,591 $12,126 $7,802 $5,765 $3,234 $2,095
Ratio of operating expenses to
average net assets 1.23%(b) 1.23%(b) 1.24%+ 1.23% 1.26% 1.05%+
Ratio of net investment income/(loss)
to average net assets ( 0.67)% ( 0.51)% ( 0.31)%+ ( 0.17)% ( 0.54)% ( 0.40)%+
Portfolio turnover rate 76% 93% 39% 139% 129% 159%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursement 1.23%(b) 1.23%(b) 1.24%+ 1.23% 1.26% 1.26%+
</TABLE>
* Nations Emerging Growth Fund Investor A Shares commenced operations on
December 10, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
58
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Emerging Growth Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98# 03/31/97# 03/31/96#(a) 11/30/95 11/30/94# 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.29 $ 13.61 $ 13.93 $ 11.24 $ 10.82 $ 9.88
Net investment income/(loss) ( 0.20) ( 0.18) ( 0.05) ( 0.07) ( 0.14) ( 0.02)
Net realized and unrealized
gain/(loss) on investments 5.28 0.20 1.23 3.16 0.70 0.96
Net increase/(decrease) in net asset
value from operations 5.08 0.02 1.18 3.09 0.56 0.94
Distributions:
Distributions from net realized
capital gains ( 1.79) ( 1.34) ( 1.50) ( 0.40) ( 0.14) --
Total dividends and distributions ( 1.79) ( 1.34) ( 1.50) ( 0.40) ( 0.14) --
Net asset value, end of period $ 15.58 $ 12.29 $ 13.61 $ 13.93 $ 11.24 $ 10.82
Total return++ 43.64% ( 0.57)% 9.52% 28.75% 5.17% 9.51%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $45,451 $33,342 $34,989 $32,349 $15,909 $3,594
Ratio of operating expenses to
average net assets 1.98%(b) 1.98%(b) 1.99%+ 1.98% 2.01% 1.80%+
Ratio of operating expenses to
average net assets including
interest expense 1.99% N/A N/A N/A N/A N/A
Ratio of net investment income/(loss)
to average net assets ( 1.42)% ( 1.26)% ( 1.06)%+ ( 0.92)% ( 1.29)% ( 1.15)%+
Portfolio turnover rate 76% 93% 39% 139% 129% 159%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.98%(b) 1.98%(b) 1.99%+ 1.98% 2.01% 2.01%+
</TABLE>
* Nations Emerging Growth Fund Investor B Shares commenced operations on June
7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
59
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Small Company Growth Fund
<TABLE>
<CAPTION>
PERIOD PERIOD PERIOD
ENDED ENDED ENDED
Investor A Shares* 03/31/98* 05/16/97* 08/31/96*(b)
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 12.05 $ 10.64 $ 10.00
Net investment income ( 0.02) 0.03 0.05
Net realized and unrealized gain on investments 4.42 1.46 0.64
Net increase in net asset value from operations 4.40 1.49 0.69
Dividends from net investment income -- ( 0.03) ( 0.05)
Distributions from net realized capital gains ( 0.71) ( 0.05) --
Total dividends and distributions ( 0.71) ( 0.08) ( 0.05)
Net asset value, the end of the period $ 15.74 $ 12.05 $ 10.64
Total return++ 37.02% 13.98% 6.88%
Net assets at end of period (in 000's) $6,772 $3,697 $2,611
Ratio of operating expenses to average net assets 1.20%+(a) 1.23%+ 1.25%+
Ratio of operating expenses to average net assets including interest expense 1.20%+ -- --
Ratio of net investment income/loss to average net assets ( 0.20)%+ 0.30%+ 0.66%+
Portfolio turnover rate 59% 48% 31%
Ratio of expenses to average net assets without waivers and/or expense
reimbursements 1.51%+(a) 1.66%+ 1.65%+
</TABLE>
* The financial information for the fiscal periods prior to May 23, 1997
reflects the financial information for the Pilot Small Capitalization Equity
Fund's Class A Shares, which were reorganized into Nations Small Company
Growth Fund Investor A Shares as of the close of business on May 23, 1997.
Prior to May 23, 1997, the investment adviser to Nations Small Company
Growth Fund was Boatmen's Trust Company. Effective May 23, 1997 the
investment adviser to Nations Small Company Growth Fund is TradeStreet
Investment Associates, Inc.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(b) Represents the period from December 12, 1995 (commencement of operations)
to August 31, 1996.
60
<PAGE>
FOR AN INVESTOR B SHARES OUTSTANDING THROUGHOUT EACH PERIOD
Nations Small Company Growth Fund
<TABLE>
<CAPTION>
PERIOD PERIOD PERIOD
ENDED ENDED ENDED
Investor B Shares* 03/31/98* 05/16/97* 08/31/96*(b)
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 12.03 $ 10.65 $ 10.00
Net investment income (loss) ( 0.08) ( 0.03) 0.01
Net realized and unrealized gain on investments 4.35 1.46 0.65
Net increase in net asset value from operations 4.27 1.43 0.66
Distributions:
Dividends from net investment income -- -- ( 0.01)
Distributions from net realized capital gains ( 0.71) ( 0.05) --
Total dividends and distributions ( 0.71) ( 0.05) ( 0.01)
Net asset value, end of the period $ 15.59 $ 12.03 $ 10.65
Total return ++ 36.06% 13.43% 6.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $3,384 $2,635 $1,878
Ratio of operating expenses to average net assets 1.87%+(a) 1.97%+ 2.01%+
Ratio of operating expenses to average net assets including interest expense 1.88%+ -- --
Ratio of net investment income/loss to average net assets ( 0.87)%+ ( 0.45)%+ ( 0.07)%+
Portfolio turnover rate 59% 48% 31%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 2.18%+(a) 2.41%+ 2.44%+
</TABLE>
* The financial information for the fiscal periods prior to May 23, 1997
reflects the financial information for the Pilot Small Capitalization Equity
Fund's Class B Shares, which were reorganized into the Investor B Shares of
Nations Small Company Growth Fund as of May 23, 1997. Prior to May 23, 1997,
the investment adviser to Nations Small Company Growth Fund was Boatman's
Trust Company. Effective May 23, 1997, the investment adviser to Nations
Small Company Growth Fund was TradeStreet Investment Associates, Inc.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charge.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
(b) Represents the period from December 12, 1995 (commencement of operations)
to August 31, 1996.
