Prospectus
Marsico Shares
January 19, 1999
This Prospectus describes NATIONS PRIME FUND (the "Fund") of Nations Fund,
Inc., an open-end management investment company in the Nations Funds Family
("Nations Funds" or "Nations Funds Family"). This Prospectus describes one
class of shares of the Fund -- Marsico Shares. The Marsico Shares are available
only to investors and prospective investors of the portfolios of The Marsico
Investment Fund (currently consisting of Marsico Focus Fund and Marsico Growth
& Income Fund) (hereinafter, the "Marsico Funds").
THE FUND SEEKS TO MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Fund that a
prospective purchaser of Marsico Shares should consider before investing.
Investors should read this Prospectus and retain it for future reference.
Additional information about Nations Fund, Inc. is contained in a separate
Statement of Additional Information (the "SAI"), that has been filed with the
Securities and Exchange Commission (the "SEC") and is available upon request
without charge by writing or calling Nations Funds at its address or telephone
number shown below. The SAI for Nations 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. ALTHOUGH THE CLASS OF SHARES
DESCRIBED IN THIS PROSPECTUS IS CALLED MARSICO SHARES, MARSICO CAPITAL
MANAGEMENT, LLC IS NOT THE INVESTMENT ADVISER OR INVESTMENT SUB-ADVISER TO
THESE SHARES. NationsBanc Advisors, Inc. ("NBAI") is the investment adviser and
TradeStreet Investment Associates, Inc. ("TradeStreet") is the investment sub-
adviser to all classes of shares of the Fund. As used herein the term "Adviser"
shall mean NBAI and/or TradeStreet as the context may require, see "How The
Fund Is 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 ("BANK OF AMERICA") 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 FUND INVOLVES CERTAIN RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO NATIONS FUNDS,
FOR WHICH THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Nations Prime Fund
For Fund information call your Servicing Agent at:
1-888-860-8686
Nations Funds
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(NATIONS FUNDS logo appears here)
MARSICO-1/99
<PAGE>
Table Of Contents
Prospectus Summary 3
About The ---------------------------------------------------
Fund Expenses Summary 4
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Objective 5
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How The Objective Is Pursued 5
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How Performance Is Shown 7
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How the Fund Is Managed 8
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Organization And History 11
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How To Buy Shares 12
About Your
Investment How To Redeem Shares 14
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How To Exchange Shares 15
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Shareholder Servicing Plan 16
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How The Fund Values Its Shares 17
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How Dividends And Distributions Are Made;
Tax Information 17
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Appendix A -- Portfolio Securities 19
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Appendix B -- Description Of Ratings 23
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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 FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
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About The Fund
Prospectus Summary
o TYPE OF COMPANY: Open-end management investment company.
o INVESTMENT OBJECTIVE AND POLICIES:
o Nations Prime Fund's investment objective is to seek the maximization of
current income to the extent consistent with the preservation of capital
and the maintenance of liquidity.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. 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 the Fund. For more information about
the investment adviser and investment sub-adviser to the Nations Funds,
see "How The Fund Is Managed."
o DIVIDENDS AND DISTRIBUTIONS: The Fund declares dividends daily and pays them
monthly. The Fund's net realized capital gains, including net short-term
capital gains, are distributed at least annually.
o RISK FACTORS: Although NBAI, together with the sub-adviser, seek to achieve
the investment objective of the Fund, there is no assurance that they will
be able to do so. Investments in the Fund are not insured against loss of
principal. Although the Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so. For
a discussion of these and other factors, see "How The Objective Is Pursued
-- Restraints on Investments by the Fund" and "Appendix A."
o MINIMUM PURCHASE: The minimum initial investment in Marisco Shares is $1,000
per record holder except that the minimum initial investment is: $500 for
Individual Retirement Plan ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating 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."