61
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Disciplined Equity Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/98## 03/31/97 03/31/96(a) 11/30/95 11/30/94* 04/29/94*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 18.44 $ 17.16 $ 17.04 $ 13.06 $ 13.30 $ 14.94
Net investment income/(loss) 0.02 0.08 0.04 0.09 0.00 (b) ( 0.04)
Net realized and unrealized
gain/(loss) on investments 7.87 2.80 0.35 3.96 ( 0.23)# 1.35
Net increase/(decrease) in net
asset value from operations 7.89 2.88 0.39 4.05 ( 0.23) 1.31
Distributions:
Dividends from net investment
income ( 0.01) ( 0.09) ( 0.04) ( 0.07) ( 0.01) --
Distributions from net realized
capital gains ( 4.23) ( 1.51) ( 0.23) -- -- ( 2.95)
Return of capital -- -- -- -- ( 0.00)(b) --
Total dividends and
distributions ( 4.24) ( 1.60) ( 0.27) ( 0.07) ( 0.01) ( 2.95)
Net asset value, end of period $ 22.09 $ 18.44 $ 17.16 $ 17.04 $ 13.06 $ 13.30
Total return++ 48.28% 16.76% 2.35% 31.05% ( 1.71)% 8.31%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $21,725 $6,837 $4,722 $3,234 $ 252 $ 165
Ratio of operating expenses to
average net assets 1.23%(c)(d) 1.29%(c) 1.12%+ 1.40% 1.23%+ 1.30%+
Ratio of net investment
income/(loss) to average net
assets 0.12% 0.45% 0.72%+ 0.75% 0.02%+ ( 0.62)%+
Portfolio turnover rate 79% 120% 47% 124% 177% 475%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.23%(c)(d) 1.29% 1.12%+ 1.40% 1.66%+ 1.74%+
</TABLE>
* The period for Nations Disciplined Equity Investor A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class B Shares, which were reorganized into Investor A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class B Shares commenced operations on July 26, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
## Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio with and without waivers and/or expense
reimbursements, was less than 0.01%.
62
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Disciplined Equity Fund
<TABLE>
<CAPTION>
YEAR
ENDED YEAR ENDED
Investor B Shares 03/31/98# 03/31/97
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 18.20 $ 17.00
Net investment income/(loss) ( 0.12) ( 0.05)
Net realized and unrealized gain/(loss) on
investments 7.72 2.76
Net increase/(decrease) in net asset value
from operations 7.60 2.71
Distributions:
Dividends from net investment income -- --
Distributions from net realized capital gains ( 4.23) ( 1.51)
Return of capital -- --
Total dividends and distributions ( 4.23) ( 1.51)
Net asset value, end of period $ 21.57 $ 18.20
Total return++ 47.14% 15.86%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $38,079 $20,257
Ratio of operating expenses to average net
assets 1.98%(c)(d) 2.04%(c)
Ratio of net investment income/(loss) to
average net assets ( 0.63)% ( 0.30)%
Portfolio turnover rate 79% 120%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.98%(c)(d) 2.04%
<CAPTION>
PERIOD PERIOD
ENDED YEAR ENDED ENDED
Investor B Shares 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.89 $ 13.02 $ 12.77
Net investment income/(loss) ( 0.01) 0.03 ( 0.02)
Net realized and unrealized gain/(loss) on
investments 0.35 3.87 0.28
Net increase/(decrease) in net asset value
from operations 0.34 3.90 0.26
Distributions:
Dividends from net investment income -- ( 0.03) ( 0.01)
Distributions from net realized capital gains ( 0.23) -- --
Return of capital -- -- ( 0.00)(b)
Total dividends and distributions ( 0.23) ( 0.03) ( 0.01)
Net asset value, end of period $ 17.00 $ 16.89 $ 13.02
Total return++ 2.08% 29.94% 2.02%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $18,412 $ 16,874 $ 177
Ratio of operating expenses to average net
assets 2.02%+ 2.30% 2.09%+
Ratio of net investment income/(loss) to
average net assets ( 0.18)%+ ( 0.15)% ( 0.84)%+
Portfolio turnover rate 47% 124% 177%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.02%+ 2.30% 2.52%+
</TABLE>
* Nations Disciplined Equity Fund Investor B Shares commenced operations on
May 20, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
(d) The effect of fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
63
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Capital Growth Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 03/31/98## 03/31/97## 03/31/96(a)
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 11.67 $ 13.41 $ 14.22
Net investment income/(loss) ( 0.01) 0.02 0.01
Net realized and unrealized
gain on investments 5.28 1.65 0.38
Net increase in net asset value
from operations 5.27 1.67 0.39
Distributions:
Dividends from net investment
income -- ( 0.02) ( 0.01)
Distributions from net realized
capital gains ( 3.68) ( 3.39) ( 1.19)
Total dividends and
distributions ( 3.68) ( 3.41) ( 1.20)
Net asset value, end of period $ 13.26 $ 11.67 $ 13.41
Total return++ 53.83% 11.58% 3.02%
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $43,380 $20,465 $18,311
Ratio of operating expenses to
average net assets 1.20%(c)(d) 1.21%(d) 1.21%+
Ratio of net investment
income/(loss) to average net
assets ( 0.12)% 0.14% 0.13%+
Portfolio turnover rate 113% 75% 25%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.20%(c) 1.21% 1.21%+
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
Investor A Shares 11/30/95 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 11.21 $ 11.06 $ 10.67 $ 10.00
Net investment income/(loss) 0.06 0.07 0.07 0.01
Net realized and unrealized
gain on investments 3.28 0.14 0.41 0.66 #
Net increase in net asset value
from operations 3.34 0.21 0.48 0.67
Distributions:
Dividends from net investment
income ( 0.07) ( 0.06) ( 0.08) --
Distributions from net realized
capital gains ( 0.26) ( 0.00)(b) ( 0.01) --
Total dividends and
distributions ( 0.33) ( 0.06) ( 0.09) --
Net asset value, end of period $ 14.22 $ 11.21 $ 11.06 $ 10.67
Total return++ 30.70% 1.93% 4.56% 6.70%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $16,770 $11,038 $11,182 $1,225
Ratio of operating expenses to
average net assets 1.23% 1.15% 1.05% 0.55%+
Ratio of net investment
income/(loss) to average net
assets 0.46% 0.60% 0.59% 1.08%+
Portfolio turnover rate 80% 56% 81% 7%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.23% 1.16% 1.14% 1.30%+
</TABLE>
* Nations Capital Growth Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
## Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) The effect of the fees reduced by the credits allowed by the custodian on
the operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
64
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Capital Growth Fund
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR PERIOD
ENDED YEAR ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98# 03/31/97# 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 11.47 $ 13.31 $ 14.15 $ 11.17 $ 11.05 $ 10.55
Net investment income/(loss) ( 0.10) ( 0.08) ( 0.02) ( 0.03) ( 0.01) ( 0.01)
Net realized and unrealized
gain on investments 5.14 1.63 0.37 3.27 0.13 0.53
Net increase in net asset value
from operations 5.04 1.55 0.35 3.24 0.12 0.52
Distributions:
Dividends from net investment
income -- -- -- -- -- ( 0.02)
Distributions from net realized
capital gains ( 3.68) ( 3.39) ( 1.19) ( 0.26) ( 0.00)(b) --
Total dividends and
distributions ( 3.68) ( 3.39) ( 1.19) ( 0.26) ( 0.00)(b) ( 0.02)
Net asset value, end of period $ 12.83 $ 11.47 $ 13.31 $ 14.15 $ 11.17 $ 11.05
Total return++ 52.52% 10.68% 2.77% 29.80% 1.12% 4.95%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $59,496 $41,933 $41,045 $40,868 $23,591 $9,511
Ratio of operating expenses to
average net assets 1.95%(c)(d) 1.96%(d) 1.96%+ 1.98% 1.90% 1.80%+
Ratio of net investment
income/(loss) to average net
assets ( 0.87)% ( 0.61)% ( 0.62)%+ ( 0.29)% ( 0.15)% ( 0.16)%+
Portfolio turnover rate 113% 75% 25% 80% 56% 81%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.95%(c) 1.96% 1.96%+ 1.98% 1.91% 1.89%+
</TABLE>
* Nations Capital Growth Fund Investor B Shares commenced operations on June
7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(d) The effect of interest expense on the operating expense ratio was less than
0.01%.