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Expenses Summary
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize shareholder transaction and operating expenses for
Marsico Shares of the Fund. The Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
NATIONS FUNDS MARSICO SHARES
<TABLE>
<CAPTION>
Nations
Prime
Shareholder Transaction Expenses Fund
<S> <C>
Sales Load Imposed on Purchases None
- -----------------------------------------------------------------------------------
Deferred Sales Charge None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .16%
- -----------------------------------------------------------------------------------
Other Expenses (After Expense Reimbursements) .14%
- -----------------------------------------------------------------------------------
Shareholder Servicing Fees .25%
- -----------------------------------------------------------------------------------
Total Operating Expenses (Absent Fee Waivers and Expense Reimbursements) .55%
</TABLE>
Example:
You would pay the following expenses on a $1,000 investment in Marsico Shares
of the Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations
Prime
Fund
<S> <C>
1 Year $ 6
- -----------------------
3 Years $18
- -----------------------
5 Years $31
- -----------------------
10 Years $69
</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
Marsico Shares will bear either directly or indirectly. The "Other Expenses"
figure contained in the above table is based on estimates. There is no
assurance that any fee waivers and/or reimbursements will continue. In
particular, to the extent Other Expenses are less than 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 reimbursements are decreased or discontinued,
the amounts contained in the "Example" above may increase. For more complete
descriptions of the Fund's operating expenses, see "How The Fund Is Managed."
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Absent fee waivers and expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" would have been .20%, .15% and .60%,
respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST
OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Objective
The Fund endeavors to achieve its investment objective by investing in a
diversified portfolio of high quality money market instruments with remaining
maturities of 397 days or less from the date of purchase. Securities subject to
repurchase agreements may have longer maturities.
Nations Prime Fund: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation
of capital and the maintenance of liquidity.
Although the Adviser seeks to achieve the investment objective of the Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in the Fund are not insured against loss of principal.
How The Objective Is Pursued
Nations Prime Fund: In pursuing its investment objective, the Fund may invest
in U.S. Treasury bills, notes and bonds and other instruments issued directly
by the U.S. Government ("U.S. Treasury Obligations") and other obligations
issued or guaranteed as to payment of principal and interest by the U.S.
Government, its agencies or instrumentalities (together, with U.S. Treasury
Obligations, "U.S. Government Obligations"), bank and commercial instruments
that may be available in the money markets, high quality short-term taxable
obligations issued by state and local governments, their agencies and
instrumentalities and repurchase agreements relating to U.S. Government
Obligations and qualified first tier (as defined below) money market
collateral. The Fund also may purchase securities issued by other investment
companies, consistent with the Fund's investment objective and policies, and
may engage in reverse repurchase agreements. The Fund also may invest in
guaranteed investment contracts and instruments issued by certain trusts,
partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers. In addition, the Fund may
lend its portfolio securities to qualified institutional investors. Although
the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in
first tier securities (as defined below). For more information con-
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cerning these instruments, see "Appendix A."
Restraints on Investments by The Fund: In order for the Fund to value its
investments on the basis of amortized cost (see "How The Fund Values Its
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the 1940 Act, some of which are described below. The Fund is limited to
acquiring obligations with a remaining maturity of 397 days or less, or
obligations with greater maturities, provided such obligations are subject to
demand features or resets which are less than 397 days, and to maintaining a
dollar-weighted average portfolio maturity of 90 days or less. Quality
requirements generally limit investments to U.S. dollar denominated instruments
determined to present minimal credit risks and that, at the time of
acquisition, are rated in the first or second rating categories (known as
"first tier" and "second tier" securities, respectively) by the required number
of NRSROs (at least two or, if only one NRSRO has rated the security, that one
NRSRO) or, if unrated by any NRSRO, are (i) comparable in priority and security
to a class of short-term securities of the same issuer that has the required
rating, or (ii) determined to be comparable in quality to securities having the
required rating. The diversification requirements provide generally that the
Fund may not at the time of acquisition invest more than 5% of its assets in
securities of any one issuer except that up to 25% of total assets may be
invested in the first tier securities of a single issuer for three business
days. Additionally, no more than 5% of total assets may be invested, at the
time of acquisition, in second tier securities in the aggregate, and any
investment in second tier securities of one issuer is limited to the greater of
1% of total assets or one million dollars. Securities issued by the U.S.