65
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Nations Marsico Focused Equities Fund
<TABLE>
<CAPTION>
PERIOD
ENDED
Investor A Shares 03/31/98*#
<S> <C>
Operating performance:
Net asset value at the beginning of the period $ 10.00
Net investment income/(loss) ( 0.01)
Net realized and unrealized capital gain on investments 2.15
Net increase in net asset value from operations 2.14
Distributions:
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, the end of the period $ 12.14
Total return++ 21.40%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $6,056
Ratio of operating expenses to average net assets 1.77%+(a)
Ratio of net investment income/(loss) to average net assets ( 0.55)%+
Portfolio turnover rate 25%
Ratio of operating expenses to average net assets without waivers and/or expense 1.77%+(a)
reimbursements
</TABLE>
* Nations Marsico Focused Equities Fund Investor A Shares commenced operations
on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
66
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT THE PERIOD
Nations Marsico Focused Equities Fund
<TABLE>
<CAPTION>
PERIOD
ENDED
Investor B Shares 03/31/98*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) ( 0.04)
Net realized and unrealized gain/(loss) on investments 2.17
Net increase/(decrease) in net asset value from operations 2.13
Distributions:
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, end of period $ 12.13
Total return ++ 21.30%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $20,446
Ratio of operating expenses to average net assets 2.52%+(a)
Ratio of net investment income/(loss) to average net assets ( 1.30)%+
Portfolio turnover rate 25%
Ratio of operating expenses to average net assets without waivers and/or expense 2.52%+(a)
reimbursements
</TABLE>
* Nations Marsico Focused Equities Fund Investor B Shares commenced operations
on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
67
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
Nations Marsico Growth & Income Fund
<TABLE>
<CAPTION>
PERIOD
ENDED
Investor A Shares 03/31/98*#
<S> <C>
Operating performance:
Net asset value at the beginning of the period $ 10.00
Net investment income 0.00 (b)
Net realized and unrealized gain on investments 2.02
Net increase in net asset value from operations 2.02
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, end of the period $ 12.02
Total return++ 20.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,141
Ratio of operating expenses to average net assets 1.34 +(a)
Ratio of net investment income/(loss) to average net assets 0.13 +
Portfolio turnover rate 22%
Ratio of operating expenses to average net assets without fee waivers and/or expense 2.22 +(a)
reimbursements
</TABLE>
* Nations Marsico Growth & Income Fund Investor A Shares commenced operations
on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
(b) Amount represents less than $0.01 per share.
68
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT THE PERIOD
Nations Marsico Growth & Income Fund
<TABLE>
<CAPTION>
PERIOD
ENDED
Investor B Shares 03/31/98*#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income ( 0.02)
Net realized and unrealized gain on investments 2.04
Net increase in net asset value from operations 2.02
Distributions:
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, end of period $ 12.02
Total return++ 20.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $7,907
Ratio of operating expenses to average net assets 2.09%+(a)
Ratio of net investment income/loss to average net assets ( 0.62)%+
Portfolio turnover rate 22%
Ratio of operating expenses to average net assets without waivers and/or expense 2.97%+(a)
reimbursements
</TABLE>
* Nations Marsico Growth & Income Fund Investor B Shares commenced operations
on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly
average share method.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
69
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations International Equity Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/98# 03/31/97# 03/31/96(a)# 05/31/95# 05/31/94# 05/31/93*#
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.01 $ 13.39 $ 11.67 $ 12.00 $ 10.56 $ 10.38
Net investment income/(loss) 0.07 0.05 0.04 0.11 0.06 0.07
Net realized and unrealized
gain/(loss) on investments 1.94 0.11 1.78 ( 0.20) 1.44 0.21
Net increase/(decrease) in net asset
value from operations 2.01 0.16 1.82 ( 0.09) 1.50 0.28
Distributions:
Dividends from net investment
income ( 0.15) ( 0.09) ( 0.04) ( 0.02) ( 0.04) ( 0.08)
Distributions in excess of net
investment income ( 0.04) ( 0.00)(b) ( 0.04) -- -- --
Distributions from net realized
capital gains ( 0.16) ( 0.42) ( 0.02) ( 0.12) ( 0.02) ( 0.02)
Distributions in excess of net realized
capital gains -- ( 0.03) -- ( 0.10) -- --
Total dividends and distributions ( 0.35) ( 0.54) ( 0.10) ( 0.24) ( 0.06) ( 0.10)
Net asset value, end of period $ 14.67 $ 13.01 $ 13.39 $ 11.67 $ 12.00 $ 10.56
Total return++ 15.77% 1.08% 15.66% ( 0.69)% 14.00% 2.91%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $13,477 $9,443 $7,643 $4,877 $3,219 $ 839
Ratio of operating expenses to
average net assets 1.39% 1.41% 1.42%+ 1.28% 1.42% 1.55%+
Ratio of net investment income/(loss)
to average net assets 0.51% 0.37% 0.40%+ 0.92% 0.50% 0.78%+
Portfolio turnover rate 64% 36% 26% 92% 39% 41%
Ratio of operating expenses to
average net assets without waivers
and/or expense reimbursements 1.39% 1.41% 1.43%+ 1.29% 1.43% 1.62%+
</TABLE>
* Nations International Equity Fund Investor A Shares commenced operations on
June 3, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the monthly
average share method.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Amount represents less than $0.01 per share.
70
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations International Equity Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
Investor B Shares 03/31/98# 03/31/97# 03/31/96(a)# 05/31/95# 05/31/94*#
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.83 $ 13.27 $ 11.56 $ 11.96 $ 10.51
Net investment income/(loss) ( 0.03) ( 0.05) ( 0.02) 0.05 ( 0.00)**
Net realized and unrealized gain/(loss) on
investments 1.92 0.10 1.78 ( 0.22) 1.51
Net increase/(decrease) in net asset value
from operation 1.89 0.05 1.76 ( 0.17) 1.51
Distributions:
Dividends from net investment income -- ( 0.04) -- ( 0.01) ( 0.04)
Distributions in excess of net investment
income -- ( 0.00)** ( 0.03) -- --
Distributions from net realized capital gains ( 0.16) ( 0.42) ( 0.02) ( 0.12) ( 0.02)
Distributions in excess of net realized
capital gains -- ( 0.03) -- ( 0.10) --
Total dividends and distributions ( 0.16) ( 0.49) ( 0.05) ( 0.23) ( 0.06)
Net asset value, end of period $ 14.56 $ 12.83 $ 13.27 $ 11.56 $ 11.96
Total return++ 14.93% 0.28% 15.25% ( 1.30)% 14.32%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's): $34,119 $36,698 $40,426 $31,372 $17,349
Ratio of operating expenses to average net
assets 2.14% 2.16% 1.99%+ 1.78% 1.92%+
Ratio of net investment income/(loss) to
average net assets ( 0.24)% ( 0.38)% ( 0.17)%+ 0.42% ( 0.00)%+##
Portfolio turnover rate 64% 36% 26% 92% 39%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.14% 2.16% 2.00%+ 1.79% 1.93%+
</TABLE>
* Nations International Equity Fund Investor B Shares commenced operations on
June 7, 1993.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the monthly
average share method.
## Amount represents less than 0.01%.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
71
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations International Growth Fund
<TABLE>
<CAPTION>
YEAR PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
Investor A Shares* 03/31/98# 05/16/97 08/31/96 08/31/95# 08/31/94# 08/31/93#(a)
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of
the period $ 18.27 $ 16.90 $ 16.14 $ 16.29 $ 14.13 $ 11.85
Net investment income/(loss) ( 0.01) ( 0.05) 0.04 0.08 0.07 0.02
Net realized and unrealized
gain/(loss) on investments 1.29 1.90 1.57 0.17 2.24 2.26
Net income/(loss) from operations 1.28 1.85 1.61 0.25 2.31 2.28
Dividends from net investment
income -- ( 0.14) ( 0.46) ( 0.11) -- --
Distributions from net realized
capital gain ( 0.34) ( 0.34) ( 0.39) ( 0.29) ( 0.15) --
Total dividends and distributions ( 0.34) ( 0.48) ( 0.85) ( 0.40) ( 0.15) --
Net asset value, end of the period $ 19.21 $ 18.27 $ 16.90 $ 16.14 $ 16.29 $ 14.13
Total return++ 7.18% 11.14% 10.40% 1.77% 16.48% 19.24%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $24,353 $26,730 $26,730 $27,625 $44,990 $55,816
Ratio of operating expenses to
average net assets 1.40%+ 1.42%+ 1.32% 1.42% 1.37% 2.17%+
Ratio of operating expenses to
average net assets without waivers 1.42%+ 1.42%+ 1.32% 1.42% 1.37% 2.17%+
Ratio of net investment income/(loss)
to average net assets ( 0.04)%+ 0.29%+ 0.48% 0.50% 0.48% 0.25%+
Portfolio turnover rate 11%+ 34% 22% 36% 35% 27%(b)
</TABLE>
* The financial information for the fiscal periods through May 23, 1997
reflect the financial information for the Pilot International Equity Funds'
Class A Shares which were reorganized into the Nations International Growth
Fund Investor A Shares as of May 23, 1997. Prior to July 1997, the
investment adviser to Nations International Growth Fund was Kleinwort
Benson. Effective July 1997 the investment adviser to Nations International
Growth Fund was NBAI.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the monthly
average share method.
(a) Prior to a tax-free reorganization into Pilot Administration Shares
(subsequently renamed Class A Shares) effective July 12, 1993, the Pilot
Kleinwort Benson International Equity Portfolio (subsequently renamed the
Pilot International Equity Fund) was a separate portfolio of Kleinwort
Benson Investment Strategies known as Kleinwort Benson International Equity
Fund. The predecessor portfolio was advised by Kleinwort Benson
International Investment Limited and had a December 31 year end.
(b) Excludes transfer of assets effective August 6, 1993 from a collective trust
for which Boatmen's Trust Company served as Trustee.
72
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations International Growth Fund
<TABLE>
<CAPTION>
PERIOD PERIOD YEAR
ENDED ENDED ENDED
Investor B Shares* 03/31/98# 05/16/97 08/31/96(a)
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 18.32 $ 17.04 $ 17.54
Net investment income/(loss) ( 0.11) ( 0.05) --
Net realized and unrealized gain/(loss) on investments 1.24 1.79 ( 0.50)
Net increase/(decrease) in net asset value from operations 1.13 1.74 ( 0.50)
Distributions:
Dividends from net investment income -- ( 0.12) --
Distributions from net realized capital gains ( 0.34) ( 0.34) --
Total dividends and distributions ( 0.34) ( 0.46) --
Net asset value, end of the period $ 19.11 $ 18.32 $ 17.04
Total return++ 6.34% 10.37% ( 2.85)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 500 $ 560 $ 184
Ratio of operating expenses to average net assets 2.15%+ 2.18%+ 2.06%+
Ratio of operating expenses to average net assets without waivers 2.17%+ 2.18%+ 2.06%+
Ratio of net investment income (loss) to average net assets ( 0.79)%+ ( 0.61)%+ ( 0.32)%+
Portfolio turnover rate 11% 34% 22%
</TABLE>
* The financial information for the fiscal periods prior to May 23, 1997
reflects the financial information for the Pilot International Equity Fund's
Class B Shares, which were reorganized into Nations International Growth
Fund Investor B Shares as of May 23, 1997. Prior to May 23, 1997, the
investment adviser to Nations International Growth Fund was Kleinwort
Benson. Effective July, 1997, the investment adviser to Nations
International Growth Fund is Gartmore Global Partners.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the duration of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the monthly
average share method.
(a) Shares were initially issued on July 1, 1996.