Government, its agencies, authorities or instrumentalities are exempt from the
quality requirements, other than minimal credit risk. In the event that the
Fund's investment restrictions or permissible investments are more restrictive
than the requirements of Rule 2a-7, the Fund's own restrictions will govern.
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 Fund's operations. The Fund's principal service providers have
advised the Fund 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 Fund invests 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, the Fund's return
could be adversely affected.
Investment Limitations: The Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
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<PAGE>
The Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments in obligations of domestic banks.
2. Make loans, except that the Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or are privately
placed), may enter into repurchase agreements and may lend portfolio securities
in accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, except that up to
25% of the value of the Fund's total assets may be invested without regard to
these limitations and with respect to 75% of the Fund's assets, the Fund will
not hold more than 10% of the voting securities of any issuer.
The investment objective and policies of the Fund, unless otherwise specified,
are non-fundamental and may be changed without shareholder approval. If the
investment objective or policies of the Fund change, shareholders should
consider whether the Fund remains an appropriate investment in light of their
current positions and needs.
How Performance Is Shown
From time to time, the Fund may advertise the "yield" and "effective yield" of
a class of shares. YIELD AND EFFECTIVE YIELD FIGURES ARE BASED ON HISTORICAL
DATA AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares of the Fund refers to the income generated by
an investment in such class over a seven-day period identified in the
advertisement. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares of the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio 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 Fund with bank
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<PAGE>
deposits, savings accounts and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
Any fees charged by selling and/or servicing agents to their customers'
accounts for automatic investment or other cash management services will not be
included in calculations of yield.
In addition to Marsico Shares, the Fund offers Primary A, Primary B, Investor
A, Investor B, Investor C and Daily Shares. Each class of shares may bear
different sales charges, shareholder servicing fees and other expenses, which
may cause the performance of a class to differ from the performance of the
other classes. Performance quotations will be computed separately for each
class of the Fund's shares. The Fund's annual report contains additional
performance information and is available upon request without charge from the
Fund's distributor or the Servicing Agent (defined below). To obtain additional
information regarding the Fund's other classes of shares which may be available
to you or to obtain the Fund's annual report, call Nations Funds at the
toll-free number indicated on the cover of this Prospectus.
How The Fund Is Managed
The business and affairs of Nations Fund, Inc. are managed under the direction
of its Board of Directors. The SAI contains the names of and general background
information concerning each Director of Nations Fund, Inc.
As described below, the Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of the Fund.
The 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
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 Fund. 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 the Fund. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to
individuals, corporations and institutions.
Subject to the general supervision of Nations Fund, Inc.'s Board of Directors,
and in accordance with the Fund's
8
<PAGE>
investment policies, the Adviser formulates guidelines and lists of approved
investments for the Fund, makes decisions with respect to and places orders for
the Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. From time to time, to the extent
consistent with its investment objective, policies and restrictions, the Fund
may invest in securities of companies with which NationsBank has a lending
relationship.
For the services provided and expenses assumed pursuant to an investment
advisory agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: .25% of the first $250 million of the
average daily net assets of the Fund, plus .20% of the combined average daily
net assets of the Fund in excess of $250 million.
For the services provided pursuant to an investment sub-advisory agreement,
NBAI will pay TradeStreet sub-advisory fees, computed daily and paid monthly,
at the annual rate of .055% of the average daily net assets of the Fund.
From time to time, NBAI (and/or TradeStreet or the co-administrators of the
Fund) may voluntarily waive or reimburse advisory fees and/or expenses payable
by the Fund. NBAI, TradeStreet and the co-administrators each reserve the
right, in its sole discretion, to terminate any voluntary fee waivers and/or
expense reimbursements at any time. In addition, the Adviser may from time to
time compensate banks, broker/dealers and other financial institutions that
have entered into a shareholder servicing agreement with the Fund, for
providing certain services to customers.
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 rate of .18% of the Fund's average daily net assets.
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 rate of .055% of the Fund's average daily net assets.