73
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations International Value Fund
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares* 5/15/98 11/30/97 11/30/96**(a)
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.13 $ 11.29 $ 10.00
Net investment income 0.08 0.01 0.04
Net realized and unrealized gains on securities 2.52 1.91 1.31
Total income from investment operations 2.60 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 ( 0.29) ( 0.02) ( 0.02)
Total dividends and distributions ( 0.29) ( 0.08) ( 0.06)
Net change in net asset value 2.31 1.84 1.29
Net asset value, end of period $ 15.44 $ 13.13 $ 11.29
Total return 20.22%++ 17.11% 13.54%++
Ratios to average net assets supplemental data:
Net assets, end of period (000s) $5,128 $4,259 $ 115
Ratio of expenses to average net assets 1.81%+ 1.73% 0.00%+
Ratio of net investment income to average net assets 1.21%+ 0.26% 1.83%+
Ratio of expenses to average net assets*** 1.82%+ 1.93% 57.40%+
Ratio of net investment income (loss) to average net assets*** 1.20%+ 0.06% (55.57%)+
Portfolio turnover 88%++ 29% 50%++
</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 and/or reimbursed
reimbursements had not occurred, the ratios would have been as indicated.
(a) Effective August 19, 1996, Brandes became the Fund's Investment Sub-Adviser.
+ Annualized.
++ Not annualized.
74
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Emerging Markets Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 03/31/98# 03/31/97# 03/31/96*#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.39 $ 10.32 $ 10.00
Net investment income/(loss) 0.01 ( 0.01) ( 0.05)
Net realized and unrealized gain/(loss) on investments ( 0.75) 1.21 0.37
Net increase/(decrease) in net asset value from operations ( 0.74) 1.20 0.32
Distributions:
Dividends from net investment income ( 0.08) ( 0.02) --
Distributions in excess of net investment income -- ( 0.05) --
Distributions from net realized capital gains -- ( 0.06) --
Total dividends and distributions ( 0.08) ( 0.13) --
Net asset value, end of period $ 10.57 $ 11.39 $ 10.32
Total return++ ( 6.60)% 11.74% 3.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 652 $ 894 $ 477
Ratio of operating expenses to average net assets 1.82% 1.99% 2.38%+
Ratio of net investment income to average net assets 0.11% ( 0.12%) ( 0.63)%+
Portfolio turnover rate 63% 31% 17%
</TABLE>
* Nations Emerging Markets Fund Investor A Shares commenced operations on June
30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the monthly
average share method.
75
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Emerging Markets Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor B Shares 03/31/98# 03/31/97# 03/31/96*#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.31 $ 10.26 $ 10.00
Net investment income/(loss) ( 0.07) ( 0.09) ( 0.11)
Net realized and unrealized gain/(loss) on investments ( 0.75) 1.20 0.37
Net increase/(decrease) in net asset value from operations ( 0.82) 1.11 0.26
Distributions:
Dividends from net investment income -- -- --
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains -- ( 0.06) --
Total dividends and distributions 0.00 ( 0.06) --
Net asset value, end of period $ 10.49 $ 11.31 $ 10.26
Total return++ ( 7.25)% 10.88% 2.60%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $1,247 $1,499 $1,209
Ratio of operating expenses to average net assets 2.57% 2.74% 3.13%+
Ratio of net investment loss to average net assets ( 0.64)% ( 0.87)% ( 1.38)%+
Portfolio turnover rate 63% 31% 17%
</TABLE>
* Nations Emerging Markets Fund Investor B Shares commenced operations on June
30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the monthly
average share method.
76
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Pacific Growth Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares 03/31/98# 03/31/97 03/31/96*#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.37 $ 10.23 $ 10.00
Net investment income/(loss) 0.07 0.00** ( 0.04)
Net realized and unrealized gain/(loss) on investments ( 2.98) 0.19 0.29
Net increase/(decrease) in net asset value from operations ( 2.91) 0.19 0.25
Distributions:
Dividends from net investment income ( 0.17) ( 0.03) --
Distributions in excess of net investment income -- ( 0.02) ( 0.02)
Total dividends and distributions ( 0.17) ( 0.05) ( 0.02)
Net asset value, end of period $ 7.29 $ 10.37 $ 10.23
Total return++ (28.59)% 1.86% 2.52%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $ 871 $2,480 $1,375
Ratio of operating expenses to average net assets 1.62% 1.67% 2.01%+
Ratio of net investment income/(loss) to average net assets 0.69% 0.14% ( 0.52)%+
Portfolio turnover rate 123% 78% 23%
</TABLE>
* Nations Pacific Growth Fund Investor A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the monthly
average share method.
77
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Pacific Growth Fund
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
Investor B Shares 03/31/98# 03/31/97 03/31/96*#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.30 $ 10.18 $ 10.00
Net investment income/(loss) ( 0.01) ( 0.05) ( 0.10)
Net realized and unrealized gain/(loss) on investments ( 2.98) 0.19 0.29
Net increase/(decrease) in net asset value from operations ( 2.99) 0.14 0.19
Distributions:
Dividends from net investment income ( 0.03) ( 0.01) --
Distributions in excess of net investment income -- ( 0.01) ( 0.01)
Total dividends and distributions ( 0.03) ( 0.02) ( 0.01)
Net asset value, end of period $ 7.28 $ 10.30 $ 10.18
Total return++ (29.04)% 1.18% 1.88%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's): $ 1,195 $2,367 $2,324
Ratio of operating expenses to average net assets 2.37% 2.42% 2.76%
Ratio of net investment income/(loss) to average net assets ( 0.06)% ( 0.61)% ( 1.27)%
Portfolio turnover rate 123% 78% 23%
</TABLE>
* Nations Pacific Growth Fund Investor B Shares commenced operations on June
30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/(loss) has been calculated using the monthly
average share method.
78
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Balanced Assets Fund
<TABLE>
<CAPTION>
YEAR YEAR
ENDED PERIOD
Investor A Shares 03/31/98 03/31/97
<S> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 11.13 $ 11.64
Net investment income 0.27 0.34
Net realized and unrealized
gain/(loss) on investments 2.68 1.05
Net increase/(decrease) in net
asset value from operations 2.95 1.39
Distributions:
Dividends from net investment
income ( 0.27) ( 0.36)
Distributions from net realized
capital gains ( 2.34) ( 1.54)
Total dividends and
distributions ( 2.61) ( 1.90)
Net asset value, end of period $ 11.47 $ 11.13
Total return++ 30.13% 12.18%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $16,009 $9,075
Ratio of operating expenses to
average net assets 1.33%(b)(c) 1.25%(b)
Ratio of net investment income
to average net assets 2.45% 3.06%
Portfolio turnover rate 276% 264%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.33%(b) 1.25%(b)
<CAPTION>
PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
Investor A Shares 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 12.66 $ 10.42 $ 10.86 $ 10.24 $ 10.00
Net investment income 0.11 0.34 0.22 0.29 0.01
Net realized and unrealized
gain/(loss) on investments 0.45 2.23 ( 0.44) 0.62 0.23 #
Net increase/(decrease) in net
asset value from operations 0.56 2.57 ( 0.22) 0.91 0.24
Distributions:
Dividends from net investment
income ( 0.17) ( 0.31) ( 0.22) ( 0.29) --
Distributions from net realized
capital gains ( 1.41) ( 0.02) -- -- --
Total dividends and
distributions ( 1.58) ( 0.33) ( 0.22) ( 0.29) --
Net asset value, end of period $ 11.64 $ 12.66 $ 10.42 $ 10.86 $ 10.24
Total return++ 4.86% 25.01% ( 2.02)% 8.93% 2.40%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $6,261 $5,276 $4,881 $5,191 $ 547
Ratio of operating expenses to
average net assets 1.25%+ 1.24% 1.23% 1.15% 0.55%+
Ratio of net investment income
to average net assets 2.66%+ 3.00% 2.06% 2.57% 3.60%+
Portfolio turnover rate 83% 174% 156% 50% 79%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.25%+ 1.24% 1.24% 1.22% 1.30%+
</TABLE>
* Nations Balanced Assets Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
79
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Balanced Assets Fund
<TABLE>
<CAPTION>
YEAR PERIOD PERIOD
ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED ENDED
Investor B Shares 03/31/98 03/31/97 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 11.11 $ 11.62 $ 12.63 $ 10.40 $ 10.85 $ 10.61
Net investment income 0.19 0.29 0.09 0.28 0.17 0.14
Net realized and unrealized
gain/(loss) on investments 2.68 1.04 0.45 2.22 ( 0.44) 0.23
Net increase/(decrease) in net
asset value from operations 2.87 1.33 0.54 2.50 ( 0.27) 0.37
Distributions:
Dividends from net investment
income ( 0.19) ( 0.30) ( 0.14) ( 0.25) ( 0.18) ( 0.13)
Distributions from net realized
capital gains ( 2.34) ( 1.54) ( 1.41) ( 0.02) -- --
Total dividends and
distributions ( 2.53) ( 1.84) ( 1.55) ( 0.27) ( 0.18) ( 0.13)
Net asset value, end of period $ 11.45 $ 11.11 $ 11.62 $ 12.63 $ 10.40 $ 10.85
Total return++ 29.35% 11.62% 4.69% 24.35% ( 2.51)% 3.45%
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $78,813 $64,058 $65,764 $65,275 $52,905 $27,982
Ratio of operating expenses to
average net assets 2.00%(b)(c) 1.75%(b) 1.75%+ 1.74% 1.73% 1.65%+
Ratio of net investment income
to average net assets 1.78% 2.56% 2.16%+ 2.50% 1.56% 2.07%+
Portfolio turnover rate 276% 264% 83% 174% 156% 50%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 2.00%(b) 1.75%(b) 1.75%+ 1.74% 1.74% 1.72%+
</TABLE>
* Nations Balanced Assets Fund Investor B Shares commenced operations on June
7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense
reimbursements, was less than 0.01%.
(c) The effect of interest expense on the operating expense ratio was less than
0.01%.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
Asset-Backed Securities: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage-backed securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), parallel pay CMOs, planned
amortization class CMOs ("PAC Bonds") and stripped mortgage-backed securities
("SMBS"), including interest-only and principal-only SMBS. SMBS may be more
volatile than other debt securities. For additional information concerning
mortgage-backed securities, see the SAI.
Non-mortgage asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying
pools of assets. Such securities also may be debt instruments, which are also
known as collateralized obligations and are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt.
Mortgage-Backed Securities: Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private
lenders and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by the Government National Mortgage
Association ("GNMA"), by the Federal National Mortgage Association ("FNMA") and
by the Federal Home Loan and Mortgage Corporation ("FHLMC"). Such Certificates
are mortgage-backed securities which represent a partial ownership interest in
a pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the
securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the
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return of the greater part of principal invested far in advance of the maturity
of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from
their coupon rates for the following reasons: (i) Certificates may be issued at
a premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to a
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized Mortgage Obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities
(collateral collectively hereinafter referred to as "Mortgage Assets").
Multi-class pass-through securities are interests in a trust composed of
Mortgage Assets and all references herein to CMOs will include multi-class
pass-through securities. Payments of principal of and interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs or make scheduled distribution on the multi-class
pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any
has been paid. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied
to the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. A Fund will only invest in SMBS that are obligations
backed by the full faith and credit of the U.S. Government. SMBS are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of mortgage assets. A Fund will only
invest in SMBS whose mortgage assets are U.S. Government Obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the Mortgage Assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of
the underlying mortgage instruments. The average life is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities as the result of mortgage prepayments, mortgage refinancings, or
foreclosures. The rate of mortgage prepayments, and hence the average life of
the certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined
by the Adviser and used for the purpose of determining the average
dollar-weighted maturity and duration of the Funds. For additional information
concerning mortgage backed securities, see the SAI.
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The mortgage-backed securities in which the Funds invest are subject to
extension risk. This is the risk that when interest rates rise, prepayments of
the underlying obligations slow thereby lengthening duration and potentially
reducing the value of these securities. The debt securities held by the Funds
also may be subject to credit risk. Credit risk is the risk that the issuers of
securities in which a Fund invests may default in the payment of principal
and/or interest. Any such defaults or adverse changes in an issuer's financial
condition or credit rating may adversely affect the value of the Funds'
portfolio investments and, hence, the value of your investment in the
corresponding Fund.
Non-Mortgage Asset-Backed Securities: Non-mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations unique to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties.
Due to the larger number of vehicles involved, however, the certificate of
title to each vehicle financed, pursuant to the obligations underlying the
asset-backed securities, usually is not amended to reflect the assignment of
the seller's security interest for the benefit of the holders of the
asset-backed securities. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on those securities. In addition, various state and Federal laws give the motor
vehicle owner the right to assert against the holder of the owner's obligation
certain defenses such owner would have against the seller of the motor vehicle.
The assertion of such defenses could reduce payments on the related asset-backed
securities. Insofar as credit card receivables are concerned, credit card
holders are entitled to the protection of a number of state and Federal
consumer credit laws, many of which give such holders the right to set off
certain amounts against balances owed on the credit card, thereby reducing the
amounts paid on such receivables. In addition, unlike most other asset-backed
securities, credit card receivables are unsecured obligations of the card
holder.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at
the time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic
banks ("Eurodollar" obligations) and domestic branches of foreign banks
("Yankee dollar" obligations), and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
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because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign issuers may differ from those applicable to
domestic issuers. In addition, foreign banks are not subject to examination by
U.S. Government agencies or instrumentalities.