The Taxable Money Market Management Team of TradeStreet is responsible for the
day-to-day management of Nations Prime Fund.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the investment advisory
agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
9
<PAGE>
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as co-administrator of
the Fund. NBAI serves as co-administrator of the Fund with Stephens. Under the
co-administration arrangements, Stephens and NBAI provide various
administrative, accounting and corporate secretarial services to the Fund.
Stephens and NBAI shall be entitled to receive a combined fee at the annual
rate of .10% of the Fund's average daily net assets, as well as certain
out-of-pocket expenses.
The Bank of New York ("BNY"), located at 90 Washington Street, New York, New
York 10286, serves as sub-administrator for the Fund. Under the
sub-administration arrangements, BNY assists NBAI and Stephens in performing
certain administrative and accounting services.
For the fiscal period from April 1, 1996 to March 31, 1997, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the rate of .08% of
the Fund's average daily net assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer. Nations Funds
has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Fund. Stephens may
pay service fees or commissions to selling agents that assist customers in
purchasing Marsico Shares of the Fund. See "Shareholder Servicing Plan."
BNY (the "Custodian") also provides custodial services for the assets of the
Fund. In return for providing custodial services to the Nations Funds Family,
BNY 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 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 transfer agent (the "Transfer
Agent") for the Fund's shares.
PricewaterhouseCoopers LLP serves as independent accountant to Nations Funds.
Their address is 160 Federal Street, Boston, Massachusetts 02110.
Expenses: The accrued expenses of the Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and First Data; taxes;
interest; fees (including fees paid to Nations Funds' Directors and officers);
federal and state securities registration and qualification fees; brokerage
fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodian and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings;
other expenses which are not expressly assumed by the Adviser, Stephens or
First Data under their respective agreements with Nations Funds; and any
extraordinary expenses. Any general expenses of Nations Fund, Inc. that are not
readily identifiable as belonging to a particu-
10
<PAGE>
lar investment portfolio are allocated among all portfolios in the proportion
that the assets of a portfolio bears to the assets of Nations Fund, Inc. or in
such other manner as the Board of Directors deems appropriate.
Organization And History
The Fund is member of the Nations Funds Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations Institutional
Reserves, 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, 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 480,000,000,000 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 Marsico Shares of Nations Prime Fund of Nations Fund, Inc. To obtain
additional information regarding 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 January 19, 1999, NationsBank, Bank of America and their 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 affili-
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ates 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, except when required by the 1940 Act or Maryland law.
About Your Investment
How To Buy Shares
The Marsico Shares are available only to investors and prospective investors of
the Marsico Funds. Shares are available only through Sunstone Financial Group,
Inc., the transfer agent of the Marsico Funds (the "Servicing Agent"), in
accordance with procedures and particular account requirements which may be
different than those discussed below. Questions about those procedures, account
requirements and your account should be directed to the Servicing Agent at
1-888-860-8686. The following procedures are applicable only to purchases by
the Servicing Agent.
There is a minimum initial investment of $1,000 in the Fund, except that the
minimum initial investment is:
o $500 for IRA investors;
o $250 for non-working spousal IRAs; and
o $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified
employee pension plans ("SAR-SEPs"), Savings Incentives Method Plans for
Employees ("SIMPLE IRAs"), salary reduction-Individual Retirement Accounts
("SAR-IRAs") or similar types of accounts. However, the assets of such plans
must reach an asset value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs, and
SAR-IRAs) within one year of the account open date. If the assets of such plans
do not reach the minimum asset size within one year, Nations Funds reserves the
right to redeem the shares held by such plans on 60 days' written notice. The
minimum subsequent investment is $100, except for investments pursuant to the
Systematic Investment Plan described below.
Shares acquired through an exchange of shares of the Marsico Funds must have a
current value of at least $1,000. No sales load or exchange fee is imposed upon
the purchase of Marsico Shares of the Fund through an exchange. Purchases may
be effected only on days on which the Federal Reserve Bank of New York is open
for business (a "Business Day").
The Servicing Agent provides various shareholder services for its customers
("Customers") who own Marsico Shares. From time to time the Servicing Agent,
Stephens, and Nations Funds may agree to voluntarily reduce the fees payable
for shareholder services. See "Shareholder Servicing Plan."