Borrowings: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements with BONY, the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells
a portfolio security to another party, such as a bank or broker/dealer, in
return for cash, and agrees to buy the security back at a future date and
price. Reverse repurchase agreements may be used to provide cash to satisfy
unusually heavy redemption requests without having to sell portfolio
securities, or for other temporary or emergency purposes. Generally, the effect
of such a transaction is that the Funds can recover all or most of the cash
invested in the portfolio securities involved during the term of the reverse
repurchase agreement, while they will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
a Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Funds are required to maintain an asset coverage (including
the proceeds of the borrowings) of at least 300% of all borrowings. Depending
on market conditions, the Fund's asset coverage and other factors at the time
of a reverse repurchase, the Funds may not establish a segregated account when
the Adviser believes it is not in the best interests of the Funds to do so. In
this case, such reverse repurchase agreements will be considered borrowings
subject to the asset coverage described above.
Dollar roll transactions may be considered to be borrowings. Dollar roll
transactions consist of the sale by a Fund of mortgage-backed or other asset-
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backed securities, together with a commitment to purchase similar, but not
identical, securities at a future date, at the same price. In addition, a Fund
is paid a fee as consideration for entering into the commitment to purchase. If
the broker/dealer to whom a Fund sells the security becomes insolvent, the
Fund's right to purchase or repurchase the security may be restricted; the
value of the security may change adversely over the term of the dollar roll;
the security that the Fund is required to repurchase may be worth less than the
security that the Fund originally held, and the return earned by the Fund with
the proceeds of a dollar roll may not exceed transaction costs.
Commercial Instruments: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
Convertible Securities, Preferred Stock, and Warrants: Each Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
Fixed Income Investing: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
Foreign Currency Transactions: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the U.S. dollar. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract is an obligation by a Fund to purchase or sell a specific currency at
a future date, which may be any fixed number of days from the date of the
contract.
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the
prices of a Fund's portfolio securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the
investment program of the Fund and the flexibility of the Fund to purchase
additional securities. Although for-
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ward 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.
In addition, the Euro will become the single currency in at least 11 European
nations used in many financial transactions. Accordingly, the German mark,
French franc and other national currencies will no longer be used. Although the
impact of implementing the Euro is not possible to predict, the transition
could have an effect on the financial markets and economic environment in
Europe and other parts of the world. For example, investors may begin to view
those countries participating in the Economic Monetary Union as a single
combined entity and may alter their investment behavior accordingly. In
response to any such effect of the Euro implementation, the Adviser may need to
adapt its investment policies and strategy.
Foreign Securities: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition
of withholding taxes on income (including interest, distributions and
disposition proceeds), possible seizure or nationalization of foreign deposits,
the possible establishment of exchange controls, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. In addition, foreign issuers in
general may be subject to different accounting, auditing, reporting, and record
keeping standards than those applicable to domestic companies, and securities
of foreign issuers may be less liquid and their prices more volatile than those
of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and
in most foreign markets volume and liquidity are less than in the United
States. Fixed commissions on foreign securities exchanges are generally higher
than the negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign securities exchanges, brokers,
and companies than in the United States. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, or diplomatic developments
that could affect investments within those countries. Because of these and
other factors, securities of foreign companies acquired by a Fund may be
subject to greater fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered
form, are designed for use in the U.S. securities markets. GDRs are designed
for use in both the U.S. and European securities markets. EDRs, in bearer form,
are designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs
also involve certain risks of other investments in foreign securities.
Futures, Options and Other Derivative Instruments: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or
foreign government, equity or fixed income securities ("futures
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contracts"), options on futures contracts, forward contracts and swaps and
swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of
futures, options and forward contracts and movements in the prices of the
securities or currencies being hedged; the possible absence of a liquid
secondary market for any particular instrument at any time; and the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences. A Fund may not purchase put and call options which are traded on
a national stock exchange in an amount exceeding 5% of its net assets. Further
information on the use of futures, options and other derivative instruments,
and the associated risks, is contained in the SAI.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% (10% with respect to Nations International Value Fund) of the value of
their respective net assets in securities that are illiquid. Repurchase
agreements, time deposits and guaranteed investment contracts that do not
provide for payment to a Fund within seven days after notice, and illiquid
restricted securities, are subject to the limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of
Directors/Trustees or the Adviser, acting under guidelines approved and
monitored by the Fund's Board of Directors/Trustees, after considering trading
activity, availability of reliable price information and other relevant
information, that an adequate trading market exists for that security. To the
extent that, for a period of time, qualified institutional or other buyers
cease purchasing such restricted securities pursuant to Rule 144A or otherwise,
the level of illiquidity of a Fund holding such securities may increase during
such period.
Indexed/Structured Securities: Indexed/ structured securities are typically
short- to intermediate-term debt securities whose value at maturity or interest
rate is linked to currencies, interest rates, equity securities, indices,
commodity prices or other financial indicators. Such securities may be
positively or negatively indexed (i.e., their value may increase or decrease if
the reference index or instrument appreciates). Indexed/ structured securities
may have return characteristics similar to direct investments in the underlying
instruments and may be more volatile than the underlying instruments. A Fund
bears the market risk of an investment in the underlying instruments, as well as
the credit risk of the issuer.
Interest Rate Transactions: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
A Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent a specified index is below a predetermined interest rate, to receive
payments of interest on a notional principal amount from
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the party selling such interest rate floor. The Adviser expects to enter into
these transactions on behalf of a Fund primarily to preserve a return or spread
on a particular investment or portion of its portfolio or to protect against
any increase in the price of securities the Fund anticipated purchasing at a
later date rather than for speculative purposes. A Fund will not sell interest
rate caps or floors that it does not own.
Lower-Rated Debt Securities: Nations Equity Income Fund may invest in
lower-rated debt securities. Lower-rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of
principal and interest. Lower-quality bonds involve greater risk of default or
price changes due to changes in the issuer's creditworthiness than securities
assigned a higher quality rating. These securities are considered to have
speculative characteristics and indicate an aggressive approach to income
investing.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Boards of Directors/Trustees of the Funds, including the use of
outside pricing services. Adverse publicity and changing investor perceptions
may affect the ability of outside pricing services used by the Fund to value
its portfolio securities, and the Fund's ability to dispose of these
lower-rated bonds.