Nations Funds and Stephens reserve the right to reject any purchase order. The
issuance of Marsico Shares is recorded on the books of the Fund, and share
certificates are not issued.
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Effective Time of Purchases: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or the Transfer Agent. A purchase order must be received by
Stephens or the Transfer Agent by 3:00 p.m., Eastern time. A purchase order
received after such time will not be accepted; notice thereof will be given to
the Servicing Agent or investor placing the order, and any funds received will
be returned promptly to the Servicing Agent or investor. If federal funds are
not available by 4:00 p.m., Eastern time, the order will be canceled. Marsico
Shares are purchased at the net asset value per share next determined after
receipt of the order by Stephens or the Transfer Agent.
The Servicing Agent is responsible for transmitting orders for purchases by its
Customers and delivering required funds on a timely basis. Stephens is
responsible for transmitting orders it receives to Nations Funds.
Systematic Investment Plan: Under the Fund's Systematic Investment Plan ("SIP"),
a shareholder may automatically purchase Marsico Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her account. Transfers will occur
on or about the 15th and/or the last day of the applicable month. Subject to
certain exceptions, the systematic investment amount may be in any amount from
$50 to $100,000. For more information concerning the SIP, contact the Servicing
Agent.
Telephone Transactions: An investor may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear
the risk of any resulting losses from a telephone transaction. The Servicing
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and if the Servicing Agent and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. The Servicing Agent
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, the Servicing Agent reserves the
right to record all telephone conversations. Shareholders should be aware that
during periods of significant economic or market change, telephone transactions
may be difficult to complete.
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How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing to the
Servicing Agent. Redemption orders are effected at the net asset value per
share next determined after receipt of the order by Stephens or the Transfer
Agent, as the case may be. The Servicing Agent is responsible for transmitting
redemption orders to Stephens or the Transfer Agent and for crediting its
Customers' accounts with the redemption proceeds on a timely basis. No charge
for wiring redemption payments is imposed by Nations Funds.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time and payment will normally be wired the same day to the Servicing Agent.
Nations Funds reserves the right to wire redemption proceeds within three
Business Days after receiving the redemption order if, in the judgment of the
Adviser, an earlier payment could adversely impact the Fund. However,
redemption proceeds for shares purchased by check may not be remitted until at
least 15 days after the date of purchase to ensure that the check has cleared;
a certified check, however, is deemed to be cleared immediately. Redemption
orders will not be accepted by Stephens or the Transfer Agent after 3:00 p.m.,
Eastern time for execution on that Business Day.
Nations Funds may redeem a shareholder's Marsico Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of
redemptions, and the shareholder does not increase the balanced to at least
$500 on 60 days' written notice. Share balances also may be redeemed at the
direction of the Servicing Agent pursuant to arrangements between the Servicing
Agent and its Customers. Nations Funds also may redeem shares involuntarily or
make payment for redemption in readily marketable securities or other property
under certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Marsico 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 previously have been made.
Nations Funds may require any additional information reasonably necessary to
evidence that a redemption has been duly authorized.
Automatic Withdrawal Plan: An Automatic Withdrawal Plan ("AWP") may be
established by a shareholder of the Fund if the value of the Marsico Shares in
his/her account (valued at the net asset value at the time of the establishment
of the AWP) equals $10,000 or more. Shareholders who elect to establish an AWP
may receive a monthly, quarterly or annual check or automatic transfer to a
checking or savings account in a stated amount of not less than $25 on or about
the 10th or 25th day of the applicable month of withdrawal. Marsico Shares will
be redeemed as necessary to meet withdrawal payments. Withdrawals will reduce
principal and may eventually deplete the shareholder's account. If a
shareholder desires to
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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 the Servicing Agent or by Nations Funds at any time.
How To Exchange Shares
The exchange feature enables a shareholder of the Marsico Funds to exchange
such shares for Marsico Shares of the Fund or enables a shareholder of Marsico
Shares of the Fund to exchange such shares for shares of the Marsico Funds,
when that shareholder believes that a shift between funds is an appropriate
investment decision. An exchange of shares of the Marsico Funds for Marsico
Shares of the Fund or an exchange of Marsico Shares of the Fund for shares of a
Marsico Fund is made on the basis of the next calculated net asset value per
share of each Fund after the exchange order is received.
The Fund or the Marsico 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 the Marsico Funds describes their investment
objectives 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 the 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.
Marsico Shares acquired through an exchange must have a current value of at
least $1,000 (except for exchanges through the Automatic Exchange Feature,
which is described below). Nations Funds and Stephens reserve the right to
reject any exchange request. Only shares that may legally be sold in the state
of the investor's residence may be acquired in an exchange. Only shares of a
class that is accepting investments generally may be acquired in an exchange.
Marsico Shares may be exchanged by directing a request to the Servicing Agent.
During periods of significant economic or market change, telephone exchanges
may be difficult to complete. In such event, shares may be exchanged by mailing
your request to the Servicing Agent. Investors should consult the Servicing
Agent for further information regarding exchanges. Your exchange feature may be
governed by your account agreement with the Servicing Agent.
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Automatic Exchange Feature: Under the Fund's Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a periodic basis. A
shareholder may direct proceeds to be exchanged from a Marsico Fund to Marsico
Shares of the Fund or from Marsico Shares of the Fund to shares of a Marsico
Fund as allowed by the applicable exchange rules within the Prospectus.
Exchanges will occur in accordance with procedures established with the
Servicing Agent. 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 Servicing Agent by telephone or in writing. For additional
information, a shareholder should contact the Servicing Agent at 1-888-860-8686.
Shareholder Servicing Plan
Shareholder Servicing Plan: The Fund's shareholder servicing plan ("Servicing
Plan") permits the Fund to compensate the Servicing Agent for certain
shareholder support services that are provided by the Servicing Agent to its
Customers that own Marsico Shares. Payments under the Servicing Plan will be
calculated daily and paid monthly at a rate set from time to time by the Board
of Directors, provided that the annual rate may not exceed .25% of the average
daily net asset value of the Fund's Marsico Shares. The shareholder services
provided by the Servicing Agent may include general shareholder liaison
services; processing purchase, exchange and redemption requests from Customers
and placing orders with Stephens or the Transfer Agent; processing dividend and
distribution payments from the Fund on behalf of Customers; providing sales
information periodically to Customers, including information showing their
positions in Marsico Shares; providing sub-accounting with respect to Marsico
Shares beneficially owned by Customers or the information necessary for
sub-accounting; responding to inquiries from Customers concerning their
investment in Marsico Shares; arranging for bank wires; and providing such
other similar services as may be reasonably requested.
Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Fund's Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
Nations Funds understands that the Servicing Agent may charge fees to its
Customers who are the owners of Marsico Shares for various services provided in
connection with a Customer's account. These fees would be in addition to any
amounts received by the Servicing Agent under its Shareholder Servicing
Agreement with Nations Funds. The Shareholder Servicing Agreement requires the
Servicing Agent to disclose to its Customers any compensation payable to the
Servicing Agent by Stephens or Nations Funds and any other compensation payable
by the Customers for various services provided in connection with their
accounts. Customers of the Servicing Agent should read this Prospectus in light
of the terms governing their accounts with the Servicing Agent.
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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, pay a bonus or other consideration or incentive
to agents who sell a minimum dollar amount of shares of the Fund during a
specified period of time. Stephens may also, from time to time, pay additional
consideration to agents not to exceed .50% of the offering price per share on
all sales of Marsico Shares to retirement plans as an expense of Stephens or
for which Stephens may be reimbursed. 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 Fund may
earn additional compensation in the form of trips to sales seminars or vacation
destinations, tickets to sporting events, theater or other entertainment,
opportunities to participate in golf or other outings and gift certificates for
meals or merchandise. This non-cash compensation program may be amended or
terminated at any time by Stephens.
How The Fund Values Its Shares
The net asset value of a Marsico Share is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares are valued as of 3:00 p.m., Eastern time each Business Day.
Currently, the days on which the Federal Reserve Bank of New York is closed
(other than weekends) are: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Memorial Day (observed), Independence Day, Labor Day, Columbus
Day, Veterans Day, Thanksgiving Day and Christmas Day.