Money Market Instruments: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
Obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
Municipal Securities: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by a Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by
a Fund will be determined by the Adviser to be of comparable quality at the
time of purchase to instruments rated "high quality" by any major rating
service. Where necessary to ensure that an instrument is of comparable "high
quality," a Fund will require that an issuer's obligation to pay the principal
of the note may be backed by an unconditional bank letter or line of credit,
guarantee, or commitment to lend.
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Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases,"
and units of participation in trusts holding pools of tax-exempt leases. Such
loans in most cases are not backed by the taxing authority of the issuers and
may have limited marketability or may be marketable only by virtue of a
provision requiring repayment following demand by the lender. Such loans made
by a Fund may have a demand provision permitting the Fund to require payment
within seven days. Participations in such loans, however, may not have such a
demand provision and may not be otherwise marketable. To the extent these
securities are illiquid, they will be subject to each Fund's limitation on
investments in illiquid securities. As it deems appropriate, the Adviser will
establish procedures to monitor the credit standing of each such municipal
borrower, including its ability to meet contractual payment obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying
municipal security. To the extent that municipal participation interests are
considered to be "illiquid securities," such instruments are subject to each
Fund's limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified municipal securities at a specified price. A Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity and do
not intend to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, a Fund
may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent
that more than 25% of a Fund's total assets are invested in municipal
securities that are payable from the revenues of similar projects, a Fund will
be subject to the peculiar risks presented by such projects to a greater extent
than it would be if its assets were not so concentrated.
Other Investment Companies: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with
the Fund's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations. Pursuant to an exemptive order, the Nations Funds' non-money
market funds may purchase shares of Nations Funds' money market funds.
Passive Foreign Investment Companies: Passive foreign investment companies
("PFICs") are any foreign corporations which generate certain amounts of
passive income or hold certain amounts of assets for the production of passive
income. Passive income includes dividends, interest, royal ties, rents and
annuities. Income tax regulations may require the Fund to recognize income
associated with the PFIC prior to the actual receipt of any such income.
Pay-in-Kind Bonds: Pay-in-kind bonds are debt securities that normally give the
issuer an option to pay cash at a coupon payment date or give the holder of the
security a similar bond with the same coupon rate and a face value equal to the
amount of the coupon payment that would have been made.
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
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REITs are dependent upon management skill and may not be diversified. REITs
also may be subject to heavy cash flow dependency, defaults by borrowers,
self-liquidation, and the possibility of failing to qualify for tax-free
pass-through of income under the Code.
Repurchase Agreements: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can
be liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
Securities Lending: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or
in recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 33% of the
value of its total assets, which may include cash collateral received for
securities loans. Cash collateral received by a Nations Fund may be invested in
a Nations Funds' money market fund.
Step Coupon Bonds: Step coupon bonds are debt securities that trade at a
discount from their face value and pay coupon interest. The discount from the
face value depends on the time remaining until cash payments begin, prevailing
interest rates, liquidity of the security and the perceived credit quality of
the issuer.
Stock Index, Interest Rate and Currency Futures Contracts: Each Fund may
purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the
purpose of hedging against changes in values of a Fund's securities or changes
in the prevailing levels of interest rates or currency exchange rates. The
contracts entail certain risks, including but not limited to the following: no
assurance that futures contracts transactions can be offset at favorable
prices; possible reduction of a Fund's total return due to the use of hedging;
possible lack of liquidity due to daily limits on price fluctuation; imperfect
correlation between the contracts and the securities or currencies being
hedged; and potential losses in excess of the amount invested in the futures
contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike
trading on domestic commodity exchanges, trading on foreign commodity exchanges
is not regulated by the CFTC and may be subject to greater risks than trading
on domestic exchanges. For example, some foreign exchanges are principal
markets for which no common clearing facility exists and a trader may look only
to the broker for performance of the contract. In addition, unless a Fund
hedges against fluctuations in the exchange rate between the U.S. dollar and
the currencies in which trading is done on foreign exchanges, any profits that
such Fund might realize could be eliminated by adverse changes in the exchange
rate, or the Fund could incur losses as a result of those changes.
U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any
of its agencies, authorities or instrumentalities. Direct obligations are
issued by the U.S. Treasury and include all U.S. Treasury instruments. U.S.
Treasury Obligations differ only in their interest rates, maturities and time
of issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some
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are backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the GNMA; some are supported by the right of the
issuer to borrow from the U.S. Government, such as obligations of Federal Home
Loan Banks, and some are backed only by the credit of the issuer itself, such
as obligations of the FNMA. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
When-Issued, Delayed Delivery and Forward Commitment Securities: The purchase
of new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Zero Coupon Bonds: Zero coupon bonds are debt securities that do not pay
interest at regular intervals, but are issued at a discount from face value.
The discount approximates the total amount of interest the security will accrue
from the date of issuance to maturity. The market value of these securities
generally fluctuates more in response to changes in interest rates than
interest-paying securities of comparable maturity.
Appendix B -- Description of Ratings
The following summarizes the highest eight 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.
CCC, CC -- An obligation rated CCC is vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial com-
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mitment on the obligation. In the event of adverse conditions, the
obligor isnot likely to have the capacity to meet its financial
commitments on the obligation; an obligation rated CC is highly
vulnerable to nonpayment.
To provide more detailed indications of credit quality, the AA, A, BBB and CCC
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 eight ratings used by Moody's for
corporate and municipal bonds. The first four ratings denote investment grade
securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa, Ca -- Bonds that are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest. Bonds that are rated Ca represent
obligations that are speculative in a high degree. Such issues are often
in default or have other marked shortcomings.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate
bonds rated Aa through B. The modifier 1 indicates that the bond being rated
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category. With regard to municipal
bonds, those bonds in the Aa, A and Baa groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1, A1 or
Baa1, respectively.
The following summarizes the highest four ratings used by D&P for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is
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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 IBCA ("Fitch")
for bonds, each of which denotes that the securities are investment grade:
AAA -- "AAA" ratings denote the lowest expectation of credit risk. They
are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA -- "AA" ratings denote a very low expectation of credit risk. They
indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to
foreseeable events.
A -- "A" ratings denote a low expectation of credit risk. The capacity
for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher
ratings.
BBB -- "BBB" ratings indicate that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments
is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows,
superior liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in
the preceding group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The 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.
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The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1. Commercial paper rated A-3
exhibits adequate protection parameters. However, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation. Commercial paper
rated A-3 or B correlates with the S&P Bond rankings (described above) of BBB/
BBB- and BB+, respectively.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of senior short-term obligations. This
will normally be evidenced by many of the characteristics of issuers rated
Prime-1, but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained. Issuers rated Prime-3 have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the
rated instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are,
however, more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-
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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.
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