The assets of the Fund are valued based upon the amortized cost method.
Although Nations Funds seeks to maintain the net asset value per share of the
Fund at $1.00, there can be no assurance that their net asset value per share
will not vary.
How Dividends And Distributions Are Made; Tax Information
Dividends and Distributions: Dividends from net investment income for the Fund
are declared daily at 3:00 p.m., Eastern time on the day of declaration.
Marsico Shares begin earning dividends on the day the purchase order is
executed and continue earning dividends through and including the day before
the redemption order is executed (E.G., the settlement date). Dividends are
paid within five Business Days after the end of each month. Dividends are paid
in the form of additional Marsico Shares of the Fund unless the Customer has
elected prior to the date of distribution to receive payment in cash. Such
election, or any revocation thereof,
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must be made in writing to the Fund's Transfer Agent and will become effective
with respect to dividends paid after its receipt. Your dividend election may be
governed by your account agreement with the Servicing Agent. Dividends are paid
in cash within five Business Days after a shareholder's complete redemption of
his/her Marsico Shares in the Fund. To the extent that there are any net
realized short-term capital gains, they will be paid at least annually.
The Fund's net investment income available for distribution to the holders of
Marsico Shares will be reduced by the amount of shareholder servicing fees paid
to the Servicing Agent. The Fund's net investment income available for
distribution to the holders of Marsico Shares will be reduced by the amount of
retail transfer agency fees allocated to Marsico Shares.
Tax Information: The 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 Fund of liability for Federal income
tax on amounts distributed in accordance with the Code.
The Fund intends to distribute substantially all of its net investment income
(including, for this purpose net short-term capital gains) each taxable year.
Distributions by the Fund will be taxable as ordinary income to shareholders of
such income generally whether such income is received in cash or reinvested in
additional shares. These distributions will not qualify for the dividends
received deduction for corporate shareholders.
The Fund does not expect to realize any long-term capital gains (generally, the
excess of net long-term capital gain over net short-term capital loss), and
therefore, does not expect to distribute any capital gain distributions.
Each year, shareholders will be notified as to the amount and Federal tax
status of all dividends (and capital gains, if applicable) paid during the
prior year. Such dividends (and capital gains) may be subject to state and
local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year.
Federal law requires Nations Funds to withhold 31% from any dividends paid by
Nations Funds and/or redemptions (including exchanges and redemptions in-kind)
that occur in certain shareholder accounts if the shareholder has not properly
furnished a certified correct Taxpayer Identification Number and has not
certified that withholding does not apply, or if the Internal Revenue Service
has notified Nations Funds that the Taxpayer Identification Number listed on a
shareholder account is incorrect according to its records, or that the
shareholder is subject to backup withholding. Amounts withheld are applied to
the shareholder's Federal tax liability, and a refund may be obtained from the
Internal Revenue Service if withholding results in overpayment of taxes.
Federal law also requires the Fund to withhold tax on dividends paid to certain
foreign shareholders.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some
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of the important Federal tax considerations generally affecting the Fund and
their shareholders. It is not intended as a substitute for careful tax
planning; investors should consult their tax advisors with respect to their
specific tax situations as well as with respect to foreign, state and local
taxes. Further tax information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How The Objective Is Pursued" section of this
Prospectus identifies the Fund's permissible investments, and the SAI contains
more information concerning such investments.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
Borrowings: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Fund may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Fund's total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements with BONY, the Fund may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities.
Reverse repurchase agreements may be considered to be borrowings. When the Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, the Fund may use reverse repurchase agreements
for the purpose of investing the proceeds in tri-party repurchase agreements.
Generally, the effect of such a transaction is that the Fund can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while it will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
At the time the Fund enters into a reverse repurchase agreement, it will
establish a segregated account with its custodian bank in which it will
maintain cash, U.S. Government securities ("U.S. Government Securities"), or
other liquid high grade debt obligations equal in value to its obligations in
respect of reverse repurchase agreements. Reverse repurchase agreements involve
the risk that the market value of the securities the Fund
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is obligated to repurchase under the agreement may decline below the repurchase
price. In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, the Fund's use of proceeds
of the agreement may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities. In addition, there is a risk of delay in receiving
collateral or securities or in repurchasing the securities covered by the
reverse repurchase agreement or even of a loss of rights in the collateral or
securities in the event the buyer of the securities under the reverse
repurchase agreement files for bankruptcy or becomes insolvent. The Fund only
enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be creditworthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Fund does not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Fund is required to maintain an asset coverage (including the
proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, the Fund's asset coverage and other factors at the time of a
reverse repurchase, the Fund may not establish a segregated account when the
Adviser believes it is not in the best interests of the Fund to do so. In this
case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
Currently, the Fund has entered into an arrangement whereby it reinvests the
proceeds of a reverse repurchase agreement in a tri-party repurchase agreement
and receives the net interest rate differential.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not hold more
than 10% of the value of its net assets in securities that are illiquid.
Repurchase agreements, time deposits and GICs that do not provide for payment
to the Fund within seven days after notice, and illiquid restricted securities,
are subject to the limitation on illiquid securities.
If otherwise consistent with its investment objective and policies, the Fund
may purchase securities that are not registered under the Securities Act of
1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
are issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by the Fund's Board of
Directors or the Adviser, acting under guidelines approved and monitored by the
Fund's Board, after considering trading activity, availability of reliable
price information and other relevant information, that an adequate trading
market exists for that security. To the extent that, for a period of time,
qualified institutional or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, the level of illiquidity of a
Fund holding such securities may increase during such period.
Interest Rate Transactions: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, the Fund may enter into various
hedging transactions, such as interest rate swaps and the purchase or sale of
interest rate caps and
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floors. Interest rate swaps involve the exchange by the Fund with another party
of their respective commitments to pay or receive interest, E.G., an exchange
of floating-rate payments for fixed-rate payments. The Fund will enter into a
swap transaction on a net basis, I.E. the payment obligations of the Fund and
the counterparty will be netted out with the Fund receiving or paying, as the
case may be, only the net amount of the two payment obligations. The Fund will
segregate, on a daily basis, cash or liquid high quality debt securities with a
value at least equal to the Fund's net obligations, if any, under a swap
agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to 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 the Fund primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in
the price of securities the Fund anticipated purchasing at a later date rather
than for speculative purposes. The Fund will not sell interest rate caps or
floors that it does not own.
Money Market Instruments: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less, or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include,
among other instruments, certain U.S. Treasury Obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements
and municipal securities. Such instruments are described in this Appendix A.
Other Investment Companies: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations. Pursuant to an exemptive order issued by the SEC, the Nations
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 the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can
be liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and
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are subject to the limit stated above. The Fund may enter into joint repurchase
agreements jointly with other investment portfolios of Nations Funds.
Securities Lending: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or
in recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be 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 the 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.
U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Assocation; some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Variable- and Floating-Rate Instruments: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive pay-
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ment of unpaid principal and accrued interest. An instrument with a demand
period exceeding seven days may be considered illiquid if there is no secondary
market for such security.
When-Issued, Delayed Delivery And Forward Commitment Securities: The purchase
of new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities take
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate
and municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Debt rated AA is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in a
small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
To provide more detailed indications of credit quality, the AA and A ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the highest three ratings used by Moody's for
corporate and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade obli-
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gations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate
bonds rated Aa and A. The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category. With regard to municipal bonds, those
bonds in the Aa and A groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to
time because of economic conditions.
A -- Bonds that are rated A have protection factors which are average
but adequate. However, risk factors are more variable and greater in
periods of economic stress.
To provide more detailed indications of credit quality, the AA and A ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated F1+.
A -- Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
To provide more detailed indications of credit quality, the AA and A ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
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MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows,
superior liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in
the preceding group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
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.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics,
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while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
D&P uses the short-term debt ratings described above for commercial paper.
Fitch uses the short-term debt ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the
rated instrument. The following are the three highest investment grade ratings
used by BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited
incremental risk versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1".
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